Housing Affordability Leverage and Risk

The housing affordability area covers a large scope as it deals with two different aspects of the topic, the definition from endless sources from the literature and the measurement of the defined subjects. In this thesis, the two affordability measurements chosen and defined, purchase affordability and repayment affordability, will be explained and used in a sensitivity analysis made on different mortgage types chosen from the Danish mortgage loan market.

The strongly related parameters when considering affordability, leverage, and risk, will be discussed and it will be demonstrated that those parameters are extremely important when discussing housing affordability. The relationship between those factors is complicated and double-sided as it at the same time can indicate increased and decreased affordability.

The additional costs and benefits of homeownership must be taken into concern when analyzing the concept of housing affordability. Taxes and user costs will therefore be discussed as they have great influences on the affordability measurements and possible incentives to increase leverage and risk.

Also Read: The Landscape of Middle-Income Housing Affordability in California