Affordability Index – Definition

Cite this article as:"Affordability Index – Definition," in The Business Professor, updated May 19, 2019, last accessed October 23, 2020,


Affordability Index Definition

The Affordability Index, also called the Housing index, measures the tendency of a family with  to buy a home, based on their average income,. This index takes into an account the average family income, average price of the home and other related factors, to calculate this tendency.

A Little More on What is the Affordability Index

The Affordability Index is a planning tool developed by the National Association of Realtors to track the trends in real estate. The affordability index calculates the median price of the house and the average income of a US family, and then determines the affordability based on the market revenue. The index also considers disposable income and down payment rates.

The Family Accessibility index of 100 developed by the National Association of realtors Association affirms that an average earning family should be able to buy medium-size property.

The Housing Affordability Index also calculates different types of mortgages and serve as a criteria to forecast whether the homes will be expensive or cheap in relation to the corresponding mortgage options.

If a family’s affordability index is positive, it doesn’t necessary means that the family can purchase a home. Factors like  disposable income, asset holdings, variation in average prices based on locations etc., all affect the scenerio.

References for Affordability Index

Academic Research for Affordability Index

Affordability Index for Transportation and Housing: An Application in Beijing [J], ZHENG, S., LIU, K., & SUN, W. (2011). Urban Studies, 2, 54-61. Urban Housing and Transportation Affordability Index Spatial theories show the strong correlation between transportation and urban land use, as well as between the cost of housing and transportation cost arising out of residential location choice. The existing housing affordability indicators don’t give accurate picture of thel location specific cost for the households. This research proposes a new affordability index considering the index for 64 zones in Beijing, and also reveals the implication of the index.

Weaknesses of housing affordability indices used by practitioners, Jewkes, M., & Delgadillo, L. (2010).This research explains three different ways of using housing affordability indices in the United States; the Department of Housing and Urban Development (HUD) Affordability Index for renters and homeowners, the National Low Income Housing Coalition Affordability Index for renters, also called Housing Wage, and the National Association of Realtors Affordability Index for the property owners. The research indicates that adaptability of indexes can be used for individual households. It also defines the market and individual affordability, income approach, housing affordability and transport cost. The usage of adapted residual income approach is recommended as it includes household size, location, non-housing expenses and transportation to determine affordability.

Housing and transport expenditure: socio-spatial indicators of affordability in Auckland, Mattingly, K., & Morrissey, J. (2014). Cities, 38, 69-83. The existing housing affordability measures are limited to income and housing cost, while the transportation costs makes a bigger portion of the household expenses, is ignored. The narrowly crafted housing affordability definitions are misleading. This study takes into an account the dispersed zonal data to determine comprehensive costs indicators. These indicators were applied to develop an integrated affordability index for every statistical area unit in the Auckland City. The outcomes signify that incorporation of commuting costs into the index leads to significantly different affordability patterns.

Estimating transportation costs by characteristics of neighborhood and household, Haas, P., Makarewicz, C., Benedict, A., & Bernstein, S. (2008). Transportation Research Record: Journal of the Transportation Research Board, (2077), 62-70. In the U.S. the transport expenditure increased by 2% between 1917 and 1970, due to increasing automobile purchase and decreasing living costs, especially food. The federal Consumer Expenditure Survey is unable to test the studies conducted in this regard since these consider only metropolitan level reporting.This paper proposes a statistical model to forecast household annual transport expenses in the US big metropolitan regions. The model considers five variables including density, job access, walkability, transit connectivity and neighbourhood services.

Affordable homeownership policy: implications for housing markets, Phang, S. Y. (2010). International Journal of Housing Markets and Analysis, 3(1), 38-52. – The homeownership affordability of targeted groups is usually achieved at the cost of high volatility in the residential construction process, due to uncertainty and lack of resources. The spillover price and crowding out impacts are seen on non-targeted housing segments as the targeted sector is bigger in size.

Equity in transport: The distribution of transit access and connectivity among affordable housing units, Welch, T. F. (2013). Transport policy, 30, 283-293. In the U.S., the access to quality public transport and other resources for minorities and low-income households is mandatory for ensuring their mobility. The way transit services are accessed by vulnerable groups have great implications for policy making.This paper proposes a comprehensive framework to measure the accessibility and quality of the transit nodes, integrated with an index to determine the inequity at micro level. As per findings, the transit connectivity and accessibility was distributed among few subsidized housing units more equitably than samples of the general population, but for other kinds, the distribution is less equitable; indicating ineffectiveness of some policies to enhance transit access for these units..The study recommends the developers to spot the development locations having more focus on transit locations with high connectivity instead of just decreasing the transit distance.

•    Smart growth in a changing world, Barnett, J. (2018).(pp. 5-10). Routledge. An increasing number of European states are using high-speed rail, and the ratio will be 100% by 2020. Japan, China and Taiwan are also in the same race. All these states also have airports, limited-access highways and local rail transits, which indicates that high speed rail is essential for balanced transportation infrastructure.

Transportation affordability, Litman, T. (2016). Transportation, 250, 360-1560. Transportation affordability implies the financial cost households incur to get transportation services, which is usually 20% of their budgets, while transport plus housing cost is 45% of the budget. This paper presents the factors that affect transportation affordability of households, and serves as a comprehensive analysis to integrate affordability in a transport planning policies.

Measuring housing affordability in São Paulo metropolitan region: Incorporating location, Acolin, A., & Green, R. K. (2017). Cities, 62, 41-49. This paper reviews affordability from a new perspective for the São Paulo metropolitan area, considering both housing and transportation costs, as well as the opportunity cost for commuting time. The 2007–2013 period findings show that households spending for housing is more than 30% of their income or 45% or more on housing cum transportation cost; and this trend is increasing. This approach shows that transportation costs bears a wider scope to determine the housing needs and make better housing policy.

•    House price and affordability in housing in Malaysia, Hashim, Z. A. (2010). Akademika, 78(1). Malaysian residential property market witnessed high price hikes within last fifteen years, since house prices are dependent on regional economics and regional demographics like income, cost of capital, stock prices and population change. This article analyzes this house price movements in terms of affordability and availability, as well as the possibility of wealth for the house ownership with its impact on the consumption, along with presenting the issues related to affordability level among the sampled states. The results show that the pronounced price variation affects ownership and leads to low affordability and availability.

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