The State of Affordable Housing

By Sirmans, G. Stacy; Macpherson, David A. | Journal of Real Estate Literature, January 1, 2003 | Go to article overview

The State of Affordable Housing

Sirmans, G. Stacy, Macpherson, David A., Journal of Real Estate Literature


Affordable housing encompasses a substantial body of literature on a number of issues such as housing policy, affordable housing supply, barriers to homeownership, measuring affordability and housing goals. Some major conclusions from the literature are: (1) housing programs should be tailored to local housing conditions; (2) minorities and immigrants are less likely to be homeowners even after controlling for income; (3) the number one housing problem is the lack of affordable housing for extremely low-income households; (4) a major impediment to homeownership is a lack of home buying and credit knowledge; (5) a major affordability indicator is housing cost burden (proportion of income paying for housing); (6) pension investors reject affordable housing due to the low rate of return and too few projects; and (7) survey respondents are willing to live in housing built on cleaned-up brownfields.


In 1980, the average existing home price was $62,200. Two decades later that average price had risen to $166,100. Considering this and other factors, it is no surprise that a March 2000 report by the U.S. Department of Housing and Urban Development to the U.S. Congress has this key finding: "Despite continued economic expansi on, worst case housing needs have reached an all-time high. Households with worst case housing needs are unassisted renters with incomes below 50% of the local median. These households pay more than half of their income for rent or live in substandard housing." The HUD study also reports that housing that is affordable to the lowest income Americans continues to shrink. Particularly hard-hit are minority households, especially Hispanics. Interestingly, in the last decade, housing needs increased more than three times as fast for very low-income households with full-time employment than for all other very low-income households.

It is generally accepted that, because housing market conditions can vary greatly across geographic areas, local planning agencies and governments have a greater understanding of the demographic and housing characteristics for their regions and, therefore, are in a better position to develop effective housing strategies. To better serve the housing needs for their jurisdictions, local governments have received greater flexibility from federal agencies in pursuing housing policies. The National Affordable Housing Act (NAHA) of 1990 that instituted the HOME program of housing block grants is a good example. This program allows local jurisdictions to develop housing programs that fit into broad categories.

In order to develop effective housing programs, local governments should analyze local demographic and housing market data. This, coupled with their understanding of local housing problems, should allow them to better establish housing priorities and develop appropriate policies. Historically, a useful measure of local housing conditions is a household's housing cost burden (CB). This is the proportion of income needed to cover monthly housing costs. A household with housing cost burden above 30% is generally considered in hardship. Housing cost burdens above 50% are considered extreme and not maintainable. Nationally, HUD estimates the proportion of households with high (>30%) CBs and those with extremely high (>50%) CBs. These households receive priority in determining eligibility for housing assistance.

This study provides a review of the literature on affordable housing. There is a substantial body of literature addressing a wide range of issues. The following section provides a discussion by topic.

Issues in Affordable Housing

There are a number of issues in affordable housing including housing policy, housing supply, racial/ethnic issues, barriers to homeownership, measuring housing affordability and effects of growth management. These are discussed below by topic.

Housing Policy

Over the last ten years, housing policy has been approached from a number of different directions and has addressed numerous topics. …

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