Housing Affordability refers to housing that is affordable to low-income households. It is determined by using a nationally recognized affordability index. There are different methods for determining housing affordability. This article discusses the limitations of the conventional methods. It also covers the impact of cost burden on affordability. After reading this article, you will be better equipped to make an informed decision about your housing options.
Inequality in housing costs
The cost of housing is one of the most important factors affecting income inequality. However, many factors can also contribute to the increase in income inequality. For example, inequalities in housing costs can be a result of the fact that the top half of the income distribution spends less on housing than the bottom half. This suggests that housing costs are not the most important factor driving income inequality, but rather other economic factors.
Regardless of the causes, rising housing costs and income inequality is contributing to the increasing gap between the rich and the poor in the United States and Canada. Housing costs have been rising the most for the lower tenth of the income distribution, while the richest quarter of households has seen their costs rise the least. And these increases are being exacerbated by a planning system that prevents new homes from being built in the expensive parts of cities.
Impact of cost burden on affordability
The cost burden is a major issue facing millions of renter households across the United States. The costs of housing are disproportionate to the income, and this burden is particularly prevalent among extremely low-income households. These households earn below half of the median income in their area. According to a new report by the National Low Income Housing Coalition (NLIHC), about 10.8 million renter households have extremely low incomes. Nearly half of these households spend more than half of their income on housing. Most of these renter households are senior citizens or persons with disabilities.
As the cost of housing continues to rise, it has become increasingly difficult to find affordable housing. Nearly half of renter households spent more than 30 percent of their income on housing in 2017, meeting the HUD’s definition of cost-burdened households. While this burden has been a long-standing problem for poor renter households, it is becoming increasingly problematic for middle-income households, especially those living in cities with strong job markets.
Methods of calculating affordability
The affordability of housing depends on several factors. One factor is income. In California, the median home price is $404,520, more than twice the national average of $173,200. Affordability is also a function of the type of mortgage used: fixed, adjustable, or a combination of the two.
The conventional measure of housing affordability tends to underestimate the burden of high housing costs. For example, it may underestimate combined housing costs and transportation costs. Also, it may underestimate the number of households that need quality affordable housing.
Limitations of conventional measures of affordability
Conventional measures of housing affordability are not accurate for every location or time period. While some households may be willing to pay up to 30 percent of their income for housing, those households may not have access to affordable units. Some units may be occupied, located in a difficult-to-reach area, or off-limits to certain groups. Some may also have exorbitant relocation costs.
Traditionally, affordability was calculated as the ratio of housing costs to income. This was deemed an appropriate affordability metric. However, it does not measure income inequality. In addition, housing affordability is correlated with economic and social circumstances. Therefore, there must be a logical basis for determining an appropriate ratio.