Housing Affordability

Abstract

Housing affordability broadly refers to the cost of housing services and shelter - both for renters and owner occupiers - relative to a given individual’s or household’s disposable income. While there is no universal definition for this term, housing affordability is an easy concept to grasp in general. At the same time, affordability can be hard to pin down in practice, especially in terms of defining the appropriate geographic scope for housing markets, suitable definitions of representative reference individuals and households, and their changing circumstances over time. In its most crude form, housing affordability simply refers to the rent-to-income ratio or house-price-to-income ratio; more sophisticated measures of housing affordability consider (i) how much nonhousing expenditures are limited by how much is left after paying for housing or (ii) in addition to “income affordability”, they distinguish between “purchase affordability” (the ability to borrow funds to purchase a house), “repayment affordability” (the ability to afford housing finance re-payments). Over the last three decades or so, policy makers have increasingly begun to frame discussions of the availability of adequate housing opportunities in terms housing affordability as opposed to the more traditional notion of housing need.

Keywords: housing affordability, quality of life, amenities, local public goods, locational efficiency, cost of living

JEL Classification: R21, R31, R39