The Lesser of Two Evils: How Transportation + Housing Better Defines Housing Affordability Over Housing Expenditure to Income Ratio Nicolas Lemieux 1007756563 February 1st 2022 Over the years, the “rule of thumb” of not spending more than 30% of income on housing has been the way to define housing, though there are many flaws associated with this definition. The renting market in Canada especially, has experienced the flaws of this system, with 82.5% of renters making below 20,000, as well as 71.4% with incomes between 20,000 and 40,000 spending 30% or more on housing.1 With property prices soaring and house ownership becoming more scarce, many look for housing options that are “affordable” per se, however, the properties that are considered affordable lack quality, are usually in crime-filled areas and are unable to provide much employment opportunity. Measuring and defining affordability needs to take into account different factors, not only cost of the house price itself, but the different amenities offered by the surrounding area, such as transport, schools, grocery stores, etc. Making a general affordability formula or measure will always be difficult, when taking into account different socio-economic influences as well as difficulties with both public and private housing sectors. Without a clear and consistent ordinance of what affordability should be, we would see the continued rise of rentership in metropolitan areas, rather than the rise of secure home ownership. With housing affordability at its most exigent stage it has ever been - especially in Canada, being able to measure and define affordability within the housing sector has reached its zenith of importance. The Housing Expenditure to Income Ratio, (HEIR) more commonly known as the “rule of thumb” model, has for many years been the proverbial defining source, though many have criticized the overly-simplified method. Housing + Transportation faces the same issue of oversimplification, however, tends to be far more applicable in measuring affordability overall. Though there are multiple applications of the Housing Expenditure to 1 ACTO. (2018). Where will we live? Ontario’s Affordable Rental Housing Crisis. Income Ratio associated with defining affordability, none of them are fully accurate and appropriate. On the other hand, the Transportation + Housing model is a better indicator of affordability within certain areas in and outside of large metropolitan zones. This paper will focus on the superiority of the Housing + Transportation model when measuring affordability, although both models clearly have their downfalls, which will be further discussed. Finding an appropriate and accurate measure for housing affordability has been extremely difficult to conjure, with the failures being apparent in both the Housing Expenditure to Income Ratio (HEIR) and the Housing + Transportation Index (HTI). However, there are aspects that both ratios are very helpful in, relating to housing affordability. HEIR aims to be “A quantitatively based science that might guide any government in improving the material wellbeing of its subjects,”2 though rather than being science based, it is a method or policy derived from practice and experience. The three most applicable uses of HEIR comes from providing qualitative analysis that is adequate at best. Firstly, HEIR is pertinent when relating to calculating household expenditures, and what different households are spending at different points in time. Another would be the analysis of trends, and how HEIR is able to develop concepts and hypotheses pertaining to financial stress on groups of households or metropolitan areas. Thirdly, the ratio helps in maintaining regulations and rent levels of subsidized housing, keeping out higher income households, while helping those in need of subsidized housing by rationalizing housing prices in certain areas. These three applications though, have one major downfall - the numbers presented through the HEIR simply don’t reveal enough. Primarily, the numbers are not a great indicator, and are unable to discern the differences between economic 2 Olson, R. (1993) The Emergence of the Social Sciences, 1642-1792 (NY, Twayne Publishers) pg. 193. patterns, ability to pay for housing, and being unable to provide additional analysis on top of the numbers themselves. The ratio is also completely inadequate when it comes to affordability aspects such as defining housing need, predicting a household’s ability to pay rent or mortgage and tenant selection. In my opinion, the Housing + Transportation Index (HTI) is a much more reliable and accurate measure of housing affordability than HEIR. The HTI ranks the affordability of neighborhoods mostly in metropolitan areas grounded on the combined cost of housing and transportation. Transportation, along with general housing costs, has been continuously rising and has become the second largest household expenditure, making it a vital facet of housing affordability. The HTI is successful in identifying transportation and overall housing costs in a given location, calculating an accurate overall location-specific cost estimation. “In addition to helping house and apartment hunters make more informed decisions about where to live, this tool can help policymakers choose where to invest scant public dollars, particularly when siting affordable housing developments.”3 The index is successful in portraying how more cost-effective a walkable and transit-connected neighborhood can be, and how it can exponentially lower household expenses and possible environmental impact. “Under the traditional rule of thumb, 7 out of 10 neighborhoods in US metro areas are affordable, when including the housing + transportation index, that number becomes 4 out of 10.”4 However, HTI doesn't account for other costs, such as rent, transportation and others. These tend to be lower in low-income neighborhoods, as well as heightened walkability, which may steer low income families into poverty-stricken and segregated neighborhoods. Along with this, neighborhoods that might score 3 4 (Tegeler, Bernstein, Shelterforce Housing + Transportation Index, pg.3, 2021) (Tegeler, Bernstein, Shelterforce Housing + Transportation Index, pg.3, 2021) well on the HTI, may have heightened costs associated with them, as groceries prices, access to employment, quality of schools and crime are all lower in these neighborhoods. When it comes down to weighing in what both methods can be useful for and how accurate they are, the lesser of two evils or the method with the least problems associated with it would be the HTI. This is because it is able to accurately measure the cost of transportation attributed to a location and takes into account one of the major household expenditures that is often overlooked. HEIR is simply a qualitative method that cannot be used to measure anything significant relating to housing affordability, and simply offers numbers and figures that don’t reveal much, making HTI a better indicator of housing affordability in large metropolitan areas. Bibliography: Hulchanski. (1994). The Use of Housing Expenditure-to-Income Ratios: Origins, Evolution and Implications. TSpace Repository. https://tspace.library.utoronto.ca/handle/1807/126157 Hulchanski. (1995, November 4). The Concept of Housing Affordability: Six Contemporary Uses of the Housing Expenditure-To-Income Ratio. https://edisciplinas.usp.br/pluginfile.php/4138102/mod_resource/content/0/HULCHANSKI_1995_Conce pt-H-Affordability_Housing-Studies.pdf Tegeler, Bernstein, P. (2021, April 15). Transportation and fair housing Part 1: We need a better measure of opportunity. Shelterforce. https://shelterforce.org/2011/03/30/transportation_and_fair_housing_part_1_we_need_a_better_measure_ of_opportun/ Olson, R. (1993) The Emergence of the Social Sciences, 1642-1792 (NY, Twayne Publishers).
