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Measuring housing affordability: Looking beyond the median

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  • Gan, Quan
  • Hill, Robert J.

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 1996-2006, 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 rather than an improvement in purchase affordability. We also show 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, and how as a result of differential skewness in the house price and income distributions the housing affordability problem may be significantly worse for lower income households than suggested by standard median measures.

Suggested Citation

  • Gan, Quan & Hill, Robert J., 2009. "Measuring housing affordability: Looking beyond the median," Journal of Housing Economics, Elsevier, vol. 18(2), pages 115-125, June.
  • Handle: RePEc:eee:jhouse:v:18:y:2009:i:2:p:115-125
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    1. repec:bla:revinw:v:62:y:2016:i:4:p:628-649 is not listed on IDEAS
    2. Antje Hildebrandt & Reiner Martin & Katharina Steiner & Karin Wagner, 2012. "Residential Property Markets in CESEE EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-30.
    3. Charalambos Pitros, 2014. "UK housing bubble case study analysis: The ‘‘behaviour’’ of UK housing bubbles and the ‘‘affordability’’ parameter," ERES eres2014_4, European Real Estate Society (ERES).
    4. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2016. "Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 628-649, December.
    5. Gottlieb, Paul D. & Rudel, Thomas & O'Neill, Karen & McDermott, Melanie, 2011. "Is agricultural zoning exclusionary?," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103562, Agricultural and Applied Economics Association.
    6. Emma Mulliner & Vida Maliene, 2014. "An Analysis of Professional Perceptions of Criteria Contributing to Sustainable Housing Affordability," Sustainability, MDPI, Open Access Journal, vol. 7(1), pages 1-23, December.
    7. Alberto Montagnoli & Jun Nagaysu, 2013. "An investigation of housing affordability in the UK regions," Working Papers 1316, University of Strathclyde Business School, Department of Economics.
    8. Liming Yao & Michael White & Alla Koblyakova, 2015. "House price appreciation and housing affordability: a study of younger households tenure choice in China," ERES eres2015_44, European Real Estate Society (ERES).
    9. Mulliner, Emma & Malys, Naglis & Maliene, Vida, 2016. "Comparative analysis of MCDM methods for the assessment of sustainable housing affordability," Omega, Elsevier, vol. 59(PB), pages 146-156.
    10. Ralph McLaughlin, 2012. "New housing supply elasticity in Australia: a comparison of dwelling types," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(2), pages 595-618, April.
    11. I-Chun Tsai & Chien-Wen Peng, 2012. "A panel data analysis for housing affordability in Taiwan," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(2), pages 335-350, April.
    12. Leung, Charles Ka Yui & Tang, Edward Chi Ho, 2014. "Availability, Affordability and Volatility: the case of Hong Kong Housing Market," MPRA Paper 58770, University Library of Munich, Germany.
    13. Charles Ka Yui Leung, 2015. "Availability, Affordability and Volatility: The Case of the Hong Kong Housing Market," International Real Estate Review, Asian Real Estate Society, vol. 18(3), pages 383-428.
    14. Shen, Ling, 2012. "Are house prices too high in China?," China Economic Review, Elsevier, vol. 23(4), pages 1206-1210.

    More about this item

    Keywords

    Housing affordability Affordability at risk Affordable limit Mortgage market Housing boom Price-to-income ratio Skewness;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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