Another Look at Location Affordability: Understanding the Detailed Effects of Income and Urban Form on Housing and Transportation Expenditures

Findings from a study using the Panel Survey of Income Dynamics (PSID) and detailed urban environment and transit data support the location affordability hypothesis. Households in location-efficient places spent significantly less on household transportation, enough to offset high housing costs. Walkable blocks and good transit especially contribute to these savings. But households with very low incomes (below 35% AMI) do not see significant enough savings. Authors recommend investments in transit, sidewalks, and economic development in disinvested areas; the preservation and creation of affordable housing of all types and tenures; and more supports for households with very low incomes. For decades, researchers have explored how location efficiency (LE) affects housing affordability, including incorporating transportation costs into a holistic housing affordability measure known as location affordability. Others have argued that estimated transportation savings from LE may be overstated because of limits in data and methods. Smart and Klein’s 2018 article in Housing Policy Debate analyzed the PSID and found “no evidence to support the location affordability hypothesis.” Considering their study’s policy implications, as well as its methodological limitations, we tested the PSID data at a smaller geography using more detailed household and urban form variables, per the LE literature. With this approach, we find statistically significant and meaningful transportation cost differences that are enough to offset higher housing prices for several income groups. However, the transportation savings for households in the lowest-income group in urban areas do not offset high housing costs. Because location-affordable places are in short supply, and the extreme shortage of affordable housing, both housing and transportation investments are needed to support households with low and moderate incomes. Expanding location affordability regionally will also help to address climate change and expand access to job opportunities, goods, services, and other amenities.