2. What is Affordability?
The Measurement of Affordability
1. Ratio Measurement.
2. Quality Adjusted Measurement.
3. Shelter Poverty Measurement.
4. Residual Income Measurement.
2
Affordability in Housing Means the relationship between household incomes and
housing prices and Rents.
The concept of affordability brings together the following three factors:
1. the quality of housing available.
2. the price of housing.
3. the income of families seeking to buy or rent housing.
DEFINATION: “Affordability” is the measure of housing needs and family well-
being with the available resources of the household to provide for these needs (Stone,
1993).
Ratio Measurement: A common measure of housing affordability is the percentage of
income spent on housing. A household experiences unaffordable housing if the ratio of
housing cost to income or the ratio of housing rent to income exceeds a certain
threshold ratio. A commonly used threshold limit is that of 30% of households’
income. However, this limit varies under different political regimes.
Quality Adjusted Measurement: Lerman and Reeder (1987) employ a quality based
measure of housing affordability which attempts to measure households capable of
maintaining an adequate standard of living. This measurement addresses some of
the problems of the ratio measurement of affordability. A household is considered to be
3. 3
in affordability problem if it needs to spend above a certain threshold proportion of its
income on a minimum socially acceptable standard house within the locality (Yip,
1995).
Shelter Poverty Measurement: Stone (1993) introduced the ‘shelter poverty’ standard
in affordability measurement. Shelter poverty provides a sliding scale on which the
maximum proportion of income available for housing varies with income and
household size and type. A household is classified as shelter poor if housing costs
exceed what the household is supposed to be able to afford.
Residual Poverty Measurement: The residual income measurement is another
common approach to affordability. Residual income refers to that income remaining
after the housing costs of a household are paid (Yip, 1995). Housing is unaffordable
if, after paying the 4 housing cost, the remaining income is not enough for the tenant to
afford the minimum standard of non-housing consumption.
The issue of affordability is mainly concerned with the quality and quantity of
housing. Therefore it is related to the policy initiatives for housing need and housing
demand. Specifically the relationship is between distribution of income and
distribution of housing costs. The more usual concern is that housing is too
expensive for some households to acquire dwellings of an acceptable standard and
the distributional arguments for government subsidy are closely tied to the concepts of
housing demand and housing need (Oxley and Smith, 1996). If a government’s aim is
to provide a socially acceptable housing standard for all households at a price within
their affordability range, it should then be concerned with housing needs and also
should determine the nature of subsidies which will ensure housing affordability. Apart
from the factors related to different affordability measurements, other external factors
also affect the rent as well as the affordability of the tenants. The tenants’
affordability is the primary concern of the subsidy policy under different political
regimes. The social or public housing under different political regimes aim to ensure
the affordable rent for the tenants through different subsidy options. Therefore, setting
rent within the public sector needs to address different affordability factors.