Housing Affordability in Austria. Operationalisation and Demographic Components

Austria currently experiences dynamic real estate price and rent developments. This sparked a policy discussion about affordability of housing in Austria. Based on previous literature and a microeconomic foundation, housing affordability in Austria is measured by the ratio approach (applying upper income and quality limits) and the residual income approach. Differences between renters and owner-occupants, qualitative aspects (crowding, location, year of construction, etc.) as well as the age structure of the population are taken into account. To a large extent, the analysis is based on micro data at the household level. The results indicate that the residual income approach is preferable compared to the ratio approach. Setting upper limits for income and quality provides more reliable results for the ratio approach. Overall, approximately 11 to 15 percent of Austrian households were affected by housing affordability problems in 2014 according to the residual income approach. Low-income households with lower financial capacity, renters and households in overcrowded units are relatively more affected by housing affordability issues. Younger households and households who moved into their current unit more recently are also affected above average. Given the shortage of smaller housing units in Austria, new construction policy should focus on units with two or three rooms and on tackling construction and maintenance cost drivers.