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A Dynamic Housing Affordability Index

Author

Listed:
  • Steven C. Bourassa

    (Florida Atlantic University)

  • Donald R. Haurin

    (Ohio State University)

Abstract

This paper outlines an approach to constructing a Dynamic Housing Affordability Index (DHAI) that reflects the anticipated cost of owner-occupied housing and performs well in tracking changes in the demand for homeownership and other aspects of the housing market. Our index is grounded in the user cost theory and influenced by variations in the price of housing, mortgage interest and property tax rates, property insurance, transaction costs, and depreciation and maintenance. It takes into account the benefits from U.S. income tax deductions for mortgage interest and property taxes, and considers the role of expected house price inflation in reducing the cost of housing. We show that the DHAI is correlated with national and regional consumer sentiment which reflects the demand for owner-occupied housing, regional and metropolitan statistical area (MSA) homeownership rates, housing market characteristics including housing starts, and sales of new and existing housing. There is evidence that the DHAI performs better than other popular measures of affordability.

Suggested Citation

  • Steven C. Bourassa & Donald R. Haurin, 2017. "A Dynamic Housing Affordability Index," International Real Estate Review, Global Social Science Institute, vol. 20(3), pages 251-286.
    • Handle: RePEc:ire:issued:v:20:n:03:2017:p:251-286
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    References listed on IDEAS

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    Cited by:

    1. Esra Alp Coskun & Nicholas Apergis & Yener Coskun, 2022. "Threshold effects of housing affordability and financial development on the house price‐consumption nexus," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1785-1806, April.

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    More about this item

    Keywords

    Housing Affordability; Homeownership; User Cost;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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