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For further information on this topic, see the Housing Cost Measures appendix to the 'explanatory notes' tab of Housing Occupancy and Costs, Australia.
HOUSING COSTS AND HOUSEHOLD INCOME
Housing costs are often a major component of total living costs. Therefore housing costs are often analysed in relation to total income, sometimes referred to as an affordability ratio. However, the quality of these measures are subject to the limitations of housing cost estimates obtained in the SIH that are described in the previous paragraph. Housing affordability ratios derived from the SIH in particular are affected by the inclusion of RA in the value of income collected.
To illustrate the issue discussed above, consider two households that are renting their dwellings. Both receive government pensions of $400 per week. One rents from a public housing authority and pays rent of $100 per week. The other pays $135 rent per week to a private landlord and receives RA of $35. In Housing Occupancy and Costs, the housing costs of the latter household would be recorded as $135 and their income would be recorded as $435. The couple renting from the public housing authority has a housing costs to income ratio of 25%. The housing costs to income ratio for the latter household would be 31%. If RA receipts are subtracted from housing costs and income, the housing costs to income ratio for the latter couple is also 25%, demonstrating that there is no substantive difference between the housing costs or income situation of the two couples. This issue is also of concern when considering changes in affordability ratios over time, since there has been a shift from providing public housing to providing RA as a means of supplying affordable housing to low income people.
While housing costs can be a major component of total living costs, the difference between the housing costs of a larger household and a smaller household would not be expected to be as great as the difference in many other costs, such as food or clothing. In other words, larger households can be expected to experience economies of scale in the supply of housing. This means that if a larger household and smaller household both have the same standard of living, it could be expected that on average the larger household will have a lower housing cost to income ratio. Therefore relatively high housing cost to income ratios are more of a concern with respect to larger households than smaller households. This should be borne in mind when comparing ratios across different household sizes.
In comparing households' housing costs with their income, it should be noted that households have a variety of housing preferences. Some people may choose to live in an area with high land values because it is close to their place of employment and therefore they have lower transport costs. Some people choose to incur relatively high housing costs because they prefer a relatively high standard of housing to other consumption or investment choices. High mortgage repayments might reflect a choice to purchase a relatively expensive home, or pay off a mortgage relatively rapidly, as a form of saving.
One way of examining housing affordability is to look at households whose spending on housing is likely to impact on their ability to afford other living costs such as food, clothing, transport and utilities. A common threshold applied is the proportion of households spending more than 30% of their income on housing costs.
Higher income households have greater capacity to spend a high proportion of their income on housing without impacting their ability to meet other living costs. Accordingly, a 30% housing costs threshold is commonly applied to those households whose equivalised disposable household income falls in the bottom 40% of Australia’s income distribution, referred to as lower income households. This is commonly referred to as the '30/40 rule' of housing affordability. Lower income households that spend more than 30% of their gross income on housing costs are sometimes referred to as being in ‘housing stress’.
Some affordability measures, including the 30/40 rule, may exclude households that report nil or negative income or those reporting extremely low incomes, such as those in the bottom 2% of the equivalised disposable household income distribution, as data suggests this group includes households with temporarily low or irregular incomes, or accumulated wealth that supports their consumption.
Measures of housing affordability are often restricted to renters as this population group is of particular interest to housing policy makers. The current issue of Housing Occupancy and Costs includes a data cube '21. Rental Affordability, Lower Income Renter Households, National Housing and Homelessness Agreement basis' that is calculated using the official government measure of housing affordability. Among other things, this basis subtracts RA from estimates of income and housing costs, and produces a different measure to the affordability statistics published throughout the remainder of Housing Occupancy and Costs.
The concept of housing utilisation applied in the SIH is based upon a comparison of the number of bedrooms in a dwelling with a series of household demographics including the number of usual residents, their relationship to one another, age and sex. There is no single standard measure of housing utilisation. However, the Canadian National Occupancy Standard (CNOS) is applied in the SIH and is widely used internationally.
The CNOS is sensitive to both household size and composition. The measure assesses the bedroom requirements of a household by specifying that:
The CNOS variable compares the number of bedrooms required with the actual number of bedrooms in the dwelling. Households living in dwellings where this standard cannot be met are considered to be overcrowded.
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6553.0 - Survey of Income and Housing, User Guide, Australia, 2017-18
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 12/07/2019