Income elasticity of housing consumption in Hong Kong: a cointegration approach

Abstract

Income elasticity of housing expenditure is of considerable interest particularly to applied researchers in housing economics. However, there is a wide variation in the estimation of income elasticity. Such a variation is attributed to different specifications of estimation. This paper applies techniques developed in the literature of cointegration analysis to re-examine the income elasticity of housing consumption based on a long-run equilibrium model fitted with time-series data. Tests for unit roots are conducted to avoid spurious results in the estimation of the model. The use of the timeseries data generates some attractive properties. The results show that the short-run income elasticity is generally less than unity and the adjustment parameter is about 0.8. These results can be used to estimate the value of income elasticity of public and private housing residents, and of owners and renters separately.