Thursday 22 February 2018

Income, yield and affordability: The housing rules of thumb

One rule of thumb is that the price of a house should be on average between three and three-and-a-half times the income of those living in the house. Photo: Stock
One rule of thumb is that the price of a house should be on average between three and three-and-a-half times the income of those living in the house. Photo: Stock

Ronan Lyons

There are a few rules of thumb that exist about how expensive housing should be. Three rules - about incomes, yields and affordability - are familiar to many people, but what is perhaps less well understood is which are the sturdiest.

One rule of thumb is that the price of a house should be on average between three and three-and-a-half times the income of those living in the house. A second is that the price of the house should be something like 20 times the annual rent for the same home.

And the third is that when renting, or indeed when thinking about a monthly mortgage payment, the amount spent on housing should be no more than a third of all disposable income. It turns out that we can rank these three rules by how useful they are - one is only marginally helpful, one is helpful once caveats are kept in mind, while one should be at the core of housing policy.

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