Determinants of housing affordability in the USA

• Date: 23 August 2023
• Pages: 158-177
• DOI: https://doi.org/10.1108/IJHMA-05-2023-0071
• Published date: 23 August 2023
• Subject Matter: Property management & built environment,Real estate & property,Housing markets
• Author: Javed Iqbal,Jeff Brdedthauer,Christopher S. Decker

Determinants of housing

af‌fordability in the USA

Javed Iqbal

Quaid-I-Azam University, Islamabad, Pakistan

Jeff Brdedthauer

Department of Finance, University of Nebraska Omaha, Omaha,

Nebraska, USA, and

Christopher S. Decker

Department of Economics, University of Nebraska Omaha, Omaha, Nebraska, USA

Abstract

Purpose –This study aims to identify the determinants of housing affordability in an effort to inform po licy.

Design/methodology/approach –The authors use econometric analysis to determine variables that

impact housingaffordability in the USA.

Findings –The authors f‌ind that affordability depends on a number of demographic factors as well as

physical characteristicsof properties, including average age of homeowner, familysize and average dwelling

square footage. The authorsalso f‌ind that vacancy rates, increase in house price and median family income

also have a signif‌icant impact on housing affordability. Additionally, the authors f‌ind that householdswith

high-cost burdens are more vulnerableto mortgage rates and property taxes than those withmoderate-cost

burdens. As a result,changes in economic or policy variables tend to have a disproportionateimpact on high-

cost-burdenedhouseholds, and they are more vulnerable to economicand policy shocks.

Originality/value –To date, theliterature has not done a systematic investigationof housing affordability

using detailedcensus data.

Keywords Housing, Policy, Demographics, Housing affordability, Region, Cost burden

Paper type Research paper

1. Introduction

Housing affordability has decreased considerably over the past decade, especially in

advanced economies (Lee et al., 2022 and OECD, 2021). A growing body of literature shows

that the current problems with urban housing affordability (i.e. housing cost burden) is a

worldwide issue, where low-income and middle-income people f‌ind it increasingly diff‌icult

to afford housing (Anacker, 2019;Bailey and Harrington, 2022). Increasing the availability

and affordability of housing is a top housing policy objective for many industrialized

economies (Aalbers, 2017;Cavalleri et al.,2019). While public investment (public capital

spending) in housinghas decreased by more than half across OECD nations since the Global

Financial Crisis of 2008 (Dewildeand De Decker, 2016), demand-side housing assistance has

grown marginally over the same time period, expanding from 0.26% of GDP in 2001 to

0.31% of GDP in 2017 (Calhoun, 2018;Salvi et al.,2016).

Despite this, since 1990,industrialized economies like the USA have seen a dramaticrise

in the ratio of median home sales prices to median household earnings, especially in the

The authors would like to thank the the editor and three annnonymous reviewers for their valuable

comments. Any remaining errors or oversights are their own.

IJHMA

18,1

158

Received22 May 2023

Revised25 July 2023

Accepted1 August 2023

InternationalJournal of Housing

Marketsand Analysis

Vol.18 No. 1, 2025

pp. 158-177

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-05-2023-0071

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1753-8270.htm

bigger cities (McClure, 2019;Richter et al., 2019). Moreover, half of low-income renter

households in the USA spend more than half of their income on housing, a problem that

disproportionately impacts African American and Hispanic households (Desmond, 2018;

Joint Center for Housing Studies,2022).

During and after the Great Recession (2008–2010), many families found themselves in a

vulnerable positionwith regard to their employment status and housing(Colburn and Allen,

2018;Schaeffer, 2021). Income that has not kept pace with inf‌lation and a drop in housing

supply are just two of the factors contributing to the f‌inancial challenges that US

homeowners have been facing. The COVID-19 pandemic has reduced housing availability

even more due to an increase in home purchases fueled by record low mortgage interest

rates (Quresh, 2022;Schaeffer, 2022). Prior to the pandemic, a substantial number of low-

income households struggled to make their rent or mortgage payments. Today, that

situation is even more precarious.The post-pandemic economic effects, including job losses,

reduced hours and declining incomes, have increased the housing cost burden for many

households since 2020 (Glantsman et al.,2022). As of December 2020, an estimated 11

million US renter and homeowner households were signif‌icantly behind on their housing

payments, increasing the risk of foreclosure or eviction. Moreover, because housing costs

typically account fora signif‌icant share of a household’s budget, particularly forlow-income

families, people may be forced to reduce spending elsewhere (i.e. medical expenditures),

which could materially jeopardize their well-being (Pollack et al.,2010;Woolf and

Braveman, 2011;Krieger and Higgins, 2002;Lubell et al.,2007;Mason et al.,2013, 2010;

Woolf and Braveman, 2011).

Housing markets ref‌lect both demand- and supply-side economic indicators. Reduced

housing demand is likely to lead to more affordable markets in economically distressed

metropolitan statisticalareas (MSA) or states (Felkner, 2014). On the contrary, in states with

greater prosperity, increasing housing demand will likely result in higher prices and

decreased affordability. On the supply side, the existing housing stock is a key indicator

affecting housing affordability. Part of the reason for the failure of housing supplyto keep

pace with housing demand is a lack of investment, which has been hampered by a number

of factors, including risingconstruction costs, labor shortages, elevated land prices, scarcity

of land and overly restrictive zoning, planning and taxation policies (Andr

e, 2011;

Blumenthal et al.,2016;Hamilton, 2021;Ortiz and Johannes, 2018).

Many of these supply and demand determinantsare local in nature. As a result, housing

affordability variesfrom region to region. Figures 1 and 2illustrate this variation.

The f‌igures show that high-cost burden households tend to be more prevalent than

moderately cost-burdened households, which equates to a larger segment of the population

vulnerable to macroeconomicuncertainty and other sociopolitical changes.

As indicated, housing is largelya local market. What is valid in one metropolitan or rural

area might not be true in other areas (Bangura and Lee, 2020). Regionalized and local

government planning agencies and policy off‌icials have a greater understanding of the

housing characteristics,and needs, of their respective regions. Thus, they are able to design

effective policy strategies, as they are well-informed about the housing markets in their

geographic area of responsibility.

To empirically analyze housing affordability, studies focus on supply and demand

factors. The supply side mainly includes factorssuch as the cost of construction, local land-

use regulations and rent controls (Listokin and Lahr, 1998). On the demand side, housing

affordability is primarilyinf‌luenced by household incomes, accessibility and mortgage rates

(Stone, 1990;Beer et al.,2007). Land-use regulations primarily include zoning restrictions

and growth boundaries.

Housing

af‌fordability

159