Thursday, April 17

A better affordability index

Typically, housing is considered "affordable" if it composes no more than 30% of a household income. Cities and regions will often determine their affordability gap by comparing the median income with the median home price in a particular area. This yields a simple and workable number to deal with. The Missoula county website does such a calculation to determine the health of the market here.

While this data gives some useful information, it misses the full picture because it excludes the second highest, and inextricably linked, cost burden to households: transportation. Omitting this factor can lead to the old real estate slogan "drive till you qualify." Life gets cheaper the further you move from the center ... or does it?

The Brookings Institute has been thoroughly researching the differences between the housing index and the housing + transportation index, and the results put the conventional wisdom into question. They have mapped the affordability of 52 metropolitan areas around the country. Here is Portland, as an example. Basically, the teal color is not affordable to the median income. Go to the site for more specifics on what that means.

For Housing only (up to 30% of median household income):

For Housing + Transportation (up to 48% of median household income):

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