Rent determinants of sub-divided units in Hong Kong

Abstract

This paper examines the rent determinants of sub-divided units (SDUs) in Hong Kong by hedonic pricing models. The supply of low-cost housing by SDUs is achieved at the expense of tenants’ living quality and tenure security. Tenants have to make trade-offs of living space and housing facilities for lower rent, resulting in overcrowdedness and poor living environment. Some SDUs even lack basic facilities for sanitation and ventilation. As most previous property price studies presumed the presence of these basic facilities, SDUs provide a rare opportunity to examine the effects of their deficiencies on rent. Meanwhile, due to the illegality of the building works, most rental agreements are arranged informally. Relatively higher information and search costs are thus involved. Observable attributes are expected to exert significant impacts on rent as tenants mainly rely on their availabilities when they assess the SDUs. For SDUs with shared sanitation facilities, the inconvenience escalates with the subdivision density, which is expected to cause negative impact on rent. The results confirm the hypotheses that basic and observable housing facilities are important rent determinants and tenants have to pay higher rent to mitigate the inconvenience of shared facilities. This study is a pioneer attempt to give a fuller account of the SDU market landscape, providing empirical evidence about the effects of housing facility trade-offs of this informal rental market. Tenants are expected to make more compromises on housing qualities if the shortage of affordable housing worsens. The findings provide far-reaching implications for future research on housing values and affordable housing design.