**_Housing Surveys_ .** Some countries implement surveys specific to the housing sector on a periodic basis or as part of a one-off policy or program formulation effort. These are typically sample surveys that focus on the number and characteristics of housing units as well as the households that occupy those units. In the case of the American Housing Survey, which is administered every two years, the survey is longitudinal to allow for analysis of trends over time.  Depending on the questions included, a national or local housing survey could collect the data necessary to evaluate the affordability of housing using one or more of the approaches described earlier.

# 4. Towards Refining the Measurement of Housing Affordability

To evaluate the feasibility of using a more refined measure of housing affordability in the developing country context, especially in World Bank-supported projects and analytics,<sup>15</sup> the application of the following approaches could be tested: (i) a modified EIR, progressively calibrated by income segment; (ii) a modified RIM that uses household expenditure instead of income and a simplified budget standard for non-housing expenses; (iii) a proxy non-housing budget standard based available consumption data; and (iv) simplified equivalence scales for different household types that could be used in both approaches. These are explained in more detail in this section, followed by Annex 1 which presents the findings of the application of the modified RIM in urban Pakistan.

## 4.1 Define a Progressive Expenditure-to-Income Ratio

The EIR approach is simple and widely used to measure affordability at both the aggregate and household levels. However, as mentioned earlier, the application of a single percentage threshold across households in all income segments in a country does not adequately account for differences in the composition of (i) their household budgets and expenditure patterns, or (ii) their household size and per capita consumption patterns. The most straightforward way to address this conceptual deficit is to calibrate the EIR affordability threshold by income segment.

As such, the use of a _progressive_ EIR is recommended (e.g., a 10 percent threshold for the first income quintile, 20 percent for the second, and 30 percent for the remaining quintiles). Depending on data availability, these EIR thresholds could be refined by using _equivalized and non-equivalized_ income. This would need to be developed on a country-by-country basis, with the possibility of preparing a crosscountry analysis once there is a sufficient number of country-level progressive EIRs available.

This paper also posits that for the purposes of calculating the EIR for households in developing countries with incomes below the 40th percentile, it is reasonable to assume that household expenditure could be used as a close proxy for household income (i.e., households do not or have very limited accumulate savings and do not have access to financing for consumable goods). As such, the ratio of ‘housing expenditure’ to ‘total income’ could be viewed as equivalent to ‘housing expenditure’ to ‘total expenditure.’ A _progressive_ EIR methodology has been applied as part of World Bank technical assistance to the National Affordable Housing Program in Indonesia. Expenditure data available by decile from the National Bureau of Statistics of Indonesia (Susenas) was used as a proxy for income and the progressive EIR calculated for

> 15 There is currently no standard approached used by the World Bank. However, the most common methodology used is the EIR ranging from 20 to 40 percent.

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