What is Affordable Housing?
Affordable housing is any type of housing made available to low-income individuals and families who cannot afford to purchase or rent a home at market prices. The term often refers to housing for low-income occupants that has been incentivized or subsidized by government.
What is Low-Income?
With respect to housing, low-income occurs when the cost of housing compromises the ability to pay for other necessities. Various entities and authorities have different criteria for determining what is low-income. When income falls below a certain threshold (e.g. median income), and the housing cost exceeds a certain portion of that income (e.g. 30%), that income may be considered low-income.
What is the Criteria for Determining if Housing is Affordable?
Similarly, the affordability of housing is measured relative to income.
Government authorities and other institutions define affordable housing by the proportion of income that goes towards housing costs. Housing is generally considered affordable when it cost less than 30% of the occupant's income. This figure and the criteria of affordability may vary by authority.
How is Housing Made Affordable?
Government at the federal, state, and local level address the lack of affordable housing through incentives, subsidies, regulations and policy that encourage developers to build, investors to contribute capital to, and landlords to offer for rent housing to low-income individuals and families.
In the United States, an example of a government incentive is the Low Income Housing Tax Credit that allows investors to reduce the taxes they owe dollar for dollar in exchange for their capital investment in the development or rehabilitation of affordable housing.
The Section 8 Housing Choice Voucher Program is another example where the government pays a significant portion of the rent of a qualified low-income tenant which provides and incentive to landlords to offer housing to those who could not otherwise afford a home or residential unit at market rents.
What Affects the Affordablity of Housing?
Any factor that affects the supply and demand of housing, has an impact on its affordability. On the demand side, employment, salary levels and wage rates, population growth and decline, and migration are some of the factors that can affect rental rates and housing prices. On the supply side, anything that constrains supply or increases operational or construction costs can decrease affordability.
As economies boom and salaries rise, rental rates and housing prices may increase. If wage rates do not increase proportionally across the population, people can eventually be priced out of the existing housing stock. Access to financing also has an affect on housing prices. If the supply of housing in a given area does not also increase in alignment with the needs and means of the population, housing can become unaffordable to a portion of that population.
In the interaction between supply and demand, factors that restrain or discourage supply work to increase housing costs, discourage development and investment, and increase rental rates and home prices. Examples include land and construction costs, zoning use and density restrictions, lengthy process to secure entitlements and building permits, and lack of financing.