1. Mark Stephens The Meaning and Measurement of Housing Affordability
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The Meaning and Measurement of Housing Affordability
Mark Stephens
Director
The Urban Institute
Edinburgh

2. Overview Affordability relatively easy to define
Its measurement is much more problematic
Ratio measures lack an underlying rationale, but have a strong intuitive appeal and some empirical support
Residual income approaches encounter a series of conceptual problems
In both cases problems exacerbated by international comparison
Outline alternative “consensual” approach
Unclear that a single catch-all indicator is possible
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3. Why housing affordability?
Often the largest item of expenditure
Highly variable between and within locations
Cost is not very flexible (e.g. length of rental or mortgage contract)
Patterns over lifecourse
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4. I. Meaning of affordability
Housing is affordable when housing of an acceptable minimum standard can be obtained and retained leaving sufficient income to meet essential non-housing expenditure.
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5. Elements to affordability
Income
Housing costs
Assessment of adequate income (e.g. poverty line)
Assessment of adequate housing (e.g. size, amenities)
Evolution of affordability
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6. II. Ratio measure Widely used (e.g. EU) HP:I or HC:E
HP:I indicative of access to mortgage finance
But ultimately derived from HC:E
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7. EU Cost Overburden rate 2015
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8. Decisions What to count as housing cost: What to count as income:
Direct housing occupancy costs: Rent, mortgage interest…
Property specific expenditure: Utilities (esp. energy), property tax…
What to count as income:
Gross
Net (Gross - tax, social insurance + social security)
What to do about housing allowances:
Add to income or
Deduct from rent
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9. Treatment of Housing Allowances
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10. Refinements Variable thresholds for different incomes
Australian “stress test”
Bottom 40% of income distribution
Who pay >30% income in housing costs
US Section 8 housing vouchers:
Targeted on very low income (=<30% area median income)
Reduces housing cost to 30% of income.
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11. Critique and defence
Stone (2006): Implies that either the absolute income required to finance non-housing needs diminishes as income falls with no minimum or that the ratio must decrease to zero as income falls. Bramley (2012): “subjective evidence of payment problems and material hardship can be used to validate ratio measures and points to the best thresholds to use.”
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12. III. Residual income approach
Poverty After Housing Costs (AHC)
Does not matter whether housing allowance added to income or deducted from rent.
Poverty = 60% median equivalised income
Poverty line recalculated AHC (so does not necessarily increase poverty)
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14. Refinements
Poverty caused by voluntary “overconsumption” of housing: AHC poverty attributable to voluntarily consuming more than minimum standard of housing required. (Kutty, 2005)
AHC poverty avoided by “underconsumption” of housing.
Estimates by Stephens and Leishman (2017) identified very few cases in UK over 18 years.
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15. Dynamic approaches
Baker et al (2015): “conventional point-in-time measures of housing affordability fail to capture the substantial movement that many individuals make into and out of poor affordability over time…”: Stickers and Slippers.
Chen, et al (2010):
Point of entry trend:
Initial affordability for households who enter market in any given year
Cohort trend:
How affordability evolves for each cohort of entrants
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16. Shanghai (bottom 20-40%) 2000-2008 Poverty Gap THE URBAN INSTITUTE
Chen, Hao & Stephens, 2010

17. Shanghai (40-60% income group) 2000-2008
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18. 60% poverty threshold relative, but arbitrary
Poverty threshold, single person, € per day, 2014
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19. Overlap with housing deprivation
Particularly problematic in international European comparison
Absolute (e.g. overcrowding; inside bathroom/WC)
Externally derived
Lux and Sunega (2016) argue subjective assessments of overcrowding and affordability can be used.
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20. IV. An Alternative: Consensual indicators
Poverty line:
Bundle of goods and services that most people consider to be essential.
Can be costed (JRF Minimum Income Standard) or predicted (Stephens & Leishman, 2017)
Minimum housing standards:
Housing standards that are regarded as minimum, e.g.
Space standards
Dampness/ hard to heat
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21. Example of analysis from UK (1991-2008)
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Stephens & Leishman, 2017

22. V. Other issues Fuel (or energy) poverty Transport (commuting) costs
Is a single catch-all indicator possible?
Relevance where informal / self-build common
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