Measuring Housing Affordability: Looking Beyond the Median

We draw a distinction between the concepts of purchase affordability (whether a household is able to borrow enough funds to purchase a house) and repayment affordability (the burden imposed on a household of repaying the mortgage). We operationalize this distinction in the context of a new methodology for constructing affordability measures that draws on the value-at-risk concept and takes account of the whole distribution of household income and house prices rather than just the median. Empirically we find that the distinction between purchase and repayment affordability can be pronounced. In the Sydney prime mortgage market over the period 1996 to 2006, repayment affordability deteriorated very significantly while purchase affordability remained quite stable. This difference can be attributed to the loosening of credit constraints in the mortgage market which it seems has carried through primarily into higher house prices. We also consider how median house-price-to-income ratio measures of affordability can be extended to take account of the whole distribution of income and house prices. We propose a new quantile based measure which indicates that the housing affordability problem may be systematically worse than suggested by standard median measures.Housing affordability; Affordability at risk; Affordable limit; Mortgage market; Price-to-income ratio

Affordability of Housing: Concepts, Measurement and Evidence

There has recently been widespread public debate and media attention around housing affordability. This paper discusses the concept of affordability as it applies to housing, examines the approaches used to measure affordability, and then documents the aggregate evidence for New Zealand over the last twenty years. We largely use the Household Economic Survey conducted by Statistics New Zealand to obtain our data. We conclude that affordability is difficult to define and that there is no consensus as to the best way to measure it. Using a range of measures, we examine the trends over time. Our data reveals no long-term trend in affordability when considering all measures. Different measures show different movements over time. Affordability has appeared to move in cycles over the last twenty years.housing; affordability; New Zealand

Affordability and the Funding Gap Trends among Low-and Moderate-Income Households, 1995-2005

The period between 1995 and 2005 was a tumultuous one for low- and moderate-income (LMI) households seeking to purchase their first home. A booming housing market, stagnant incomes, and low interest rates taken together have presented both opportunities and challenges for these households. Meanwhile, regional disparities have increased markedly due to the different rates of price appreciation across housing markets. The upshot of these regional disparities is that LMI households can achieve homeownership without significant subsidies in some places, while in other places multiple layers of grants and concessionary financing, in combination with other policy tools, are the only hope for such families to ever achieve homeownership.The severe erosion of housing affordability in many markets has undermined the ability of government and nonprofit organizations to promote homeownership attainment by blunting the effectiveness of their traditional policy approaches. The response to this situation is a two-stage process. First, the nature of affordability challenges must be understood at the market level, and metropolitan-level housing markets must be accurately classified based on the difficulty that low- and moderate-income households face in becoming homeowners in each place. Second, organizations operating in each market must have access to the right tools to help their clients become owners; the approach must be accurately matched to the affordability regime in the market(s) in which they operate.This paper addresses the first issue. It develops a housing market typology based on affordability into which markets can be sorted, and to which homeownership policy approaches can be matched. The paper unfolds in several steps. It begins by deconstructing housing affordability into three elements -- house prices, incomes and mortgage costs -- and reviewing recent changes in each. It then looks at the performance of house price indexes over the past decade, explaining why they tend to show only small affordability declines despite substantial changes in house price. Following this, the paper examines affordability conditions for low- and moderate-income families in 127 housing markets using two measures: the change in affordability-index values and the gap between the maximum mortgage a household can afford and the amount required to purchase a modest home. Based on these results, we develop an affordability-based typology of market types that can be linked to policy interventions designed to promote homeownership attainment in each type of market

Toward defining and measuring the affordability of public utility services

This paper reviews the progress made in the literature toward defining and measuring the affordability of utilities. It highlights the relative merits of alternate affordability metrics; the practical challenges to their operationalization, including the underlying data requirements; and their implications for the design, evaluation, and implementation of appropriate affordability programs.Access to Finance,Economic Theory&Research,Town Water Supply and Sanitation,Public Sector Economics&Finance,Rural Poverty Reduction

Comparative study between Malaysian and Nigerian formal low cost housing policy issues

The current housing policies of Malaysia and Nigeria do not highlight on the af- fordability of formal low cost houses (FLCH). Low income earners do not have sufficient income to buy food and meet basic necessities like clothing, rent, fuel, utilities, transport, communications, medical expenses, education, and on a broader sense, housing. The objectives of this study were (i) to investigate FLCH afforda- bility elements in the current housing policies of Malaysia and Nigeria; (ii) to com- pare the FLCH affordability elements in Malaysia and Nigeria; (iii) to study the re- lationship among the FLCH affordability elements in Malaysia and Nigeria; and (iv) to accomplish a sustainable FLCH affordability policy for the LIGs. The meth- odologies employed include descriptive statistics, Pearson correlation and the t-test. The study found that there are no laws, rules or guidelines regulating the affairs of FLCH. The design does not reflect user need; it did not conform to their culture, family background and size. No provisions for public participation are provided in the policy documents. FLCH are located in the same neighbourhood with medium and high cost houses in Batu Pahat Malaysia and enjoy all facilities, utilities and services there. The situation is not the same in Bauchi town, where FLCH are lo- cated separately at the peripheries outside of the town trekking distances which re- pel beneficiaries because of the awkward location. Residents in Batu Pahat have higher earnings, less number of dependants than those at Bauchi who have higher number of dependants and lower income level. This study recommends that design, location, participation, highlight on affordability and family issues have prominent impact on affordability and hence be incorporated in policy documents. It can therefore be resolve that FLCH in Batu Pahat, are affordable while those in Bauchi are not affordable. Conclusively, these affordability elements should be upheld to ensure sustainable FLCH affordability policy for the low income groups. The physical and socio-economic elements are the catalyst in the housing provision as- pect. These elements can bridge the wide fissure being the basic features, essentials and the fundamentals of a good policy

Investigating affordability problems of utility services - a theoretical study on the ratio measure

Unlike in developing countries, there tends to be no problem of access to water, electricity, and heating for private households in transition countries. However, transition countries have a considerable amount of low-income households, and the problem of affordability of these environmental-related utility services remains urgent. Welfare economics literature suggests to neglect affordability aspects by separating allocative from distributive impacts of pricing. In practice, this separation runs the risk of rendering impossible any sustainability-oriented price reform. An Institutional Economics approach takes competing objectives into account. From this viewpoint it appears to be worth investigating the affordability-concept. Although the affordability-related research has escalated remarkably in recent years, the theoretical contributions are still limited. Hence, we focus on the simple ratio measure often used in practice. We analyze the arguments speaking for the 'potential affordability approach'. But we find that - within that approach - adhering formally to the ratio measure is possible only under conditions that make no sense regarding the concern of the measure. Thus for most cases the ratio measure is misleading. Some considerations on practical use for governance conclude the paper. --Affordability,Transition Countries,Utility Services

A Permanent Problem Requires A Permanent Solution

Although other studies have presented data on the number of federally- and state-subsidized units that are in danger of losing their affordability, there is a lack of recognition and understanding of the magnitude of at-risk, city-subsidized units. Therefore, ANHD set out to determine both the total number of city-subsidized units developed between 1987 and 2007, and establish how many of those units are at-risk of losing their affordability because of expiring regulatory agreements and mortgages. This period covers both Mayor Koch's original Ten-Year Plan that was continued by Mayors Dinkins and Giuliani, and the first four years of the Bloomberg Ten-Year plan.According to our analysis, 294,402 units were created or preserved with city subsidy over this twenty year period. While this is a tremendous accomplishment, 169,561 of these units may be at-risk of losing their affordability between 2017 and 2037 due to either expiring affordability restrictions or physical deterioration. This total does not include units developed under the city's Inclusionary Housing program, which requires permanence and those units under the control of mission-driven not-for-profit owners who are generally committed to maintaining affordability for the life of the building

The Affordability Index: A New Tool for Measuring the True Affordability of a Housing Choice

This brief describes a new information tool developed by the Urban Markets Initiative to quantify, for the first time, the impact of transportation costs on the affordability of housing choices. This brief explains the background, creation, and purpose of this new tool. The first section provides a project overview and a short summary of the method used to create the Affordability Index. The next section highlights the results from testing the index in a seven-county area in and around Minneapolis-St. Paul, MN. To demonstrate the usefulness of this tool at a neighborhood level, the third section projects the effect of transportation and housing choices on three hypothetical low- and moderate-income families in each of four different neighborhoods in the Twin Cities. The brief concludes with suggested policy recommendations and applications of the new tool for various actors in the housing market, and for regulators, planners, and funders in the transportation and land use arenas at all levels of government. The Housing and Transportation Affordability Index is a groundbreaking innovation because it prices the trade-offs that households make between housing and transportation costs and the savings that derive from living in communities that are near shopping, schools, and work, and that boast a transit-rich environment. Built using data sets that are available for every transit-served community in the nation, the tool can be applied in neighborhoods in more than 42 cities in the United States. It provides consumers, policymakers, lenders, and investors with the information needed to make better decisions about which neighborhoods are truly affordable, and illuminate the implications of their policy and investment choices

The Housing Affordability Gap for Extremely Low-Income Renters in 2013

This brief provides information on national trends in housing affordability for ELI renter households, as well as insights into which major counties are making the most and least progress on closing the housing affordability gap. The findings are based on data from the 2000 Census as well as three-year averages from the 2005, 2006, and 2007 and the 2011, 2012, and 2013 1-year American Community Surveys. For the sake of simplicity we refer to data averaged from 2011 -- 13 estimates as 2013.This brief is the first publication on housing affordability to combine detailed county-level data on ELI renter households (those with incomes at or below 30 percent of the area median) and the impact of US Department of Housing and Urban Development (HUD) rental assistance