A Note on Measuring the Affordability of Homeownership
26/06/2004
A Note on Measuring the Affordability of Homeownership
The rapid rise in Irish house prices has been accompanied by increasing concern about the affordability of homeownership. A number of different affordability measures exist and are produced regularly both internationally and domestically. This article examines how these indices are constructed.
A Note on Measuring the Affordability of Homeownership
David Duffy (ESRI)
Article appearing in the ESRI Quarterly Economic Commentary, Summer 2004
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- Although affordability is a relatively simple concept its measurement can be difficult as affordability is driven by house prices, mortgage amount, interest rates, after-tax household income and wealth.
- Homeownership affordability measures can be broadly divided into those that measure the cost of repaying mortgage debt and those that measure the affordability of accessing the housing market. These different measures of affordability can provide a different picture of what is happening in the market.
- In terms of the cost of servicing a mortgage the reduction in Irish interest rates associated with EMU has improved the affordability of homeownership. This is an improvement in affordability once you are on the property ladder.
- In terms of access to the housing market, affordability measures, such as house price to income ratio, show that the rise in house prices had resulted in a decline in affordability and access to the housing market remains difficult.
- Data constraints mean that affordability measures in Ireland are usually based on aggregate data. Therefore they should be treated with some caution. They do not take account of the dispersion of income or house prices across the economy and so affordability will be more difficult for some groups not represented by the national average.