Housing affordability in Austria: Tailoring the ratio approach in a simple yet effective way

The expenditure-to-income ratio is a widely used measure of housing affordability as it is easy to calculate and to interpret. Yet it suffers from several flaws that may diminish its usefulness. This paper addresses the main points of critique and improves the accuracy of the ratio measure by providing additional information about the distribution (values at the 10th, 25th, 50th, 75th and 90th percentile) for the cost burden and calculating cumulative distributions for a range of expenditure-to-income shares instead of one single benchmark. Furthermore, an upper limit for income and housing quality is set in order to avoid misclassifying households that have strong preferences towards housing consumption. The results indicate that these modifications are necessary to avoid overestimating affordability problems. The tailored ratio approach developed in this paper holds up well when contrasting its results to that of the residual income approach in Austria by tenure.