Bridging the Gap between Housing Stress and Financial Stress: The Case of Australia

Abstract

In recent decades, housing affordability has been increasingly linked to household financial outcomes where high housing costs relative to income are perceived to negatively affect financial well-being. However, the traditional measure of housing affordability in Australia is housing stress, which is subject to widespread criticism as an inadequate representation of overall financial stress. This methodological paper first determines the extent to which housing stress correlates with experiences of financial stress and, second, demonstrates ways in which the measure can be modified to deliver a more reliable indication of how housing costs affect financial well-being. The study contributes to the international literature by showing how the use of longitudinal data can improve the measure of housing stress providing a more accurate assessment of the relationship between housing costs and financial well-being.

Keywords::

• Housing stress
• housing affordability
• financial stress
• expenditure-to-income ratio
• well-being

Acknowledgements

This paper uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Survey was initiated and is funded by the Australian Government Department of Social Services (DSS), and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views in this paper, however, are those of the authors and should not be attributed to AHURI, DSS or the Melbourne Institute.

Notes

¹ CRA amounts are not directly available from the HILDA survey. Hence, we first determine CRA eligibility by identifying private renter households who receive pensions, allowances or more than the base rate of Family Tax Benefit Part A (FTB(A)). We then apply the minimum thresholds that rents must exceed to attract CRA eligibility. Households that satisfy both criteria are classified as CRA eligible. We then proceed to calculate the CRA amount that each eligible household would receive in each year from 2001 to 2010. CRA is paid at 75 cents for every dollar of rent above the minimum rent threshold and is capped when the household's rent breaches the maximum rent threshold.

² Some studies, such as Yates (2007), include rate payments for homeowners using the cross-sectional SIH. However, information on rate expenditure is not available from the HILDA survey. Hence, studies that have used the HILDA survey to measure housing costs generally tend to exclude rate payments (Rowley et al., 2011; Wood & Ong, 2011). In the present study, due to data limitations, we do not include rate payments in our housing cost measure.

³ While the latest wave of the HILDA survey at the time of analysis was for the year 2010, the analysis reported in this section is up till the year 2009 as the required financial stress variables are not available in the 2010 data.

⁴ 2002 represents the earliest year of the HILDA survey in which major life event data were recorded.

Additional information

Funding

The research reported in this paper was funded by the Australian Housing and Urban Research Institute [grant number 80650].