Location Efficiency and Mortgage Risks for Low-Income Households

Kaza, Nikhil; Riley, Sarah; Quercia, Roberto G.; Tian, Chao Yue

doi:10.1080/10511482.2016.1159972

Cited by 16 publications

(13 citation statements)

References 31 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Furthermore, there is now large empirical evidence that excessive front-end ratios strongly increase the risk of mortgage delinquency, supporting the current underwriting guidelines (Kaza et al, 2016).…”

Section: Literature Reviewmentioning

confidence: 82%

“…A first strand of the literature examines the hypothesis underlying CHT policies that excessive transportation costslike excessive housing costs -increase the risk of mortgage delinquency. Although recent works do corroborate this point to a smaller or greater extent (Kaza et al, 2016;Pivo, 2014;Rauterkus et al, 2010), empirical evidence remains somewhat inconclusive and a few works actually find no influence of location accessibility on the risk of default (e.g. Blackman and Krupnick, 2001).…”

Section: Literature Reviewmentioning

confidence: 98%

“…Empirical evidence on the issue remains mixed, and is limited by the unavailability of adequate data (Kaza et al, 2016), while theoretical works are seldom, if any (Chatman and Voorhoeve, 2010).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access

Coulombel

2018

Transport Policy

View full text Add to dashboard Cite

This paper compares the effects of two prudential measures in housing access on the solvency and welfare of households, with specific attention to transport costs as well as equity issues. A widespread regulation is to cap the housing expense ratio (defined as the share of income spent on the rent or the monthly loan installment), typically at one third of income or so. Using the canonical model of urban economics, the monocentric model, we show that capping the housing expense ratio drives low-income households to move away from the city center toward suburban areas, where they face high transport costs. This unintended eviction effect lowers the efficiency of this prudential measure as far as household solvency is concerned. Capping the overall housing plus transport expense ratio precludes this eviction mechanism and unequivocally proves more efficient in protecting household solvency, including from strong variations in transport prices such as during fuel price spikes. Additionally, by limiting the bidding capacity of households, both prudential measures lead to a decrease in housing prices. This tends to improve the welfare of households, firstly of high-income ones (as they are less affected by the constraints). The effect on housing prices is stronger when capping the housing expense ratio, so that households, again firstly high-income ones, are typically better off (in terms of welfare) than when one caps the housing plus transport expense ratio, however. Considering the primary objective of prudential measures-protecting the solvency of households, firstly of low-income ones-our findings call for the inclusion of transport costs within prudential ratios, as well as indicators of housing affordability. This would incidentally raise public awareness with regard to the high costs of private cars, which are often underestimated. A short numerical application to the Paris region corroborates that a policy change from housing prudential ratios toward comprehensive housing plus transport prudential ratios might significantly improve the situation of low-income households.

show abstract

Section: Literature Reviewmentioning

confidence: 82%

Section: Literature Reviewmentioning

confidence: 98%

See 1 more Smart Citation

Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access

Coulombel

2018

Transport Policy

View full text Add to dashboard Cite

show abstract

“…Several scholars have investigated the merit of adjusting subsidy levels or duration for public housing programs in scale with the presence of local amenities (Bieri & Dawkins, 2016) and location efficiency (Lens & Reina, 2016;Tremoulet, Dann, & Adkins, 2016). Kaza, Riley, Quercia, and Tian (2016) analyze mortgage performance and location efficiency, arguing that mortgage concessions for low-income families in high-efficiency locations may not be warranted.…”

Section: Background and Reviewmentioning

confidence: 99%

It’s Good but Is It Right? An Under-the-Hood View of the Location Affordability Index

Ganning

2017

Housing Policy Debate

View full text Add to dashboard Cite

In 2012, the U.S. Department of Housing and Urban Development (HUD) released the Location Affordability Index (LAI) as an online portal and downloadable data set. The LAI has elevated the U.S. conversation on affordability to include transportation and access to opportunities, and has been used in state and federal programming, by researchers, and by private households. However, although some researchers have noted concerns with and potential limitations of the data, none has provided practitioners and researchers with an under-the-hood view of the data, analysis of its reliability or validity, or its conceptual limitations. This article recommends methodological improvements dealing with issues of variable construction, aggregation, and modeling. A recreation of the LAI at the census-tract level suggests the LAI overestimates both costs and cost burden, but especially among renters, and especially in metropolitan areas. On the transportation side, model recreation requires partnership and resourcing to both gain access to restricted data and to develop a reliable database on transit supply and use.In 2012, the U.S. Department of Housing and Urban Development (HUD) released the Location Affordability Index (LAI) as an online portal and downloadable data set. HUD adopted and revised the LAI from its origin as the Center for Neighborhood Technology's Housing and Transportation (H+T) Affordability Index. This database seeks to inform households and public agencies of the costs of living in various places, changing the discussion about affordability from one focused solely on housing to one inclusive of transportation costs. Numerous scholars have analyzed the LAI estimates, resulting in a special issue of Housing Policy Debate as well as other publications. These publications have addressed housing subsidies, mortgage risk, and racial disparities in costs, among other things. However, these publications have not provided practitioners and researchers with an under-the-hood view of the data, analysis of its reliability or validity, or its conceptual limitations. As this article shows, some elements of the LAI introduce either considerable error or the potential for considerable error. Many of those issues, based in variable construction, aggregation, and modeling decisions, can be fixed. Others-notably, data on transit use-are more problematic. If left unchecked, such error could misinform decisions regarding household location or public policy issues in housing or transportation-potentially costing private households or public agencies considerably. This article uses data from across the state of Ohio, intending it as an illustrative case study of the national implications of the conceptual and technical bounds of the LAI. ARTICLE HISTORY

show abstract

“…Several scholars have investigated the merit of adjusting subsidy levels or duration for public housing programs in scale with the presence of local amenities (Bieri & Dawkins, 2016) and location efficiency (Lens & Reina, 2016;Tremoulet & Adkins, 2016). Kaza, Riley, Quercia, and Tian (2016) analyze mortgage performance and location efficiency, arguing that mortgage concessions for low-income families in high-efficiency locations may not be warranted.…”

Section: Literature Reviewmentioning

confidence: 99%

What Do We Know About Location Affordability in U.S. Shrinking Cities?

Ganning¹,

Tighe²

2017

View full text Add to dashboard Cite

In late 2013, the Department of Housing and Urban Development (HUD) launched the Location Affordability Index (LAI) portal. Their dataset uses models to estimate typical amount households spend on housing and transportation at the block group level, and calculates "H + T Affordability," the percent of household income spent on these items. In our previous research, we analyzed 81 shrinking cities to determine how location affordability differs across various neighborhoods. Our results suggest that households in declining neighborhoods, as compared to stable or redeveloping neighborhoods, face the greatest H + T affordability challenges in shrinking cities. Furthermore, in declining neighborhoods, virtually all of the additional affordability challenges encountered can be accounted for by differences in transportation affordability rather than housing. Since there is virtually no research to either validate or suggest bias in the LAI data, and a declining neighborhood in a shrinking city presents both a relatively common yet entirely dissimilar context to the norm, we feel that this data should be carefully calibrated to, and tested for, this setting to ensure that appropriate and efficient policy follow.In this report, we present the results of two research phases: a strictly quantitative first stage in which the LAI is disassembled and reassembled, taking stock of assumptions, methods, and accuracy. This work finds that the LAI generally over-estimates housing costs, but more for renters and more in metropolitan areas. Estimations of transportation cost burdens are built largely from unreliable data and using models which cannot be replicated, leading us to conclude that these cost burden estimates may not be reliable. In the second research phase, which is survey-based, we gather household-level data from 12 Census tracts in Cleveland, Ohio, to estimate household housing and transportation costs and cost burdens and gain a clearer sense of budget trade-offs where costs are unaffordable. The survey results support the first research stage. The LAI over-estimates housing costs for these neighborhoods by approximately 17% and transportation costs by approximately 126%, meaning the LAI estimates for transportation are not reliable. By and large, households trade essentials, investing, and paying bills (at all or in full) to cover their costs in housing and transportation.17.

show abstract

Location Efficiency and Mortgage Risks for Low-Income Households

Cited by 16 publications

References 31 publications

Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access

Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access

It’s Good but Is It Right? An Under-the-Hood View of the Location Affordability Index

What Do We Know About Location Affordability in U.S. Shrinking Cities?

Contact Info

Product

Resources

About