The University of Texas at Dallas Housing Affordability and Regional Variations in the United States: A New Approach to Housing Affordability Policy Xiang Cai, The University of Texas at Dallas Lu-Chung Dennis Weng Wesleyan University

Outline Introduction and Debates on Housing Affordability How Previous Studies Measuring Housing Affordability Data and Proposed Model Empirical Outputs and Results Conclusion and Findings

Outline Introduction and Debates on Housing Affordability How Previous Studies Measuring Housing Affordability Data and Proposed Model Empirical Outputs and Results Conclusion and Findings

Introduction and Debates on Housing Affordability Housing is the essential ability of residents to participate in the economic mainstream Major housing problem: housing need housing affordability Focusing on the provision of decent and affordable housing for all residents The term came into popular use, exploring attraction in solving housing affordability program Declining affordability influences households, affecting the economic performance, labor efficiency, social cohesion and stability

Introduction and Debates on Housing Affordability Housing affordability is prevailing but under debates on its meaning In previous economic research, it refers to costs of housing services for renters or owners Some emphasized “residual income” as an opportunity cost Housing affordability comprises of not only economic indicators, but also social and environmental and welfare issues A more comprehensive definition is needed

Outline Introduction and Debates on Housing Affordability How Previous Studies Measuring Housing Affordability Data and Proposed Model Empirical Outputs and Results Conclusion and Findings

How Previous Studies Measuring Housing Affordability Housing costs related system Expenditure-to-income ratio Price-to-income ratio (PIR) Rent-to-income ratio (RIR) “Residual income” relative to housing cost Conceiving affordability from a basic non-housing consumption A minimum level of necessary daily expenditure on fundamental living cost

How Previous Studies Measuring Housing Affordability Locational elements and quality of life Housing affordability and quality of life tend to be negatively related, since the more desirable locations the higher rent-to- income ratios. 20 indicators proposed to develop a criteria system, including welfare of residents and location-related attributes such as availability, employment, transportation, education, leisure facilities and other environmental indicators

Outline Introduction and Debates on Housing Affordability How Previous Studies Measuring Housing Affordability Data and Proposed Model Empirical Outputs and Results Conclusion and Findings

Data and Proposed Model Data: Housing Affordability Data System (HADS) from American Housing Survey (AHS) in 2009; Sample: the southern region of the U.S. (region=3); Sample size (N): 10707 after data mining; Units of analysis: individuals Model: Second-order Structural Equation Model (SEM) with two first- order factors (Internal Factor and External Factor)

Data and Proposed Model Variables Variable Name Labels costmed Housing Cost at Median Interest utility Monthly Utility Cost for Housing othercost Other Costs Including Insurance, Condo, Land Rent, Other Mobile Home Fee burden Housing Cost as A Fraction of Income income Household Income metro Location adeq Adequacy of Housing fmr Fair Market Rent (Average) aplmed Median Income Adjusted for # of Persons

Data and Proposed Model Recoding process: Name Label Categorical Values costmed Housing Cost at Median Interest “1”=Min/1600; “2”=1600.001/3200; "3"=3200.001/4800; “4”=4800.001/10000; "5"=10000.001/max. utility Monthly Utility Cost for Housing “1”=min/150; “2”=150.0001/300; “3”=300.001/450; “4”=450.0001/600; "5"=600.0001/max. othercost Other Costs including Insurance, Condo, Land Rent, Other Mobile Home Fee “1”=min/250; “2”=250.001/500; “3”=500.001/750; “4”=750.001/1000; "5"=1000.001/max. burden Recoded Housing Cost as A Fraction of Income “1”=min/0.99999999; “2”=0.1/0.19999999; “3”=0.2/0.29999999; “4”=0.3/0.39999999; “5”=0.4/0.49999999; “6”=0.5/0.59999999; “7”=0.6/0.69999999; “8”=0.7/0.79999999; “9”=0.8/0.89999999;"10"=0.9/max

Data and Proposed Model Recoding process (continued) income Recoded Household Income “1”=min/10000; “2”=10000.001/100000; “3”=100000.001/200000; “4”=200000.001/400000; "5"=400000.001/max. fmr Recoded Fair Market Rent (Average) “1”=min/699; “2”=700/1299; "3"=1300/max. metro Location "1"=outside MSA, rural "2"=outside MSA, urban "3"=inside MSA, but not in central city-rural "4"=inside MSA, but not in central city-urban "5"=central city of MSA adeq Recoded Adequacy of Housing "1"=severely inadequate "2"=moderate inadequate "3"=adequate aplmed Recoded Median Income Adjusted for # of Persons “1”=min/40000; “2”=40000.001/60000; “3”=60000.001/80000; “4”=80000.001/100000; "5"=100000.001/max.

Data and Proposed Model Initial CFA model (Internal Factor) income adeq internal burden utility othercost

Data and Proposed Model Initial CFA model (External Factor) metro costmed external fmr aplmed

Data and Proposed Model Full second-order model: income internal adeq burden affordability utility othercost external metro costmed fmr aplmed

Outline Introduction and Debates on Housing Affordability How Previous Studies Measuring Housing Affordability Data and Proposed Model Empirical Outputs and Results Conclusion and Findings

Empirical Outputs and Results Factor analysis outputs (Internal): Factor scores in internal conditions before & after recoded Variable Factor1 Factor2 Uniqueness othercost 0.2094 0.2138 0.9104 utility 0.3231 0.2996 0.8058 income 0.6680 0.0048 0.5537 adeq -0.1199 -0.0414 0.9839 burden -0.4403 0.3401 0.6905 Variable Factor1 Factor2 Uniqueness othercost 0.0315 0.0756 0.9470 utility 0.2771 0.3043 0.8258 income 0.5924 0.0368 0.6463 zadeq -0.1240 -0.0392 0.9827 burden -0.4370 0.2595 0.7415

Empirical Outputs and Results Factor analysis outputs (External): Factor scores in external conditions before & after recoded Variable Factor1 Factor2 Uniqueness aplmed 0.7260 -0.1114 0.4605 fmr 0.7915 0.0772 0.3676 metro -0.4656 0.2465 0.7225 costmed 0.4683 0.2872 0.6982 Variable Factor1 Factor2 Uniqueness aplmed 0.6128 0.0924 0.6159 fmr 0.5537 -0.1221 0.6785 Metro 0.3969 0.2292 0.7899 costmed 0.4339 -0.1844 0.7777

Empirical Outputs and Results One Factor Exploratory Model: RMSEA=0.125

Empirical Outputs and Results External factor (CFA): RMSEA=0.08； NNFI=0.93; CFI=0.95

Outline Introduction and Debates on Housing Affordability How Previous Studies Measuring Housing Affordability Data and Proposed Model Empirical Outputs and Results Conclusion and Findings

Conclusion and Findings Housing expenditure plays significant impacts on household’s abilities to afford housing Mortgage interest rates and repayments exert the most significant influences Location and associated elements (Median Income and Fair Market Rent) do matter Findings: External factor have more influences on the level of housing affordability Implying that attention should be paid to macro-economic issues, such as mortgage and interest rates. Eventually, monetary policies should be taken into account

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