even the same individuals may value these
things differently over time.
Prospective homebuyers weigh this
bundle against the cost of housing; and
when there are multiple locations that
meet their preferences for their bundle
equally, they will generally purchase the
most affordable property that meets their
needs. As a result, people of greater means
may purchase housing that meets their
needs but that costs less than 30 percent
of their income.
Many homebuyers naturally seek to
maximize the value of their housing
through purchasing the most affordable
housing that meets their needs. The impact
of this rational choice on lower-income
buyers when applied to the overall housing
market, however, can be profound. Every
higher income household that purchases a
home meeting their needs for less than 30
percent of their annual income prevents a
household of lesser means from accessing
that house, which would otherwise be
affordable to them.
As an example, a household earning
$75,000 annually—applying the 30 percent
rule of thumb—could afford a home that
costs $1,875 in monthly costs (30 percent of
$75,000, divided by 12). If they can meet
their needs for $1,250 per month and
decide to purchase a home at that price,
they have effectively denied that unit from
every other family to whom it would have
also been affordable (anyone earning more
than roughly $50,000). Households to
whom that unit has been denied will also
make choices to maximize value and
likewise deny units to those of lesser means
than themselves. This results in a crunch at
the bottom of the income stratification in
which not enough housing units are
available to those individuals because a
number of families of means are “underconsuming” housing.
The reality of value maximization can be
explored through looking at cost-burden
by income cohort (Figure 10). Households
in Marion County earning more than
$50,000 are substantially less likely to be
cost-burdened than those
Figure 10. Cost-burden for Households with a Mortgage, by Income Cohort
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
< $20,000
$20,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999
Spend less than 30 percent
> $75,000
Spend more than 30 percent
Source: American Community Survey, 5-year estimates (2009-2014), Table B25101
17