Affordability Index

There are a variety of ways to assess housing affordability depending upon housing tenure and the housing submarket being targeted. Most assessment methods generally fall into two categories. The first is an absolute definition of affordability where a set proportion of income is applied to a distribution of rents or prices. An example of this can be found in the rental market where rent overburden is defined as paying more than 30% of gross income for rent and utilities. Applying the distribution of incomes to the distribution of prices or rents will reveal the number of households who are cost overburdened.

The second approach is one relative to the market. Rather than revealing how many households are cost overburdened, this method looks at the extent to which prices or incomes must move for housing to become affordable. While a set proportion of household income is used for analysis, this is applied to rental rates or monthly house payments prevalent in the marketplace. In other words, it provides the extent to which householders under different income assumptions are cost overburdened.

The housing affordability indices included in the toolkit reveal the extent to which housing is over or under priced when compared to incomes. There are four included.

The composite housing affordability index assumes a median household income, median house prices, a 20% down payment on a 30-year fixed rate mortgage at prevailing rates. The assumption is also made that the lender will not allow principal and interest costs to exceed 25% of gross income.

The first-time homebuyer affordability index is based upon the assumption of 70% median household income, 85% of the median house price, a 10% down payment on a 30-year fixed rate mortgage at prevailing rates plus 0.25% added per month for mortgage insurance. The assumption of 25% of gross income for mortgage repayments also applies.

The rental affordability index follows the assumption of median income and median market rent with the standard overburden definition of 30% being applied.

The transition rental affordability index assumes 70% median income (same as the first-time buyers index) and paying median market rent and the standard 30% overburden definition being applied. This indicates the extent to which rental housing is priced relative to the ability of potential first-time buyers to save for a down payment.

Please refer to the Read Me section of the spreadsheet for detailed guidance and for information about income estimates used to calculate the affordability indices.

Click here for Affordability Indices

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