Examining informal housing supply through rent gap analysis: An empirical study of sub-divided units in Hong Kong

This study examines informal housing supply factors through rent gap analysis. Gentrification brings displacement implication, especially for households in the lower end of the housing market. Serious affordability problem excludes households from formal housing sector. Informal housing often emerges when formal market cannot fully respond to affordable housing demand. Incentive for property owners to supply lower-cost units by informal means e.g. apartment subdivision for higher rental return is created with the rent gap between informality and formality. It is largely attributed to quasi-rent which is temporary in nature. Meanwhile, renters' housing needs are met by forgoing living space and housing facilities. Informal housing supply leads to displacement of original incumbents and inflow of lower-income class. With assistance of local non-governmental organizations, this study examines informal housing supply determinant based on a case study of sub-divided units (SDUs), which are Hong Kong's key informal housing component. Rent gap size, disinvestment conditions and accessibility of the apartments are found to be key SDU supply factors. The results could be generalized to other cities with serious housing unaffordability and informal housing arrangements. Implications are also drawn from the results for future affordable housing supply and social welfare policy implementation. •The paper studies informal housing which often emerges when formal market can’t fully respond to affordable housing demand.•Incentive for the supply of lower cost informal rental units is created with rent gap between informality and formality.•Meanwhile, renters’ housing needs are met by forgoing living space and housing facilities.•Rent gap size, disinvestment conditions and accessibility of the apartments are key sub-divided unit supply factors.•Implications are also drawn for social welfare policy implementation and future affordable housing supply.