1. 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

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

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

4. 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

5. 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

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

7. 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

8. 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

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

10. 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): after data mining; Units of analysis: individuals Model: Second-order Structural Equation Model (SEM) with two first- order factors (Internal Factor and External Factor)

11. 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

12. Data and Proposed Model
Recoding process:
Name
Label
Categorical Values
costmed
Housing Cost at Median Interest
“1”=Min/1600; “2”= /3200; "3"= /4800;
“4”= /10000; "5"= /max.
utility
Monthly Utility Cost for Housing
“1”=min/150; “2”= /300; “3”= /450; “4”= /600; "5"= /max.
othercost
Other Costs including Insurance, Condo, Land Rent, Other Mobile Home Fee
“1”=min/250; “2”= /500; “3”= /750; “4”= /1000; "5"= /max.
burden
Recoded Housing Cost as A Fraction of Income
“1”=min/ ; “2”=0.1/ ; “3”=0.2/ ; “4”=0.3/ ; “5”=0.4/ ; “6”=0.5/ ; “7”=0.6/ ; “8”=0.7/ ; “9”=0.8/ ;"10"=0.9/max

13. Data and Proposed Model
Recoding process (continued)
income
Recoded Household Income
“1”=min/10000; “2”= /100000; “3”= /200000; “4”= /400000; "5"= /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”= /60000; “3”= /80000; “4”= /100000; "5"= /max.

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

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

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

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

18. 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
0.9839
burden
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
0.9827
burden
0.2595
0.7415

19. Empirical Outputs and Results
Factor analysis outputs (External): Factor scores in external conditions before & after recoded
Variable
Factor1
Factor2
Uniqueness
aplmed
0.7260
0.4605
fmr
0.7915
0.0772
0.3676
metro
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
0.6785
Metro
0.3969
0.2292
0.7899
costmed
0.4339
0.7777

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

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

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

23. 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

24. Thank You!