2017 Symposium Industry Report: Pay for Success

What is Affordable Housing?

How to Define “Affordable” Wide bodies of academic literature and common sense both suggest that one’s ability to afford housing depends largely on household income. In turn, housing costs are both the first and largest expenditure for most American families, one that is uncompromising and inflexible. 3 Thus, most definitions of “affordable” housing are based on the premise that each family can afford or ought to allot a certain percentage of its monthly income to housing costs. Despite this eco- nomic approach, there is no true consensus on what is “economically affordable” to families of varied socioeconomic background. Percent of Income The most commonplace definition of affordable housing states that less than 30% of a household’s income should be spent on housing expenditures. 4 Thus, renters and homeowners who spend 30 to 50% of income on housing-related costs are considered “moderately cost-burdened” and those who spend over 50% of income on housing are considered “severely cost-burdened.” By this defini- tion, about half of all renters today are cost-burdened and, and of those, over 50% are severely cost-burdened, resulting in a shocking population of about 21 million Americans who struggle to maintain housing. 5 These figures have doubled since 1960. Although policymakers generally rely on this definition because of its simplicity, percent of income calculations overlook the complex- ities of household dynamics and assumes household costs are relative, despite certain “absolute” costs (such as groceries, bills, etc.) that are not proportionally priced by family income. Critics of the percent of income definition like J. David Hulchinski challenge the logic of using descriptive statistics as measurements of housing needs. Scholars identify six major uses of the percent of income ratio: descrip- tion of households, analysis of trends, administration of regulation, definition of housing needs, prediction of household ability to pay costs, and selection of households for a house. 6 These uses demonstrate the impact that the percent of income definition of housing has on economically disadvantaged families. Critics express concern over such widespread use of ratios, which dramatically simplify complex household behaviors into unreliable and invalid definitions of housing affordability; others find that the ratio “rule of thumb” has been wrong- fully transformed into an iron rule of affordability. Ultimately, the percent of

Pay for Success & Affordable Housing | Stefano Rumi 11

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