The traditional method for measuring the quality of homes, developed by the Department of Housing and Urban Development (HUD), shows only about 1.5 percent as severely inadequate. Using the same data source (the HUD/Census Bureau American Housing Survey), NAHB defined inadequate housing in a way that not only helps explain why prices and rents are sometimes lower than expected, but also shows that over 10 million homes in the U.S. are truly inadequate, about double the number usually reported as having even moderate physical problems.
The NAHB method for identifying physically inadequate housing is based on statistical models that estimate prices and rents. In contrast to the traditional definitions, inadequacy as defined by NAHB has a demonstrable, negative effect on housing values and rents. The characteristics NAHB finds that depress values and rents are relatively simple and generally agree with intuitive ideas about what would constitute a physically inadequate home. For a single-family home, the NAHB criterion for inadequacy includes missing siding, broken windows, crumbling foundation, or holes in the floor.
Additional findings reported by NAHB show that few owners and renters of inadequate units also have problems with housing affordability (paying 30 percent or more of income for housing), so they represent a net increase in the count of Americans with housing problems. This suggests that some Americans—particularly renters—are trading adequacy for affordability, and implies that the need for programs to support the construction of new housing, or renovate older units, is greater than many policymakers realize.
Also, a large share—over 19 percent—of vacant single-family homes are physically inadequate, and so are not ready for full-time occupancy without substantial renovation and repair. Stakeholders who fail to take physically inadequate vacant units into account may overestimate the effective inventory of existing homes on the market
A more complete summary of the results is available as an NAHB HousingEconomics.com Special Study. A more technical version of NAHB’s work on “Housing Value, Costs, and Measures of Physical Adequacy” is published in the March 2012 edition of in HUD’s research journal Cityscape.