Life Cycle Costs & Housing Affordability Measurement

Singapore Institute of Surveyors & Valuers (SISV)
Publication Type:
Conference Proceeding
Proceedings of the 7th International Cost Engineering Council World Congress & 14th Pacific Association of Quantity Surveyors Congress, 2010, pp. 1 - 11
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This paper examines current problems with home ownership affordability measurement and presents an innovative affordability measurement model that incorporates a comprehensive assessment and risk analysis of housing life cycle costs. The main method used to measure home ownership affordability is the benchmark ratio method whereby housing costs should not exceed a benchmark proportion of household income. the approach typically focuses on mortgage costs with other acquisition and operational costs largely ignored or given scant consideration. There is also a lack of data, impartial advice and financial tools available for home purchasers to effectively undertake a comprehensive analysis and risk assessment of affordability based on total potential costs. Purchasers largely rely on advice provided by entities with a vested interest in the process (such as financial institutions). Deregulation of financial sectors, high levels of competition amongst housing finance providers and a low inflationary environment over the last decade have combined to significantly increase the borrowing capacity of home purchasers in many countries around the world. This has fuelled a dramatic rise in the levels of household debt in countries like Australia who now has one of the highest personal debt-to-income ratios in the world. Questions are now being raised about the lending practices of housing finance providers particularly in the light of the US sub-prime mortgage market collapse in recent years. the model helps to address these problems by providing an independent and comprehensive financial analysis of home ownership costs and the affordability of these costs for a purchaser's specific circumstances. It focuses on creating greater consumer awareness of the total costs of ownership and concomitant financial risks.
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