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Measuring Poverty: A New Approach
ever, revising the index as infrequently as every 10 years could result in a blip in the poverty rates in many areas because of changing housing markets. For example, an area that was experiencing a housing "boom" at the time of one census could experience a housing "bust" at the next census and vice versa. It would be preferable to revise the index on a more frequent basis. Indeed, such a revision in the index values that we developed from 1990 census data would be desirable for the initial implementation of the proposed poverty measure.
HUD faces a similar need to update its fair market rents on a regular basis. To make annual adjustments, HUD uses data from several sources, (described above), including the American Housing Survey, local area CPI shelter cost indexes, and random digit dialing surveys. We encourage an assessment of the appropriateness of the HUD methods for updating the housing cost index values from the decennial census for use, in turn, in adjusting the poverty thresholds. We also encourage research on the usefulness and cost-effectiveness of other methods that could be considered.
Obviously, the issue of how best to adjust poverty thresholds for geographic differences in the cost of housing and in the cost of living more broadly is an area for further research and development. We have argued that the proposed procedure for taking account of housing cost differences for metropolitan areas categorized by size of population within region represents an improvement over the current method of no adjustment at all. We have also noted the limitations of the procedure, which represents a step, but only a step, in the right direction.
We encourage appropriate agencies, such as BLS and HUD, to undertake research on improved methods for determining area price differences. Ideally, the research would include other goods besides housing and would consider such issues as the types of geographic areas (cities, counties, larger areas) for which an adjustment is feasible and appropriate. It would also address methodological issues, such as refinements to the hedonic regression models under development at BLS that appear so promising.
To effect much additional improvement in the methodology and the reliability of interarea price indexes, new data collection may be required. For example, expanding the sample for the American Housing Survey, which provides more detailed information on housing characteristics than the decennial census, would be one way to develop improved cost-of-housing indexes (whether using the proposed adaptation of the HUD methodology or hedonic methods). Even more broadly, expanding the BLS price samples for housing and other goods would be a way to develop comprehensive cost-of-living indexes that represent valid indicators of differences across areas in prices at a point in time and not just differences in the rate of price changes. However,