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Measuring the Affordability of Home-ownership

Department of Property, University of Auckland, Private Bag 92019, Auckland, New Zealand, s.bourassa{at}auckland.ac.nz.

Typical measures of the affordability of home-ownership are based on aggregate data that ignore the distribution of incomes and wealth and the range of house prices. An analysis of household survey data provides a means for overcoming those problems; however, numerous conceptual and methodological issues are involved in the use of survey data to measure affordability. This paper builds on previous analyses of those issues by Grigsby and Rosenburg and others and proposes a borrowing constraint method. That method is applied to household survey data from 1989/90 for Sydney and Melbourne, Australia. The paper simulates hypothetical changes in minimum deposit requirements and interest rates. Among its other findings, the paper concludes that, under any of the scenarios considered, only small percentages of renting households would have been able to afford home-ownership without putting themselves into poverty.

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