Willingness to pay for better housing in Hong Kong: Theory and evidence (of dwelling space)

The standards of Hong Kong's public housing have been widely criticised and today housing improvement is a major on-going concern. The cost of redeveloping early public housing presses hard on the territory, and the task is complicated by the fact that the households have diverse demands and preferences, amid their dissatisfaction. Although improved housing gives tenants a better living environment, the Hong Kong Housing Authority seems to have been reluctant to raise housing standards because of high costs. One way of recovering these costs is to charge higher rents-that is, to let tenants pay a greater share of the cost of public housing. But how much are households willing to pay for better housing? This paper addresses these problems by investigating the willingness to pay for housing amongst the tenants of existing early housing estates in Hong Kong, given their dissatisfaction with the current standards. First, we present the background of this study. Section two then provides an analytical framework which spells out the notion of willingness to pay in the context of demand for better housing; and specifies the willingness to pay model and its assumptions for demand analysis. Section three presents empirical evidence on satisfaction and willingness to pay for more dwelling space among tenants, and tests the relationship between willingness to pay and independent variables. Finally, the concluding part looks at the supply-side questions: if the tenants are willing to pay more, what is the housing authority's capacity to supply, having regard to the cost of provision? This final section also makes recommendations.