2.10 The Framework for Assessing Land Affordability
2.10.1 What Counts as Affordable?
2.10.1.1 The Location of Housing
The price of a house, which is determined by its location, the structural quality, reticulated infrastructure services and amenities tends to influence the extent to which the inhabitant is able to afford the house (Dicken & Lloyd, 1990). According to McCann (1993) the aspect of locating low- income housing in relation to other human activities is key to making such housing affordable. Without exception, the consequences of peripheral location of low-income housing is the reduction in opportunities for employment, income generation and investment in housing improvement. The
Parameters of affordability:
how are they set?
Goal: why deliver AURL?
Target Group:
who counts?
What counts as affordable?
56 guiding principle in setting location up as a precondition of housing affordability must therefore lie in the determination of whether the location chosen can secure livelihood opportunities, without inconveniencing the beneficiaries.
Studies by Payne (1977) of urban settlements in India reveal that only residents who are less locationally dependent are able to live in residential areas where they incur higher transportation costs. For low-income households however, the ability to afford housing rests critically on location, because location impacts on access to reticulated infrastructure services, amenities, transportation, building materials and markets. In large-scale low-income housing schemes, as in the cases of Dakar (Senegal), Dar es Salaam (Tanzania), Harare (Zimbabwe), Lusaka (Zambia), Manila (Philippines), Mumbai (India) and Nairobi (Kenya), major locational problems are common and a source of much hidden non-housing expenses (Campbell, 1990; Keare & Parris, 1982; Harris, 1972). As a result of this pressure, most beneficiaries sell-out or rent to middle-income groups eager to alleviate their own housing problems (Berner, 2000; O’Hare et al., 1998). A study by Boudreaux (2008) in Johannesburg reveals that beneficiaries of free public housing often abandon the units because they are located in peripheral locations far from job opportunities. According to Landman and Napier (2010) the construction cost of the house is only a part of the overall housing costs, which include transportation cost and time cost of commuting. The location of housing in relation to public transportation inevitably becomes crucial to affordability considerations linked to journey-to-work/home costs. According to McCann (1993) transportation has influence, negative or positive, on the locational decisions of individual households. It is for this reason that, in this study, housing location is treated as a subsystem of the housing affordability system.
The importance of transportation cost as a determinant of housing affordability, residential location and housing choice is underestimated by housing developers who build low-income housing in inconvenient locations on the urban periphery (Landman & Napier, 2010; Crankshaw & Parnell, 1996).
Low-income households make personal choices regarding residential location based on proximity to jobs, amenities and public transportation trade-offs. The concept of trade-offs between transportation accessibility and other housing and location characteristics is not new. `Bid-rent' economics are based on the intuitive concept that the residential location choices of individuals are based on a trade-off between the increasing unit prices of housing and land and decreasing costs of commuting to work that are associated with living in inner-city locations close to employment opportunities. Low-income households tend to squat on high-priced urban land to reduce transportation costs associated with traveling over long distances to and from work.
57 More recently, there have been two distinct studies that have examined the trade-offs between transportation access and other factors. Studies by Boyce et al (1972), Dornbusch (1976) and Lerman et al (1977) that explored the impact of public transportation on housing prices in Philadelphia, San Francisco and Washington, respectively, generally concluded that transportation has a small but statistically significant impact on the prices paid for housing. Other studies by Mayo (1973), Friedman (1975), Lerman (1975) and Pollakowski (1975) that examined the impact of socio-economic factors and the level of public services on the actual location decisions of households provide evidence for several conclusions:
The levels of household expenditures on amenities are less important factors in location choice for most households than is transportation accessibility to work.
The effect of transportation access on location choice decisions is overshadowed by household income and size considerations.
More recently, studies of low-income housing development by Booth (1978) and Sweeney et al (1990) found the impact of transportation on housing satisfaction to be lower than expected, indicating that the role of transportation in determining residential location choices is underestimated.
Most of the previous studies on residential location analysis by Friedman (1975), McCann (1993) and Braubach and Fairburn (2010) often represent transportation services by measures of travel distance without measurement of wait time, out-of-pocket costs and probable mode choice. Proximity to work opportunities is an important factor the urban poor consider when choosing where to live; they often choose a place either within walking distance to reduce commuting costs or within a reasonable commuting distance by public transport. They often try to minimise the length of time it takes shuttling back and forth to work. The urban poor tend to reside in places where the highest concentration of employment opportunities are located.
Strategic locations that the urban poor consider affordable for establishing a place of residence are largely selected based on a few key factors including accessibility and amenities. In terms of accessibility, low-income households look for sites that are situated near major routes. Commuting to and from work is a big part of many people's day, so a location with easy access will be more desirable than one that is far from the most accessible transportation routes. A great location should also include important amenities such as shops, schools and clinics. Most people like to reside in places that offer convenient access to amenities. The distance from such amenities plays an important role in convincing low-income households that residing on land in inner-city areas offers convenience, which undoubtedly affects how much one pays for a home. Land is a finite commodity, thus, land in
58 inner-city areas that is highly in demand tends to have higher prices than land in peripheral areas of the city.
No matter what one earns, living comfortably and within what one can afford is a first concern.
Affordability includes more than just housing expenses; consideration should also be given to non- housing expenses. According to Parnell (1996) when low-income households move to informal settlements, they expect their household expenses to drop; they eventually spend a lot less money on housing and non-housing expenses. Because most of these households are employed in menial jobs, their income is often below the poverty datum line. Affordability is always their top priority whenever they think about where they can locate their housing.
2.10.1.2 Functionality of a House
When homeowners design their homes, they build homes that fits their sense of beauty while keeping this balanced with their unique lifestyle and elements of functionality. The design of each home has to be functional, with beautiful furniture and features that offer comfort and convenience of use.
However, it can be tricky for the urban poor to find this equilibrium between beauty and functionality.
It is not a common practice to build a home that looks beautiful, but does not have the amenities one needs for day-to-day lifestyle or alienates the inhabitant because it lacks a personal touch. Besides transportation cost, however, the size, quality and condition of the house tend to affect the price of housing. Hence, beauty and functionality of a house tend to push prices beyond levels the urban poor can afford. Thus, limited housing affordability among the urban poor tends to compel them to overlook elements of beauty to maximise functionality of a house. Low-income households make trade-offs in housing quality and size to gain access to housing in close proximity to job opportunities and public transportation. In most cases they think of their lifestyles; their economic circumstances are always changing in step with their insecure jobs and uncertain incomes. Hence, their residence in informal settlements becomes transitional as they constantly move and build new homes in step with their changing lifestyles as they get married, have children or change jobs. The decisions they make regarding the location of their housing, its size and quality are considered based on their socio- economic circumstances that limit housing affordability.
2.10.1.3 Socio-Economic Considerations
Previous studies by Reichert (1990) and DeSilva and Elmelech (2012) highlight that demographic factors such as population size, age, gender, race and marital status of household members affect the demand for housing. These studies indicate that if other variables such as income remain constant, the majority of the population would increasingly demand for housing, which tends to increase house prices. Studies by Potepan (1996) and Jud and Winkler (2002) also highlight that income is another
59 factor affecting demands for housing. An increase in income, which facilitates greater consumption of products and services, positively affects housing demand, (Hou, 2010; Fontenla et al, 2009). A consistent income represents the long-term housing purchasing power of a household because the option to buy a house is determined by the consumers' long-term consumption habits and income.
Moreover, higher household incomes can lead to higher housing purchasing power, which raises housing demands and subsequently increases housing prices. Furthermore, a relationship exists between the amount of permanent income and consumer education levels (Goodman, 1988). As indicated by previous studies, a greater proportion of highly educated people in the population results in higher local housing prices (Brasington & Hite, 2005; Goodman, 1977). Conversely, an increase in unemployment rate, indicating a decrease in income, lowers housing prices because people reduce their purchasing power and demand for housing, but only if their incomes enabled them to participate in the housing market in the first place.
2.10.2 The Framing of Affordability