It’s Time to Change How We Measure Affordable Housing

By on June 26, 2017

From CityLab:  I’ve long been dissatisfied with commonly used measures of describing housing affordability. There are lots of reasons to believe that a single, fixed percentage of income standard does a poor job of reflecting whether housing is priced appropriately, and whether households are being asked to spend too much. I’ve explored some of these issues before, but today I want to focus on one key issue: the tradeoff between cheap rents and costly transportation.

In virtually every major urban real estate market, a major determinant of rent and housing prices is accessibility.  If you live in a dense, walkable urban neighborhood, you might manage to live quite comfortably not owning a car, or having just one car for a two-worker family. If you live on the exurban edge, in a low density subdivision, you might need to own multiple cars just to manage the daily chores of school, shopping and play, as well as commuting to work. It turns out that the value of accessibility gets priced in to the walkable, well-located housing; and conversely, rental and for sale housing that’s located at a distance from everything is priced at a discount to the market.

What this means as a practical matter that you can’t judge whether an individual household’s living situation is affordable just by looking at whether they spend less than 30 percent of their income directly on housing. Consider this example: two otherwise identical households. One lives in a suburb, owns two cars, and drives most places. They spend 30 percent of their income on housing and 20 percent of their income on transportation. The second household lives in a city and owns one car. Their house is more expensive than the suburban one, so they spend 40 percent of their income on housing, and just 10 percent on transportation. Is it really accurate to describe the second (city) household as any more “cost-burdened” than its suburban peer?

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