Affordable housing
Affordable housing is housing which is deemed affordable to those with a household income at or below the median, as rated by the national government or a local government by a recognized housing affordability index. Most of the literature on affordable housing refers to mortgages and a number of forms that exist along a continuum – from emergency homeless shelters, to transitional housing, to non-market rental, to formal and informal rental, indigenous housing, and ending with affordable home ownership. Demand for affordable housing is generally associated with a decrease in housing affordability, such as rent increases, in addition to increased homelessness.
Housing choice is a response to a complex set of economic, social, and psychological impulses. For example, some households may choose to spend more on housing because they feel they can afford to, while others may not have a choice.
Increases in any housing supply leads to increased housing affordability across all segments of the housing markets.
Definition and measurement
There are several means of defining and measuring affordable housing. The definition and measurement may change in different nations, cities, or for specific policy goals.Definitions
The definition of affordable housing may change depending on the country and context. For example, in Australia, the National Affordable Housing Summit Group developed their definition of affordable housing as housing that is "...reasonably adequate in standard and location for lower or middle income households and does not cost so much that a household is unlikely to be able to meet other basic needs on a sustainable basis." Affordable housing in the United Kingdom includes "social rented and intermediate housing, provided to specified eligible households whose needs are not met by the market." In some contexts, affordable housing may only mean subsidized or public housing whereas in other cases it may include naturally occurring affordable housing or "affordable" by different incomes levels from no income households to moderate income but cost-burdened households.Median house price to income ratio
The median multiple indicator, recommended by the World Bank and the United Nations, rates affordability of housing by dividing the median house price by gross.A common measure of community-wide affordability is the number of homes that a household with a certain percentage of median income can afford. For example, in a perfectly balanced housing market, the median household could officially afford the median housing option, while those poorer than the median income could not afford the median home. 50% affordability for the median home indicates a balanced market.
Some countries look at those living in relative poverty, which is usually defined as making less than 60% of the median household income. In their policy reports, they consider the presence or absence of housing for people making 60% of the median income.
Housing costs as percentage of gross income
Determining housing affordability is complex and the commonly used housing-expenditure-to-income-ratio tool has been challenged. In the United States and Canada, a commonly accepted guideline for housing affordability is a housing cost, including utilities, that does not exceed 30% of a household's gross income. Some definitions include maintenance costs as part of housing costs. Canada, for example, switched to a 25% rule from a 20% rule in the 1950s. In the 1980s this was replaced by a 30% rule. India uses a 40% rule. Some ways to achieve these ratios are to live with roommates and split rent or to have a cheap lease-by-room agreement.Using this model, for example, researchers determine that in 2022, about half of renters in the United States paid less than 30% of their monthly income on rent and utilities, and about a quarter paid between 30% and 50%, and about a quarter paid more than 50%.
The OECD Affordable Housing Database estimates the percentage of housing related expenses including rent, imputed rent, energy, water and maintenance costs as percentage of household final consumption expenditure for 2024 by country:
| Country | Housing-related % of household expenditure |
 Australia ref|OECDAustria|wHousing affordability index approachesThere are several types of housing affordability indexes that take a number of factors, not just income, into account when measuring housing affordability.The American National Association of Realtors and other groups measure market housing through a housing affordability index which measures whether or not a typical family could qualify for a mortgage loan on a typical home. This index calculates affordability based on the national median-priced single family home, the typical family median income, and the prevailing mortgage interest rate to determine if the median income family can qualify for a mortgage on a typical home. To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index over 100 signifies that family earning the median income has more than enough income for a mortgage loan on the median-priced home. For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI shows that this family is more able to afford the median-priced home. The Massachusetts Institute of Technology developed a housing affordability index that attempts to capture the total cost of housing by several factors include employment accessibility, amenities, transportation costs and transit access, quality of schools, etc. In computing the index the obvious cost of rents and mortgage payments are modified by the hidden costs of those choices. Other groups have also created amenity based housing affordability indexes. The Center for Neighborhood Technology developed the Housing + Transportation Affordability Index provides a comprehensive view of affordability that includes both the cost of housing and the cost of transportation at the neighborhood level. CNT notes that the 30% of household income affordability measurementment results in little over half of U.S. neighborhoods being considered "affordable" for the typical household. They note that such a measurement fails to take into account transportation costs, which are usually a household's second-largest expenditure. When transportation costs are factored into the measurement, the number of affordable neighborhoods nationally drops to 26%, resulting in a net loss of 59,768 neighborhoods that Americans can truly afford. Per CNT's measurement, people who live in location-efficient neighborhoods that are compact, mixed-use, and have convenient access to jobs, services, transit and amenities tend to have lower transportation costs. Household income and wealth approachesSome analysts believe income is the primary factornot price and availability, that determines housing affordability. In a market economy the distribution of income is the key determinant of the quantity and quality of housing obtained. Therefore, understanding affordable housing challenges requires understanding trends and disparities in income and wealth. Housing is often the single biggest expenditure of low and middle income families. For low and middle income families, their house is also the greatest source of wealth.Another method of studying affordability looks at the regular hourly wage of full-time workers who are paid only the minimum wage. This methods attempts to determine if workers at that income can afford adequate housing. Differing parameters and limitations in approachesMeasuring affordable housing is tricky. Different organizations look at different things: some at buying homes, others at renting apartments. Many U.S. studies, for example, only consider the average rent of a two-bedroom apartment, regardless of location or quality. This can make housing look more expensive than it actually is for many people. Additionally, these studies often ignore cheaper options like rooms in houses or illegal conversions, even if they are common. Finally, someone paying off a mortgage might look like they are struggling one month, but be fine the next, further skewing the data.EconomicsFactors that affect demand of housing stock
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