Measuring housing affordability: Looking beyond the median

Abstract

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.(JEL. C43, E25, E64, R31)

Comparative analysis of MCDM methods for the assessment of sustainable housing affordability

“…Accordingly, it may not only be the cost of housing that needs to be addressed in order to improve housing affordability; access to amenities, facilities and the energy efficiency of housing may need to be improved to create successful and sustainable living environments [5,6];. However, traditional measures of affordability are one dimensional and continue to focus solely on economic criteria as the basis of assessment [7][8][9][10].…”

“…McCord et al [27] elucidate that a one measure fits all approach to assessing affordability is problematic and policy makers must consider more than one measure when reforming policy instruments. Despite these findings, research often continue to focus on economic criteria alone as the basis of housing affordability assessments [7][8][9][10], with little regard for what households get in return for what they spend on housing in terms of housing location and neighbourhood characteristics. There is a specified need for the criteria by which housing is judged as affordable to be refined [11].…”

House price appreciation and housing affordability: a study of younger households tenure choice in China

“…104), but normally is accepted by 30 per cent (Linneman and Megbolugbe, 1992;Bourassa, 1996). Gan and Hill (2009) discussed ratio approach in detail by introducing repayment affordability. Repayment affordability examines if the mortgage repayments impute burden to households and normally the threshold is a ratio between '25-28 per cent' (Gan and Hill, 2009, p.4 The imperfection of the method is it does not take liquidity constraint into consideration.…”

A Case Study of Affordable Housing in a Medium-Sized City in Central China

“…How to obtain the housing affordability? Gan and Hill [12], Suhaida et al [13] and Mulliner et al [14] have brought up multi-dimensional methods. Mak et al [15], Cai and Lu [16] also discussed the case of China.…”