| A widely adopted measure of housing affordability is that households should spend no more than 30% of their household income on housing. |
| A widely adopted measure of housing affordability is that households should spend no more than 30% of their household income on housing. However, this normative threshold is an arbitrary Great Depression-era guideline and may not be relevant today. This paper proposes a subjective indicator of housing affordability by introducing a method commonly used in the medical sciences. It utilizes discrete information to estimate a subjective affordability ratio that discriminates between subjective house-poor and non-house-poor households. We apply the proposed method to household-level data collected in Selangor, Malaysia, and show that the optimal cut-off point is 23.5%. This estimated value suggests a higher prevalence of house-poor households than is implied by the regularly assumed 30% threshold. In addition, we perform a sensitivity analysis and find the bias in the estimated cut-off point is close to zero. |
