Volume 17, Issue 1

2006

 

 

This article seeks to increase the awareness of and support for the residual income approach to housing affordability indicators and standards, especially in the United States. It begins with an overview of various semantic, substantive, and definitional issues relating to the notion of affordability, leading to an argument supporting the conceptual soundness of the residual income approach. The concept is then briefly set into the historical context of U.S. and British debates on affordability measures. This description is followed by a discussion of two of the principal issues involved in crafting an operational residual income standard: the selection of a normative standard for nonhousing items and the treatment of taxes.

 

The article concludes by considering some of the potential implications of the residual income paradigm for the analysis of housing problems and needs, for housing subsidy policy, and for mortgage underwriting practice.