Housing Stock and Affordability

How much home can a low-income family afford versus a middle-income one? A new working paper published on Monday by the Federal Housing Finance Agency (FHFA), gave insights into this question.

For the study, the research team at FHFA considered affordability in relation to funds available for down payments, initial monthly housing-related payments, and future projections of household and income costs. It then built upon existing industry statistics to observe actual investment and expense values as well as typical families that earned the median household income level. Using these metrics, the study offered a new home affordability estimate (HAE) for evaluating families at different places in the income distribution.

The research offered two potential improvements to existing industry estimates on what constitutes affordable housing. "First, we utilize actual investment and expense values and improve upon assumptions about funding factors. The HAE index relies on real contemporary and historical data on income, debt, and funds available for down payments," the researchers said in the working paper. "Second, our methodology allows us to evaluate families at other places in the income distribution that might not reflect a typical household. We produce affordability estimates for both median-income, low-income, and very low-income households, but our approach can determine affordability for households of any income level."

To illustrate how unique local economic drivers such as home prices, income, and wealth created a great variation of what was affordable in different cities, the study looked at select metropolitan statistical areas (MSAs) such as Dallas, Texas, Detroit, Michigan, New York, New York, and San Francisco, California.

It found that San Francisco was the least affordable for median-, low, and very low-income households. However, while 67 percent of very low-income families could afford a home in Detroit, the number fell to 34 percent in Dallas and 23 percent in New York. This number rose to 77 percent for low-income families in Detroit, 60 percent in Dallas and 37 percent in New York.

For families with a median-income in these MSAs, the study found that 81 percent of those in Detroit could afford a median-priced home, versus 70 percent in Dallas, and 44 percent in New York.

Click here to read the full working paper.