In the last couple of decades, research on transportation mode choice, residential location choice, and the linkage between the two has gained popularity worldwide. The adverse effects of increasing use of private vehicles for urban trips as well as the fact that home-based trips account for a large proportion of such trips are the main reasons for this trend. However, in spite of a large body of literature investigating these two decision dimensions, there still remains arguments about determinants of mode choice and residential location choice, and whether transportation mode choice is affected by the preferred mode of transportation or vice versa. The decision to move and the ensuing housing location choice are not only affected by several factors other than the preferred mode of transportation (e.g. other personal traits and preferences, residential tenure, household composition, employment changes, and neighborhood and housing qualities), but also, in turn, affect travel demand. This emphasizes the complexity of urban systems and the need for methodological frameworks which are capable of unlocking this complexity in the best possible way. This paper is a critical literature review that aims to highlight research gaps and methodological challenges in this area and proposes a research framework that accounts for more complex relationships between different sets of variables that could affect residential location and mode choice. If policy solutions are to be effective, it is necessary to understand the multi-dimensional relationship between different sets of variables that could affect the location and travel behavior of residents.