Housing Quick Facts highlights affordability measures that indicate the degree of need for affordable housing for lower-income households for a particular geographic area. These measures include by geographic area a housing affordability index based on households whose incomes are 60% of the median household income; the number and percent of cost burdened households (individual households who pay more than 30% of their income for their housing); and trend charts showing the relationship of median owner income to owner cost and median renter income to rental cost over time.
Housing Affordability Index (at 60% of Median Household Income)
This website offers a series of housing affordability measures (or indexes) that represent affordability of the typical housing unit based on variations of the typical household income. The overall housing affordability index (HAI) is the percent of the median household income required to occupy the median housing unit including both sold and rental housing. A variation of the overall HAI is used in this factsheet and is based on households with incomes that are 60% of the area median. Advocates may see the housing affordability index at 60% of median income as representative of affordability for lower-income households.
The Housing Affordability Index (at 60% of Median Household Income) answers the question, “For households making 60% of the median household income for the area, what is the percent of household income that is required to own or rent the typical house?” For example, a housing affordability index of 42% that is based on households who have incomes that are 60% of the median, means that, typically, households making 60% of the household median income in a particular area would be required to pay 42% of their income for the typical housing unit in that area.
Reflecting both sold and rental housing, the overall HAI (at 60% of Median Household Income) is the product of a sold component and a rental component. The sold housing cost is based on the Principal, Interest, Taxes, and Homeowner’s Insurance (PITI) payment for the median unit sold. The rental housing cost is based on the gross rent, including utilities, for the median unit rented. To calculate the overall HAI, the ratio of median sold housing cost to 60% of median household income and the ratio of median rental housing cost to 60% of median household income are each calculated, weighted by their respective shares of the housing market (the percent of owners and the percent of renters), and summed.
Cost Burdened Households
Housing cost burden reflects the percent of income paid for housing by each household living in the geographic area reported (see Housing Cost Burdened Households for a more thorough description). The housing cost burden measure presented in the factsheet provides the actual “affordability outcome” of the housing choices made by individual households and are constrained by each household’s income and preferences, as well as by the housing available in the community. The housing cost burden measure reflects the preferences, budgets, and housing units available to each individual household, as well as any public or private housing assistance they receive. Some households might obtain lower-cost housing by doubling-up with relatives or accepting crowded living conditions, while other households might accept higher cost burdens to obtain larger units or more desirable locations. The Percent of Cost Burdened Households reflects the degree to which individual households within a geographic area have housing costs that exceed the accepted definition of what is affordable. Households paying more than 30% of income for housing are considered cost burdened.
The housing cost burden charts answer the questions, “How many and what percent of households are cost burdened and, within income groups, how many and what percent of owner households and renter households are cost burdened?”
Relationship of Income to Housing Cost
Graphically showing the relationship of income to housing cost over time provides a picture of whether or not housing is affordable as well as the change in affordability.
The relationship of housing cost to income as shown graphically over time provides the answers to the questions, “Is the typical income sufficient to afford the typical housing unit and has income kept pace with housing cost over time?”
These questions are answered separately for owner households and renter households by plotting median owner income vs median owner cost and median renter income vs median renter cost.
Median owner income includes the salary and wages of all household members in owner households. Median owner cost is the estimated monthly median cost to own. Median owner cost is based on the Principal, Interest, Taxes (PIT) payment required plus home insurance premium for the median unit sold in an area. It assumes the purchase of a home at the median sales price for units sold in an area over a particular time period (median sales price is from Multiple Listing Service sales data provided by the Virginia Association of REALTORS® and is based on sales price at closing including both new and existing homes), a 5% down payment, and a 30 year mortgage at a fixed interest rate (the state average mortgage interest rate including fees and assuming 5% down for a particular time period). The calculated cost for principal and interest is adjusted by adding the monthly cost for real estate taxes (for localities, the local real estate tax rate for a particular year adjusted to a monthly rate; for metropolitan areas and the state, an average of local rates weighted by the number of owners for a particular year adjusted to a monthly rate). In addition, the cost for principal and interest is adjusted by adding an estimated monthly cost for homeowner’s insurance based on average premiums for Virginia provided by the National Association of Insurance Commissioners for various ranges of home values (assumed 80% of median sale price as the home value).
Median renter income includes the salary and wages of all household members in renter households. Median renter cost is based on median gross rent, which includes utilities, and is the estimated monthly cost to rent. The affordability index uses the American Community Survey median gross rent for all units adjusted to better reflect individual jurisdictions as the estimate of median renter cost.