Academic journal article Cityscape

Housing Value, Costs, and Measures of Physical Adequacy

Academic journal article Cityscape

Housing Value, Costs, and Measures of Physical Adequacy

Article excerpt

Abstract

Part of the U.S. Department of Housing and Urban Development's (HUD's) mission is to create quality affordable homes for all. To accomplish this mission, HUD must define quality and must develop a method for detecting physically inadequate housing units. In the past, researchers have relied on summary indicators of inadequacy provided on the American Housing Survey (AHS) public use data file. These measures are designed by HUD and are used by HUD for HUD purposes. This article reexamines these standard indicators in a hedonic regression framework, using AHS data to develop models that estimate house values and rent. The hedonic models are then used to define a new indicator of physical inadequacy that has a statistically significant negative effect on house values and rents, in contrast to the traditional indicators that are not statistically significant and often have the wrong sign. The new indicator indentifies a substantially larger number of housing units in the United States as being physically inadequate, especially single-family units, suggesting that the need for housing assistance is more widespread than is generally recognized. Housing units identified as inadequate under this new criterion are concentrated in the older stock and are disproportionately occupied by households with children. The new criterion also identifies a substantial number of nonseasonal, vacant single-family housing units as being physically inadequate, implying that the inventory of existing homes on the market may be effectively overstated. The statistical models used to derive these results also illustrate the practical utility of a large number of variables in different sections of the AHS. Many neighborhood characteristics are shown to have a significant effect on home values, for example, which is information of potentially great value to homeowners and local governments.

Introduction

An important aspect of the U.S. Department of Housing and Urban Development's (HUD's) mission is its goal of creating quality affordable homes for all. To accomplish this goal effectively, it is necessary to consider affordability and quality in tandem. Affordability may be achieved by neglecting routine maintenance and allowing properties to deteriorate, or by failing to replace or renovate very old housing units to bring them more in line with modern building codes. Few people would consider these to be desirable outcomes.

Historically, to judge the quality of the U.S. housing stock, researchers have typically relied on standard criteria for classifying housing units as physically adequate or inadequate, using characteristics of the housing units collected in the American Housing Survey (AHS). The AHS, which is funded by HUD and conducted by the U.S. Census Bureau in odd-numbered years, collects information on a large number of housing characteristics. A number of these characteristics are combined to produce a variable that classifies housing units as adequate, moderately inadequate, or severely inadequate. This variable is included on the AHS public use file. These measures are designed by HUD and are used by HUD for HUD purposes. It is much more common to accept this traditional classification scheme uncritically than to consider an alternative specification, despite the richness of the AHS data set that would permit extensive experimentation with alternatives.

Relying on the standard AHS adequacy classification scheme produces a view of the U.S. housing market in which problems of high housing costs relative to income are considerably more widespread than problems of poor-quality housing. For example, HUD's latest report to Congress on "Worst Case Housing Needs" (HUD, 201 1) states, "Of the two types of priority problems that qualify as worst case needs, severe rent burden appears far more frequently than severely inadequate housing." An implication is that the problem of physically inadequate housing in the United States and its interaction with affordability, although of interest from a theoretic perspective, can often be comfortably neglected in favor of a concentration on affordability problems. …

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