Imagine you are the head of household for a four-person family renting an apartment in inner city Denver. As the markets shift, your rent skyrockets. Your income remains leaving you without money to spend on other basic necessities such as food and clothing for your family. The apartment is no longer affordable so you must move your family to a less-desirable but affordable area. Less than 30 days after you move, someone has rented your previous apartment at the higher rent. The affordability of the unit has changed.
How do we determine affordability of housing?
According to HUD, affordable housing is defined as a household paying no more than 30% of their annual income towards housing. However, over 12 million people spend more than 50% on housing in the United States.
The national qualifying standard for affordable housing as stated in Section 215 is that household income must equal less than 65% of the median income of the area. However, if affordable housing projects are built under state programs the income standards change. For example, the state of New Jersey classifies moderate income as being between 50% and 80% of the median income, low-income as below 50% and very low as less than 30% of the median income in the area. In Colorado the classifications are by county. For example, residents in Garfield County qualify for affordable housing if their income is less than 80% of the median income.
The qualifying regulations for affordable housing greatly differ at the national, state and county levels. However, an assessment of affordability by Performance Urban Planning in 2012 rated affordability standards around the world by a measure called the Median Multiple: median house cost divided by median household income before tax. If the Median Multiple was below 3.0 then the locality was deemed affordable and if it was above 5.1 it was considered severely unaffordable. What the International Housing Affordability Survey found was that the United States has approximately 20 affordable markets and 15 severely unaffordable markets.
Detroit had the highest affordability rank of all major US cities because it’s median multiple was 1.5, the result of a median house price of $75,700 and median household income of $49,800. Santa Cruz, California and Honolulu, Hawaii were deemed the most unaffordable in the United States with median multiples of 8.2 and 9.3 respectively. This resulted from extremely high median housing prices and relatively low median household incomes.
Affordability has two different definitions. The first is monetary affordability as determined by the median housing price and median household income. The second is what is considered personally affordable. What is affordable to one household may not be for another.
Though affordability rankings according to quantitative components are a good indicator of general areas of high and low affordability, the true indicator of affordability is unique to each household. A $300,000 house in an “affordable market” as quantitatively determined is not necessarily affordable to the family whose income is $40,000. Because of the uniqueness of households, policy solutions cannot be based on a purely quantitative measure of affordable housing because affordability is both place-based and people-based.
Guest Contributor: Elisa Cooper