The Terner Center for Housing Innovation at the University of California, Berkeley released a report pioneering an innovative housing affordability measurement tool. The report, “Affordability for Whom? Introducing an Inclusive Affordability Measure,” presents a new measure of housing affordability that examines whether a location is affordable to those who desire to – but currently do not – live in an area. Traditional measures of affordability are based typically on what current residents of an area can afford.
The traditional measure of affordability, which maintains that housing is affordable to a household when it costs less than 30% of a household’s income, ignores the fact that high-income households can usually afford to spend more than 30% of their income on housing costs, while those with extremely low incomes typically cannot afford to pay 30% of their income on housing. Additionally, the traditional measures of affordability are typically based on people current residents of an area. A high-cost area could appear to be affordable because only a small share of residents with higher-than-average incomes are spending more than 30% of their income on housing. However, such high-cost areas may not be affordable to non-residents hoping to live in them.
The authors utilized responses to the Federal Reserve’s Survey of Household and Economic Decision Making to calculate the average share of household income spent on housing for households in each of four categories of self-reported financial well-being: “Finding it difficult to get by,” “Just getting by,” “Doing okay,” and “Living Comfortably.” Using the average housing cost-burden for each category of financial well-being as a cut-off, the authors then used data from the American Community Survey (ACS) to determine the share of California’s population that could move to a particular county and qualify as “living comfortably,” “doing okay,” “just getting by,” and “finding it difficult” while keeping their current occupation and home size, but accounting for differences from their current location in terms of income, transportation costs, and child care costs.
The interactive webtool highlights how affordability measures based on an area’s current residents differ dramatically from measures based on potential residents. For example, the tool shows that 20% of San Francisco’s current renters find it difficult to get by, but 51% of the state’s renters would find it difficult to get by in San Francisco with their current occupations and home sizes, even after adjusting for higher incomes. Another key takeaway is the struggle that households with children face in their ability to afford housing and other necessities after childcare costs are taken into account.
The authors recommend that policymakers aiming to increase the supply of affordable housing consider refining their approach to measuring affordability by considering affordability for an area’s potential residents and not just current residents.
Read the report here.
View the interactive webtool for California counties here.