Housing Affordability: Proper Measurement for Informed Policy Making

Abstract

The broadly accepted housing affordability indicator is calculated as the housing cost-to-income ratio. But this only takes into consideration two averaged variables: household housing costs and household income, both of which are ambiguous and misleading as an across-the-board average. An alternative system of housing affordability measurement is suggested in this paper based on disposable income left accounting for housing expenses. In contrary to the broadly used conventional indicator, the proposed measurement takes into account different income groups, ages and types of households as well as the level of housing consumption. This indicator, combined with the after housing poverty line allows for the singling out of groups of households most in need of housing help, and therefore develop more informed housing polices. Based on the proposed system of measurement, an extensive empirical work is presented using the series of the ABS Income and Housing Surveys. The results demonstrate, from a new angle, the dynamics of housing affordability in Australia during the recent decade which leads to policy implications different to polices currently in use.