September 2, 2014

Knowing Your Cost of Housing and Transportation Makes You a Better Consumer

Written by:

City of Beaverton

For many families, buying a home is the single most important financial decision of their lives. But just as important as choosing the right type of home is the decision of where that home should be.  The housing market provides a wide variety of options at different price points for potential homebuyers and renters—from a condominium on a busy downtown street, to a suburban home with a two-car garage, to a fixer-upper in a revitalizing neighborhood.

Affordability is always a major consideration when deciding on a place to live, but a common mistake that potential homebuyers and renters make is focusing solely on their ability to pay the monthly mortgage or rent. Transportation costs, along with home maintenance, utilities, and other expenses claim a surprising proportion of families’ incomes; and when not factored in, these types of expenses can cause financial strain on a family’s budget, affecting their ability to afford the home.

When we consider that on average American households spend more than half of their annual income on housing and transportation costs, we can see that it is no coincidence that the neighborhoods most devastated in the recent housing crisis were those that were distant and disconnected from other communities, with virtually no transportation options other than driving.

To give potential homebuyers, renters, and investors a more complete picture regarding the affordability of a neighborhood or block, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Transportation (DOT) unveiled the Location Affordability Portal (LAP) in November of 2013 and recently updated it to be even more robust and effective.

The LAP features two tools, “My Transportation Cost Calculator” and the “Location Affordability Index,” which, together, can help consumers better calculate their housing and transportation costs. Users of the transportation cost calculator enter information about their daily commute to work, their vehicles, and the location of the current or potential home, which the tool then uses to generate customized estimates of their cost of living in a particular neighborhood. The Location Affordability Index provides a visual comparison of levels of affordability for eight different household profiles across an entire city or region.  The primary purpose of the LAP is to help individuals and families make more informed decisions and ultimately save money—resulting in stronger and more economically resilient neighborhoods.

I’m excited to announce that the LAP has undergone significant data updates and enhancements that include sophisticated statistical modeling techniques that will make the tools even more effective.  Version 2 of the LAP improves on the existing tools in several important ways:

  •  Updates housing data to 2012
  • Expands coverage to virtually the entire country (not including Puerto Rico)
  • Incorporates data on a neighborhood’s housing stock, which is the biggest constraint on what housing is available to buy or rent and therefore an important determinant of housing costs
  • Incorporates measures of local jobs, which are a major aspect of walkability
  • Employs a Simultaneous Equation Model (SEM) that better reflects real-life trade-offs between housing and transportation costs.

As the housing market continues to recover and individuals and families look for neighborhoods of opportunity, the relevance of location affordability–the combined cost of housing and transportation—is clearer than ever. We at HUD—along with our partners at DOT—will continue to update the tool with the latest information and data available so that individuals, families, municipalities, and investors can make more educated decisions about the place they choose to call home.

Harriet Tregoning is the Director of the Office of Economic Resilience.

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