Wednesday, August 13, 2008

Housing's Holy Grail?

Here is HUD's new version of a housing affordability index. But it's actually a housing+transportation affordability index. Urban economics is all about the trade-offs between rents paid for housing and accessibility savings. The authors note that,

While housing costs are well-understood, transportation costs are often dramatically underestimated or ignored, creating an urban information gap.

To investigate this, KnowledgePlex and the Urban Markets Initiative of the Brookings Institution present an online discussion about a new way to measure true affordability of housing: the Housing and Transportation Affordability Index. Incorporating housing costs with the costs associated with that location, this analytic tool enables developers, transportation planners, and individuals to uncover the hidden price of transportation that dramatically shapes household budgets.

Last Friday, the NY Times cited models of home prices that assess over- or under-valuation of homes for major metro areas. Can the HUD-Brookings index be used to do same at a more local level? The safe answer is: probably not. It goes back to the idea that forecasting is tough and we are still looking for economics-based forecasting that helps.

Good forecasting of actual home values is the Holy Grail for many Americans. Perhaps the HUD-Brookings approach is a place to start.