The Case of The Residual Income Approach

This article seeks to increase awareness of and support for the residual income approach to housing affordability indicators and standards, especially in the United States.

It begins with an overview of various semantic, substantive, and definitional issues relating to the notion of affordability, leading to an argument supporting the conceptual soundness of this approach.

The concept is then briefly set into the historical context of U.S. and British debates on affordability measures.

This description is followed by a discussion of two of the principal issues involved in crafting an operational standard: the selection of a normative standard for nonhousing items and the treatment of taxes.

The article concludes by considering some of the potential implications of the residual income paradigm for the analysis of housing problems and needs, housing subsidy policy, and for mortgage underwriting practice.3

Also read: The Residual Income Approach to Housing Affordability – The Theory and the Practice