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Getting to the Heart of Housing's Fundamental Question: How Much Can a Family Afford?
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Throughout its history, the National Low Income Housing Coalition has used a number of measures of housing affordability—“moderate and severe housing cost burdens,” the “affordability gap,” and its signature statistic, the “Housing Wage,” to name a few. All these measures of affordability rely on the “rule of thumb” that any household that spends more than a certain percentage of its income on housing lives in unaffordable housing. This approach to determining housing affordability has been present in U.S. low income housing policy since the 1930s. For nearly three decades, the upper threshold housing cost-to-income ratio (HCIR) considered affordable in research and policy in the U.S. has been 30%.

The standard was not always 30%. Over the years and at various times, a number of different HCIR thresholds have been used as a rule of thumb. Throughout this history there has also been a steady academic criticism of the entire rule of thumb approach to broadly determining affordability. The primary criticism has been that it is imprecise when extended to a broad population with a variety of income levels and housing needs. As a result, a number of proposals have emerged explicitly or implicitly suggesting a move in U.S. housing policy and research toward a more precise standard based on family budgets and more sophisticated norms of what people should pay for housing.

In recent years, industry groups and housing agencies have proposed reforms for programs such as Public Housing and the Low Income Housing Tax Credit (LIHTC) that would make rent setting and subsidy determination more convenient. In the process, these reforms moved away from the rule of thumb. To set the context for such discussions, and assess the opportunities to make the standards of affordability used in policy more precise and accurate as a result, this analysis takes a closer look at the historical, theoretical, and empirical foundations and criticisms of the current 30% rule of thumb. (Author)
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