Housing Standards 2002/03: Financial Affordability and Attitudes towards Housing

Lux M., Sunega P., Kostelecký T., Čermák D.
Prague: The Institute of Sociology, Academy of Sciences of the Czech Republic

1. Financial affordability of housing in the Czech Republic

1.2 Affordability of existing ownership housing

To assess the affordability of existing ownership housing, i.e., the affordability of housing for households living in their own flat or house, we can also use the standard housing costs-to-income ratio or residual income indicator, but when evaluating the affordability of the existing ownership housing we face several problems:

the affordability of ownership housing differs greatly for households who have not yet repaid their housing loans and households who have already repaid the liabilities;
the affordability of ownership housing significantly oscillates depending on whether a household carries out major repairs, reconstruction or rebuilding of their dwelling. In the case of ownership housing it is common for a household to expend quite small amounts for the operation and maintenance of their dwelling for a number of years, but when the need for larger repairs or modernisation arises, housing costs multiply.
if the existing housing becomes financially too burdensome, households living in their own house / flat can resolve this situation, in extreme cases, by selling their house / flat and moving to cheaper ownership housing or transferring to the rental housing sector (existing housing constitutes a portion to the total wealth of the household).

Despite the above-mentioned problems we have calculated an average total housing cost-to-income ratio for households in the ownership sector according to several basic categories (see Table 5). For the purposes of calculating the ratio, the total housing costs of households have been adjusted only for the housing allowance (since 1996 the entitlement to the housing allowance has also applied to households from the ownership housing sector). As was the case with rental housing sector households, we have assumed a 100 % take-up of the housing allowance (i.e., that all households entitled to the housing allowance applied for it regardless of its amount).

Summary: Keeping in mind that the total housing cost-to-income ratio has major shortcomings with respect to assessing the financial affordability of housing for households in the ownership housing sector, it has been discovered that among "owners", housing costs also "endanger" most households of pensioners, households of singles, single-parent families with children and complete families with children whose head of household is not economically active. The burden measure of these households is, however, significantly lower compared to the burden measure of households in the rental housing sector; moreover, for households living in the ownership housing sector their real estate constitutes an unrealised source of income which may be used to resolve housing problems, if need be.