Measuring Housing Affordability: Looking Beyond the Median
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 to 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. We also consider 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. We propose a new quantile based measure which indicates that the housing affordability problem may be systematically worse than suggested by standard median measures.
|Date of creation:||May 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Australian School of Business Building, Sydney 2052|
Fax: +61)-2- 9313- 6337
Web page: http://www.economics.unsw.edu.au/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vigdor, Jacob L., 2006. "Liquidity constraints and housing prices: Theory and evidence from the VA Mortgage Program," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1579-1600, September.
- Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
- Piazzesi, Monika & Schneider, Martin & Tuzel, Selale, 2007.
"Housing, consumption and asset pricing,"
Journal of Financial Economics,
Elsevier, vol. 83(3), pages 531-569, March.
- Monika Piazzesi & Martin Schneider & Selale Tuzel, 2006. "Housing, Consumption, and Asset Pricing," NBER Working Papers 12036, National Bureau of Economic Research, Inc.
- Monika Piazzesi & Martin Schneider & Selale Tuzel, 2004. "Housing, Consumption and Asset Pricing," 2004 Meeting Papers 357c, Society for Economic Dynamics.
- Diewert, Erwin, 2007. "The Paris OECD-IMF Workshop on Real Estate Price Indexes: Conclusions and Future Directions," Economics working papers diewert-07-01-03-08-12-12, Vancouver School of Economics, revised 31 Jan 2007.
- Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
- Edward L. Glaeser & Joseph Gyourko, .
"The Impact of Zoning on Housing Affordability,"
Zell/Lurie Center Working Papers
395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
- Edward L. Glaeser & Joseph Gyourko, 2002. "The Impact of Zoning on Housing Affordability," Harvard Institute of Economic Research Working Papers 1948, Harvard - Institute of Economic Research.
- Edward L. Glaeser & Joseph Gyourko, 2002. "The Impact of Zoning on Housing Affordability," NBER Working Papers 8835, National Bureau of Economic Research, Inc.
- Jonathan McCarthy & Richard Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
- Liu, Benjamin & Skully, Michael, 2005. "The determinants of mortgage yield spread differentials: Securitization," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 314-333, October.
- Majumder, Amita & Chakravarty, Satya Ranjan, 1990. "Distribution of Personal Income: Development of a New Model and Its Application to U.S. Income Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(2), pages 189-96, April-Jun.
- John M. Quigley & Steven Raphael, 2004.
"Is Housing Unaffordable? Why Isn't It More Affordable?,"
Journal of Economic Perspectives,
American Economic Association, vol. 18(1), pages 191-214, Winter.
- Quigley, John M. & Raphael, Steven, 2004. "Is Housing Unaffordable? Why Isn't It More Affordable?," Berkeley Program on Housing and Urban Policy, Working Paper Series qt1vp9j3k0, Berkeley Program on Housing and Urban Policy.
- Robert J. Hill & Daniel Melser, 2008. "Hedonic Imputation And The Price Index Problem: An Application To Housing," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 593-609, October.
- Englund, Peter & Quigley, John M. & Redfearn, Christian L., 1998. "Improved Price Indexes for Real Estate: Measuring the Course of Swedish Housing Prices," Journal of Urban Economics, Elsevier, vol. 44(2), pages 171-196, September.
- Engle, Robert F. & Manganelli, Simone, 2001. "Value at risk models in finance," Working Paper Series 0075, European Central Bank.
When requesting a correction, please mention this item's handle: RePEc:swe:wpaper:2008-09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabriele Gratton)
If references are entirely missing, you can add them using this form.