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Towards an Accurate Description of Affordability

Investment Analyst with Property Market Analysis, Tower House, 8-14 Southampton Street, London, WC2E 7HA, UK, russell.chaplin{at}pma.co.uk

Angus Freeman

Property Research Unit, Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge, CB3 9EP, UK, ajmf2{at}cus.cam.ac.uk

This paper draws upon the poverty literature and examines the desirable properties of a descriptive statistic of affordability—namely, that it should satisfy three axioms, monotonicity, transfer and transfer sensitivity. The descriptive statistics of headcounts and averages do not satisfy these three axioms and policies using these statistics as allocative tools may be misallocating resources. The paper advocates the use of a Foster, Greer, Thorbecke statistic (FGT). Examples of different hypothetical households are used to show the contradictory results that can be obtained by using the current statistics. As a case study, the paper compares regional affordability rankings in England by looking at the FGT, headcount and mean values of the rent—income ratio using the 1995/96 Existing Tenants' Survey.

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