14_Housing Affordability Flashcards
What are the three main approaches to measuring housing affordability?
Budget Share – Rent as a percentage of income
Construction Cost Approach – Evaluates affordability based on housing production costs
Residual Income Approach – Measures what remains after essential expenses
What is the Budget Share method of measuring housing affordability?
It measures affordability based on the share of income spent on housing expenses.
What is the threshold for being considered ‘cost burdened’ under the Budget Share method?
A household is cost burdened if housing expenses exceed 30% of income.
When is a household considered severely cost burdened?
When housing expenses exceed 50% of income.
What trends have been observed in rent burden over time?
The percentage of cost-burdened households has increased significantly since 1960, particularly among lower-income groups.
What does data on rent burden by income quintile indicate?
Lower-income households (first and second quintile) face the highest rent burden, with many spending more than 50% of their income on rent.
How has the percentage of rent-burdened households changed from 1975 to 2011?
Rent/income >30% households increased from 28.5% (1975) to 59% (2011)
Rent/income >50% households increased from 11.8% (1975) to 30.6% (2011)
What role does the number of households with children play in housing affordability discussions?
The number of households with children has fluctuated, impacting housing demand and affordability concerns.
What are the three distinct approaches to measuring housing affordability?
Budget Share - Rent as a percentage of income
Construction Cost Approach - Compares housing costs to construction costs
Residual Income Approach - Measures how much income is left after housing expenses
How does the Budget Share approach measure housing affordability?
It measures the share of income that goes towards housing expenses.
Cost burdened: When housing expenses exceed 30% of income
Severely cost burdened: When housing expenses exceed 50% of income
What are the key trends in rent burden over time?
Rent burden has increased since 1960, with more households spending over 30% of income on housing.
Low-income households are disproportionately affected.
The percentage of severely cost-burdened renters (spending >50% of income on rent) has also risen.
How does rent burden vary by income level?
Lower income households are significantly more rent burdened than higher income households.
Data from 2000 and 2015 shows that income quintiles 1 and 2 bear the highest rent burdens.
What are the advantages of using the Budget Share approach?
Intuitive and easy to understand.
Easy to measure using existing income and rent data.
Related to ability-to-pay, making it a practical measure for policymakers.
Why might the Budget Share approach misrepresent housing affordability?
Example scenario:
A supermarket worker earns $1,500/month, pays $400 in rent, and has $800 left after other expenses.
A VP of Marketing earns $8,000/month, pays $3,000 in rent, but still has $4,900 left.
The VP is technically more rent burdened (38% vs. 27%), but in reality, they have more disposable income.
What are the limitations of the Budget Share approach?
Uses arbitrary thresholds (e.g., 30% as a cutoff).
Reflects choices, not just affordability (e.g., someone choosing to live in an expensive area).
Doesn’t account for location choice or housing quality.
Hard to distinguish between a rent problem and an income problem.
