Housing Affordability and Inequality: A Consumption-Adjusted Approach

Abstract

We introduce a new measure of housing affordability that adjusts for normative variation in housing consumption. The new measure is computed using extensive micro-data from Israel for the 1998–2015 period. Findings suggest sharp declines in Israel quality- and consumption-adjusted affordability. Further, the new consumption-adjusted measure suggests more pronounced affordability burdens among minority and underprivileged groups. The new measure also gives rise to elevated Gini measures of housing affordability inequality. We also find that recent trending up in house prices and income in Israel is associated with more pressing consumption-adjusted affordability challenges among those already in housing distress, particularly in outlying, peripheral areas.