What is Location Affordability?

A city’s location affordability depends on three factors: the cost of housing, the cost of transportation, and income. Analyzing housing and transportation costs as a share of income facilitates comparisons across cities, which is beneficial both for families and policymakers. For example, it can help a family that is considering moving to a different city with lower housing costs better account for the total cost of living by reflecting both transportation costs and income. Policymakers concerned with housing affordability, for example, can use this more holistic concept to formulate policy responses, as well as to better understand the magnitude of the challenge for different households and how that compares with peer cities.

The Location Affordability Index (LAI) dataset provides metrics on location affordability of neighborhoods, cities, and regions across the United States. For each census tract, HUD calculates location affordability by predicting housing and transportation costs for eight different types of households based on their characteristics, compared to the pre-tax income of those households.⁵ The LAI dataset does not account for other transfer income that may be available to support low-income households. LAI households are statistical constructs created to represent common types of households in the United States, rather than actual averages for any given city. For example, HUD defines a “median household” as one with two earners and two children making the area’s median family household income. This analysis uses the HUD-defined “median household” as the standard unit of analysis to compare peer cities. While data on common household types in the United States are useful for comparisons across cities, knowing how representative those households are of actual households living in a city is useful, especially when evaluating affordability within a city. CBC analyzed six of the eight household types created by HUD to understand affordability at different income brackets and household compositions. The most recent LAI data used in this report was based on the 2016 census.

This analysis also makes use of the Center for Neighborhood Technology (CNT) location affordability benchmark set at 45 percent of income for combined housing and transportation costs. Households spending more than 30 percent of their incomes on housing and more than 15 percent of their incomes on transportation are considered to be cost-burdened.

Location Affordability for the Median Household

CBC compared the location affordability for the median household in the 20 largest US cities ranked by the size of their economies.

New York City’s median household spends $2,610 monthly on housing and transportation, making it the 10^th most expensive city of the 20 examined. Monthly housing costs of $1,778 are the 5^th most expensive of the 20 peers, while the $832 spent on transportation is the least expensive.⁶ (See Figure 1.)

Affordability is determined based on these costs relative to income; New York City’s median household income of $69,211 ranks 8^th highest among peer cities.⁷ (See Figure 2.) Comparing combined housing and transportation costs to income, New York City’s median household spends 45.3 percent of its income on housing and transportation, ranking 8^th most affordable of 20. (See Figure 3.) New York’s relatively high housing costs are offset by its lower transportation costs. New York City’s location affordability for the median household is more competitive than it would be if only housing costs were considered.

Nevertheless, New York City is considered unaffordable for the median household, based on the CNT standard. Due to high median household incomes, only five peer cities are below the 45 percent affordability threshold: Washington DC, San Jose, San Francisco, Boston, and Minneapolis-St. Paul. While these cities have some of the highest combined housing and transportation costs, even higher median incomes place them below the affordability threshold.

The 20 cities vary on whether component housing and transportation costs are affordable. For transportation, only four cities are affordable—falling below the 15 percent affordability threshold: New York City, Washington DC, San Francisco, and Boston. These four cities are also the top four for highest public transportation usage.⁸

For housing, every city except New York City is below the 30 percent threshold, with New York City just above. While New York City does not have the highest housing costs, its median household income is not as high as similarly expensive peer cities; as a result, housing costs exceed the 30 percent affordability threshold for the median household.

New York City is not alone in the relation of housing and transportation costs. Figure 4 reveals that cities with higher housing costs tend to have relatively lower transportation costs, and vice versa. This tradeoff underpins New York City’s overall affordability competitiveness, with lower transportation costs offsetting higher housing costs relative to other cities.

Location Affordability for Different Households

Affordability in New York City

While understanding the relative affordability for a median household is helpful, a more representative picture of location affordability is provided by examining five other types of households: a dual professional family, a single professional, an individual living at the poverty line, a retired couple, and a single parent family.¹¹

Individuals at the poverty line are defined as having an income at the federal poverty line of $11,800. A single parent household has one income-earning adult, making 80 percent of area median income, and two children. A professional family has two income-earning adults and two children, and earns 150 percent of area median income. A retired couple is defined as a having two non-income-earning adults and no children, and earns 80 percent of the area median income. A single professional is one income-earning adult earning 135 percent of the area median income.

In New York City, affordability varies widely across different incomes and household compositions. (See Figure 5.) On one end, a single professional earning $93,435 annually spends a relatively low 28.1 percent of her income on housing and transportation. On the other end, an individual living at the federal poverty line spends 87.9 percent of his pre-tax and pre-transfer income on housing and transportation. New York City is only affordable to the two highest earning household types.

Relative Location Affordability for Different Households

While HUD’s household types are not perfectly representative of any given city, they are useful to compare across cities, and offer additional information not fully captured by the “median household” alone. Figure 6 demonstrates location affordability for households living at or above a city’s median household income. New York City ranks 7^th and 8^th most affordable for single professionals and professional families, respectively. For these two household types, higher incomes allow for affordable location costs in every city examined.

New York City ranks as relatively more affordable for lower income households. (See Figure 7.) For an individual living at the poverty line of $11,880, New York City ranks third most affordable of twenty. For a single parent family, New York City ranks sixth most affordable. New York City’s relatively more affordable rankings for these household types may be due to better public transportation access for lower-income families.¹² Automobile ownership is expensive, and in general, cities with more robust public transportation systems generally rank better for lower-income households.¹³

However, transportation and housing costs for representative lower-income households are unaffordable across the board. For an individual living at the poverty line or a single parent family, no city has costs are below the 45 percent affordability threshold. For an individual living at the poverty level, 6 of the 20 cities have housing and transportation costs that exceed 100 percent of pre-tax and pre-transfer income, indicating that these households likely rely on substantial public support services to support their expenses (something not accounted for in the LAI dataset). For a retired couple, eight cities fall below the affordability threshold, New York City included. Despite lower incomes, lower commuting-related transportation spending maintains the retired couple household’s affordability.

Conclusion

New York City’s competitive future in part rests on its affordability. A location’s affordability is determined by more than just the cost of housing. Including both transportation and housing costs relative to income, New York City ranks reasonably well in location affordability relative to its peer cities. For many New Yorkers, the City’s high housing costs are offset by its lower transportation costs and higher household incomes. Still, for low-income New Yorkers, high housing costs, even when combined with relatively affordable transportation costs, often break the bank.

Together, pressures in transportation and housing affordability highlights a two-pronged risk to New York City’s competitiveness. One risk is potential for increased transportation costs. Solving the MTA’s fiscal and operational deficits is a significant challenge. If the MTA can bring its system closer to a state of good repair and improve service without significantly increasing the cost of transportation to households, it will help New York City maintain its competitive advantage. This is especially important for affordability among lower income households, who rely on well-functioning and affordable public transportation – a fact which further emphasizes how programs like Fair Fares, if successfully implemented, can buoy transportation affordability.¹⁴

Another risk for some households is housing affordability. Housing costs have continued to increase, with inflation-adjusted rents in New York City growing by 6.2 percent between 2014 and 2017.¹⁵ In order to maintain competitiveness, New York City should consider strategies and policies to address housing supply and alleviate housing cost pressures.