This report presents a new approach to measuring homeownership affordability. Current measures look at how affordable it is for the median family to buy the median home in a given area. These measures do not distinguish between owners and renters, but it is current renters that make the tenure decision. Also, the median income does not capture the distribution of incomes in an area. We correct for both of these issues in our Home Affordability for Renters Index (HARI). For each metropolitan statistical area (MSA), we construct a local area index that compares renters’ incomes to those of recent borrowers in the same MSA and a national index that compares renters nationwide with recent borrowers in a specific MSA. The indexes also reveal how housing affordability differs by location over time and across racial and ethnic groups. We demonstrate the value of our new indexes by showing that they are predictive of homeownership rates: MSAs that are deemed more affordable by our index have higher homeownership rates.
This report was updated on April 10, 2018. The column headers in table 2 were updated for accuracy.