What Makes a Home Inadequate?

A new index by the Department of Housing and Urban Development (HUD) finds that as many as 43% of homes have some kind of physical problem. For decades, HUD has used data from its American Housing Survey (AHS) to track the quality of American homes. But the measures constructed by HUD to detect physically inadequate homes had not been studied for a long time.

Then, in early 2012, NAHB published a study that critically reviewed the traditional HUD measures and proposed its own, new measure of inadequacy (still using the AHS data).  A home is a complicated product, so you need to investigate a number of characteristics to determine if it is physically sound in every respect. The traditional HUD measures use 18 characteristics, and the new NAHB approach used 11. One of the tenets of the NAHB approach is that you can measure significant inadequacy through a relatively small number of characteristics with a depressing effct on home prices or rents. The NAHB approach found more physical problems in the existing U.S. housing stock than usually thought.

Very recently, HUD commissioned a two part report on the adequacy of the housing stock. The first part investigates the traditional measure of inadequacy, and discusses why NAHB found some problems with it.

The second part creates a new Poor Quality Index (PQI) that uses 41 characteristics to measure housing quality—all of the those in the original definition as well as many used in NAHB’s definition of inadequacy. The more deficiencies, the higher the PQI. The authors of the PQI used their judgment in assigning weights to many of the variables, aiming for an index that classified housing units as severely inadequate if it was over 10.

The PQI captures more units with adequacy problems than the original HUD measure. In the 2009 AHS, the traditional HUD method classifies 4.6% of homes in the U.S. as at least moderately inadequate, and 1.5% as severely inadequate. The method proposed by NAHB classifies 9.0% as inadequate. On the new poor quality scale, 37.1% have a PQI between 1 and 10, 4.4% have a PQI between 11 and 20, and 1.5% have a PQI of greater than 20.

The issue is an important one, because traditional measures indicated that housing problems in the U.S. were almost entirely limited to affordability. The newer measures indicate that physical problems can be significant as well, and imply a greater need for policies to stimulate the replacement or renovation of older structures.

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