Is housing affordable? A recent paper released by the Federal Reserve Bank of Kansas City entitled “The Affordability of Homeownership to Middle-Income Americans” by Justin Rappaport examines the facts behind the seemingly-perpetual statement that housing is becoming increasingly unaffordable. According to Rappaport, affordability is best measured by subtracting the costs of home ownership (payments, taxes, etc.) from the homeowner’s after-tax income, the result being an amount he dubs residual income affordability.

According to this methodology, Rappaport compares the median incomes of middle-America with the costs of owning a house, and reports that housing has actually gotten more affordable.

So, why all the complaints?

It’s a matter of expectation. Many comparisons of affordable housing come from the economic boom periods (the 1950s-60s) during which personal residual incomes were growing at an annual rate of 3%, rather than the 1% current growth rate. Since housing payments are usually the largest expense the average homeowner has, it becomes a handy scapegoat when income isn’t growing as desired.

In addition, people may simply want more house. They may want to upgrade to a bigger house in a more desirable neighborhood, shifting the housing expense upwards before their incomes can justify the added expense, thus creating the idea of unaffordable housing.

first tuesday’s take: Is housing affordable? Rappaport’s paper suggests that it certainly is, since middle-income Americans are buying middle-income affordable houses. And it makes sense. Anyone with a job can afford a house if the house they are purchasing is qualified as within their means by a lender. Housing is affordable.

However, if you’re measuring affordability by whether someone with a middle-income can afford to buy a house anywhere they want, such as in premium areas, the measure of affordability becomes the measure of how much an individual is willing to overextend himself by buying a house he has been convinced he wants but which he cannot afford. In that case, no analysis is necessary; we simply defer to the sensationalist media at large.