Housing, Affordable

Guidelines

For individual households, affordable housing is determined by a ratio of housing costs to household income. Thus, affordability is dependent on both the income adequacy and the consumer price of housing including basic utilities plus rent or mortgage payments. The current standard used to determine affordability is based on federal policy guidelines that identify households spending more than 30 percent of their gross income on shelter costs as “housing-cost burdened.” Although the standard has been criticized by a number of academic researchers for failing to consider household size, regional housing cost differential, and consequences at various income levels, this guideline continues to be applied in policy decisions and program implementation due to the straightforward calculation and interpretation it affords. Another criticism of the 30 percent guideline is that it is an arbitrary standard. For example, a change in the ratio to a higher percentage results in fewer households being identified as housing-cost burdened. At the same time, very low-income households routinely pay higher proportions of their incomes for housing, as much as 60 to 80 percent.

Historically, the amount of income households are expected to spend on housing has increased. In the 1880s, the practical guideline used was “one week's wage for one month's rent” or approximately 25 percent [Page 619]of income for housing. This standard was applied by the U.S. Department of Housing and Urban Development in administering tenant housing assistance programs until the mid-1970s. Under federal budget constraints, the policy then shifted to require renters to pay at least 30 percent of their incomes toward their housing in assisted units. In determining eligibility for mortgage applicants, lenders use similar qualifying ratios as a means of investment risk management.

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