Measuring Housing Affordability: Looking Beyond the Median

Quan Gan () and Robert Hill ()
Additional contact information
Quan Gan: School of Economics, University of New South Wales

No 2008-09, Discussion Papers from School of Economics, The University of New South Wales

Abstract: We draw a distinction between the concepts of purchase affordability (whether a household is able to borrow enough funds to purchase a house) and repayment affordability (the burden imposed on a household of repaying the mortgage). We operationalize this distinction in the context of a new methodology for constructing affordability measures that draws on the value-at-risk concept and takes account of the whole distribution of household income and house prices rather than just the median. Empirically we find that the distinction between purchase and repayment affordability can be pronounced. In the Sydney prime mortgage market over the period 1996 to 2006, repayment affordability deteriorated very significantly while purchase affordability remained quite stable. This difference can be attributed to the loosening of credit constraints in the mortgage market which it seems has carried through primarily into higher house prices. We also consider how median house-price-to-income ratio measures of affordability can be extended to take account of the whole distribution of income and house prices. We propose a new quantile based measure which indicates that the housing affordability problem may be systematically worse than suggested by standard median measures.

Keywords: Housing affordability; Affordability at risk; Affordable limit; Mortgage market; Price-to-income ratio (search for similar items in EconPapers)
JEL-codes: C43 E25 E64 R31 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008-05
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_09.pdf (application/pdf)

Related works:
Journal Article: Measuring housing affordability: Looking beyond the median (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2008-09

Access Statistics for this paper

More papers in Discussion Papers from School of Economics, The University of New South Wales Contact information at EDIRC.
Bibliographic data for series maintained by Hongyi Li ().