Abstract
A new theoretical criterion of housing affordability is defined as a mismatch between where a resident likes to live if preferences are unconstrained, and where they can afford to live if preferences are budget constrained. This study theorizes and quantifies the compensatory amounts of money to be spent to reduce these mismatches by acquiring unconstrained most preferred attributes’ levels of homes. Compensatory amounts are quantified with the predicted implicit prices of almost 3,000 sold single-detached(-like) homes in each of two mid-sized Canadian cities. The analysis predicts approximately one-half of up to 74 respondents in each city in 1987 and 2020 will experience a residential mismatch if they choose their budget-constrained most preferred home. Unaffordable compensatory expenditures are especially predicted for non-managerial or professional workers if they want to afford their unconstrained most preferred attributes’ levels of house type and size, house age and exterior finish, basement condition and home renovations, and lot size and garage. Moreover, average predicted compensatory expenditures exceed loans or grants in four past and current public policies in Canada for subsidizing prices of these four attributes or increasing the wealth of homebuyers.
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