The golden rule of housing affordability — embraced by government agencies, mortgage lenders, private landlords and the financially savvy — says you that should not spend more than around 30 percent of your income on your housing costs.
This number, though, is a little deceptive — or, at least, it's incomplete. That's because decisions that you make about where to live influence what you pay for life's second-biggest expense: transportation.
Consider housing and transportation costs in tandem, and a $1,000-a-month downtown apartment for example may feel cheaper if it means you don't have to lease a $300-a-month car. Likewise, the relatively cheap mortgage on a house in the outer-ring suburbs may entail a lot of hidden transportation costs if you have to drive everywhere.
This doesn't necessarily mean that the downtown apartment is always a better deal. The more complex calculation of what "affordability" really means varies in every community in the country. In the Washington area, it looks a little bit like this:
That map, from the nonprofit Center for Neighborhood Technology, shows the share of a median household income in the D.C. region that would be eaten up by local housing and transportation costs combined in each Census block group. More important than the 30 percent threshold, CNT argues, is the 45 percent cutoff when you add these two costs together. In Washington, that benchmark means that many parts of the District (in light green) where housing is often more expensive could actually be affordable on a median household income in the region of about $90,540. That same income wouldn't get you as far in some corners of Prince George's County in Maryland, or Loudoun County in Virginia.
This isn't a perfect prescription for every family and every scenario. A family living in a D.C. neighborhood where the transit service is good and the transportation costs are low may still opt to own a car. And many families make considerably less or more than the median regional income. But CNT has tried to illustrate how, holding incomes constant, housing and transportation costs are often inversely related to each other depending on where you live, obscuring true affordability. (Here's an extended methodology, but typical housing costs come from the American Community Survey and include utilities and taxes; transportation costs are modeled considering factors like the availability of transit and jobs nearby, the local cost of owning a car, and the street design of a neighborhood that would make it more walkable.)
CNT has an interactive map consumers (and government officials) can use to calculate this affordability in 200,000 neighborhoods in the U.S., covering about 94 percent of the U.S. population. The tool is part of the center's campaign to promote the idea of "location efficiency." If your home is located relatively close to your job, your children's school and your grocery store, all your travel is going to be more efficient. Places that aren't as efficient, on the other hand, entail much higher costs in gas, time and car payments that make the cost of living higher than we often realize.
"The cost of living is going up faster than income, and these are the two biggest parts of it, housing and transportation costs," says Scott Bernstein, CNT's president. "We should be looking for ways to do what we can about either or both of those ahead of time, as a sort of insurance policy."
That way when, for instance, the price of gas spikes, people who thought they'd bought cheap suburban homes won't be caught off guard by the high cost of traveling there every day.
There are lot of ways that this idea — redefining affordability to include transportation — could be embedded into government policies and household decision-making. HUD and DOT have started to offer a similar tool, built with the help of CNT. If banks (and government agencies that back mortgages) embraced the idea of "location-efficient mortgages," that could help ensure that fewer families wind up in homes with hidden costs they can't afford. Or it may help a would-be homeowner qualify for a larger mortgage in an "efficient location" where he or she won't own a car.
It would also make a lot of sense for governments to invest in affordable or public housing in places where transportation costs will also be low. Put affordable housing far from transit, jobs and grocery stores, in other words, and it may not really be affordable after all. Likewise, housing counselors and Realtors could encourage people to think about these transportation costs, too. Right now, sites like Zillow or Redfin don't say much about transportation at all.
"I measured this once," Bernstein says. "You get an average of four pages of extraordinary detail on the cost of housing out of one of these sites, and you're likely to get one phrase like 'transportation nearby.'"
If we changed how we thought about what's affordable in this way, that could potentially change a lot of other things, like where developers build and even where Americans chose to live.
"If you think about it over the long run, there will be winners and losers in a shifting market like this," Bernstein says. "If you put the information out and people see that inefficient locations come with the hidden extra of the cost of transportation, people who’ve been making money selling housing in those places won’t do as well. So there will be some pushback."