The case for choosing housing affordability outcomes to assess the consequences of different long-term housing policy strategies was established in chapter 1. This chapter examines housing affordability, both as a concept and an issue, more closely. Four aspects are covered. First, the concept of housing affordability is discussed. Second, a generalized conceptual interpretation of the way. The term housing affordability is used widely in evaluations of the impact of the cost of housing on consumers but with a number of different meanings and measures. The most general use of the term centres around consideration of the extent to which housing costs for a given standard of housing impinge upon a household’s ‘income to live on’ or their capacity to meet their total household needs (Hancock, 1993). Three standards are invoked in this general definition of the concept: socially accepted standards of housing, housing costs and quality of life (Maclennan and Williams, 1990; King, 1994). The standards may be determined either in a relative way (that is, defined in relation to the situation of households in general) or normatively (that is, defined by an independently determined value) (Whitehead, 1991). Issues surrounding the way in which the affordability concept can be operationalized and measured are considered. That discussion will shed further light on different applications of the concept and on how affordability outcomes can be compared meaningfully across countries. First, however, this chapter examines the factors determining housing affordability and the role of housing policy in influencing affordability conditions. The affordability of housing is a function of the costs of producing and financing housing and of household income levels or (more accurately) purchasing power. A complex set of factors, both within the housing system (including housing policy interventions) and beyond it, influences both housing costs and household purchasing power. It is the interaction of all such factors at a particular time in a given place that will determine housing affordability. A conceptual model that identifies the general factors that determine housing affordability in market-based systems of housing provision and the relations between those factors.