Quality of housing has been shown to be related to health outcomes, including mental health and well-being, yet "objective" or observer-rated housing quality is rarely measured in housing intervention research. This may be due to a lack of standardized, reliable, and valid housing quality instruments. The objective of this research was to develop and validate the Observer-Rated Housing Quality Scale (OHQS) for use in a multisite trial of a "housing first" intervention for homeless individuals with mental illness. A list of 79 housing unit, building, and neighborhood characteristics was generated from a review of the relevant literature and three focus groups with consumers and housing service providers. The characteristics were then ranked by 47 researchers, consumers, and service providers on perceived importance, generalizability, universality of value, and evidence base. Items were then drafted, scaled (five points, half values allowed), and pretested in seven housing units and with seven raters using cognitive interviewing techniques. The draft scale was piloted in 55 housing units in Toronto and Winnipeg, Canada. Items were rated independently in each unit by two trained research assistants and a housing expert. Data were analyzed using classical psychometric approaches and intraclass correlation coefficients (ICC) for inter-rater reliability. The draft scale consisted of 34 items assessing three domains: the unit, the building, and the neighborhood. Five of 18 unit items and 3 of 7 building items displayed ceiling or floor effects and were adjusted accordingly. Internal consistency was very good (Cronbach's alpha = 0.90 for the unit items, 0.80 for the building items, and 0.92 total (unit and building)). Percent agreement ranged from 89 to 100% within one response scale value and 67 to 91% within one half scale value. Inter-rater reliability was also good (ICCs were 0.87 for the unit, 0.85 for the building, and 0.93 for the total scale). Three neighborhood items (e.g., distance to transit) were found to be most efficiently rated using publicly available information. The physical quality of housing can be reliably rated by trained but nonexpert raters using the OHQS. The tool has potential for improved measurement in housing-related health research, including addressing the limitations of self-report, and may also enable documenting the quality of housing that is provided by publicly funded housing programs.