Affordable Housing

Affordable housing is a dwelling where the total housing costs are affordable to those living in that housing unit. In the United States and Canada, a commonly accepted guideline for housing affordability is a housing cost that does not exceed 30% of a household's gross income. Housing costs considered in this guideline generally include taxes and insurance for owners, and sometimes include utility costs. When the monthly carrying costs of a home exceed 30-35% of household income, then the housing is considered unaffordable for that household. (Note that for some US programs, maximum housing cost limits are set as high as 40% gross income.)

Where the supply of available housing is less than the demand, low and moderate income households often struggle to find and secure housing that is affordable. In these housing markets, land values are often outpace the capacity of incomes to keep up. Such housing markets often (but not always) have a limited supply of residential land, or a number of regulations that make it difficult or costly to increase housing supply at rents affordable to consumers at income ranges below the local average.

Measuring demand is complicated, and subject to different views. It can be measured in terms of the costs for housing, housing type (such as apartments vs. single-detached homes, or the size and configuration of units, including number of bedrooms) and location for housing (relative to commercial/employment centers, transportation infrastructure, schools and other community resources.) A key element in measuring housing demand is differentiating between the "ability to pay" that some households have, and the "willingness to pay" of households for certain housing types in certain locations. When a place has attributes that trigger high degrees of "willingness to pay", prices often rise due to invariably limited supply, thereby changing that place's relationship to household "ability to pay". This explains why some places within an otherwise unaffordable area (measured in the aggregate) remain very affordable, such as a distressed inner city neighborhood in an otherwise expensive city.

The most "affordable" places in the U.S. are where there is the least demand relative to supply. Comprehensive data for the most affordable and least affordable places in the U.S. is published each year by an affordable housing non-profit organization, the National Low Income Housing Coalition.

Household Income

A primary factor in housing affordability is household income.

In the U.S., households are commonly defined in terms of the amount of income they earn relative to 100% of the Area Median Income or AMI. Localized AMI figures are calculated annually based on a survey of comparably-sized households within geographic ranges known as Metropolitan Statistical Areas, as defined by the US Office of Management and Budget. For U.S. housing policy purposes, households are categorized by federal law as follows:

Moderate income households earn between 80-120% of AMI.
Low income households earn between 50-80% AMI.
Very low income households earn no more than 50% AMI.

Local and state governments can adapt these income limits when administering local affordable housing programs; however, U.S. federal programs must adhere to the definitions above. Data including 2006 AMI levels for all Metropolitan Statistical Areas in the U.S. may be found here.

Another method of studying affordability looks at the regular hourly wage of full-time workers who are paid only the minimum wage (as set by their local, regional, or national government). The hope is that a full-time worker will be able to afford at least a small apartment in the area that he or she works in.

Other countries look at those living in relative poverty, which is usually defined as making less than 60% of the median income. In their policy reports, they consider the presence or absence of housing for people making 60% of the median income.

Housing Costs

The other major factor is the measurement of housing costs.

Some organization and agencies consider the cost of purchasing a single-family home; others look exclusively at the cost of renting an apartment.

Many U.S. studies, for example, focus primarily on the median cost of renting a two-bedroom apartment in a large apartment complex for a new tenant. These studies often lump together luxury apartments and slums, as well as desirable and undesirable neighborhoods. While this practice is known to distort the true costs, it is difficult to provide accurate information for the wide variety of situations without the report being unwieldy.

Normally, only legal, permitted, separate housing is considered when calculating the cost of housing. The low rent costs for a room in a single family home, or an illegal garage conversion, or a college dormitory are generally excluded from the calculation, no matter how many people in an area live in such situations. Because of this study methodology, median housing costs tend to be slightly inflated.

Costs are generally considered on a cash (not accrual) basis. Thus a person making the last payment on a large home mortgage might live in officially unaffordable housing one month, and very affordable housing the following month, when the mortgage is paid off. This distortion can be significant in areas where real estate costs are high, even if incomes are similarly high, because a high income allows a higher proportion of the income to be dedicated towards buying an expensive home without endangering the household's ability to buy food or other basic necessities.

Furthermore, the absolute availability of housing is not generally considered in the calculation of affordable housing. In a depressed or sparsely settled rural area, for example, the predicted price of the canonical median two-bedroom apartment may be quite easily affordable even to a minimum-wage worker -- if only any apartments had ever been built.

Consequences of affordable housing shortages

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 (and the half of the households which are wealthier) could officially afford the median housing option, while those poorer than the median home could not afford the median home. 50% affordability for the median home indicates a balanced market.

A community might track the percentage of its housing that is affordable to households earning 60% of median income. In addition to the distress it causes families who cannot easily find a place to live, lack of affordable housing is considered by many urban planners to have negative effects on a community's overall health. For example, lack of affordable housing can make low-cost labor more scarce, and increase demands on transportation systems (as workers travel longer distances between jobs and affordable housing). An increasing number of studies and articles focused on US cities (Los Angeles, CA, Sarasota, FL) link the parallel trends of housing cost increases and declines in enrollment at local schools.

Policy tools to address affordable housing

Numerous policies in the U.S. and abroad have been designed to address the problem of inadequate supplies of affordable housing. Sophisticated secondary market mechanisms, inclusionary zoning, and land banking are three prominent tools, as well as tax and fiscal policies that result in reducing the cost of mortgages and the cost of borrowing. Other more recently promoted policy tools include relaxation of prohibitions against accessory dwelling units, and reduction of the amount of parking that must be built for a new structure.
Affordable housing is a controversial reality of contemporary life, for gains in affordability often result from expanding land available for housing or increasing the density of housing units in a given area. Ensuring a steady supply of affordable housing means ensuring that communities weigh real and perceived livability impacts against the sheer necessity of affordability. The process of weighing the impacts of locating affordable housing is quite contentious, and is laden with race and class implications.

Housing subsidies

U.S. Federal Housing Budget 1976-2007
The federal government in the U.S. provides subsidies to make housing more affordable. Financial assistance is provided for homeowners through the mortgage interest tax deduction and for lower income households through housing subsidy programs. In the 1970s the federal government spent somewhat equal amounts on tax expenditures for homeowners and low income housing subsidies, however by 2005 tax expenditures had risen to $120 billion per year, representing nearly 80 percent of all federal housing assistance. (See Chart.) The Advisory Panel on Federal Tax Reform for President Bush proposed reducing the mortgage interest tax deduction in a final report issued on November 1, 2005.
Housing assistance from the federal government for lower income households can be divided into three parts:

  • "Tenant based" subsidies given to an individual household, known as the Section 8 program
  • "Project based" subsidies given to the owner of housing units that must be rented to lower income households at affordable rates, and Public Housing, which is usually owned and operated by the government. (Some public housing projects are managed by subcontracted private agencies.)
  • "Project based" subsidies are also known by their section of the U.S. Housing Act, and include Section 8, Section 236, Section 221(d)(3), Section 202 for elderly households and Section 811 for people with disabilities. There are also housing subsidies through the Section 8 program that are project based. The United States Department of Housing and Urban Development (HUD) administers these programs, and has further information on the particular programs on agency web site. HUD programs have ceased producing large numbers of units since the 1980s. Since 1986, the Low-Income Housing Tax Credit program has produced a large share of the affordable units, however the affordability level in these units is less than the former HUD programs.

Some states and cities in the United States operate a variety of affordable housing programs, including supportive housing programs, transitional housing programs and rent subsidies as part of public assistance programs.

An overview of the housing challenges facing America was conducted by the Millennial Housing Commission in 2000, under the leadership of Conrad Egan.

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