National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Updating the Housing Cost Index

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Suggested Citation:"Updating the Housing Cost Index." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 199

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ADJUSTING POVERTY THRESHOLDS 199 the poverty thresholds for cost-of-housing variations across areas) would result in 55 percent of the population having an index value that differed by more than 20 percent from its own metropolitan (or nonmetropolitan) area-specific index. The use of regional index values (for the nine census divisions) would result in 45 percent of the population having an index value that differed by more than 20 percent from its own area-specific index. The use of state index values would result in 33 percent of the population having an index value that differed by more than 20 percent from its own area-specific index. In contrast, the use of the proposed index values for metropolitan area size categories within regions would result in only 9 percent of the population having an index value that differed by more than 20 percent from its own area-specific index. In other words, a higher fraction of the population would be assigned a more accurate index value with our proposal than with a regional or state housing cost index. These results demonstrate the superiority of our proposal compared with the alternatives of adjusting solely for regional variations in the cost of housing or of adjusting for variations across states.18 The proposed procedure should not be viewed as the last word on the issue of adjusting poverty thresholds for area differences in the cost of living, but rather as a modest step in the right direction. The procedure only takes account of housing cost differences and, even for those differences, will assign index values to people in some areas that are considerably in error. The procedure also does not take account of housing cost variations within areas (e.g., differences in costs between central cities, suburbs, and exurbs of, say, large metropolitan areas). And it does not take account of special circumstances, such as significantly higher housing costs for areas in Alaska and Hawaii than are reflected in the index values for the Pacific region as a whole.19 Finally, the proposed method is a crude instrument for attempting to measure housing price differences that do not also reflect quality differences. Nonetheless, within the constraints of available data, we believe that the proposed procedure is a significant improvement over the current situation of no adjustment. The methodology is understandable, operationally feasible, and produces results that conform well with other findings from research. Updating the Housing Cost Index The index values for cost-of-housing differences can readily be revised as necessary every 10 years as new decennial census data become available. However, 18 For some purposes, it may still be desirable to use state index values to adjust poverty thresholds for differences in the cost of housing (or the cost of living generally). For example, this type of adjustment may make sense when the poverty thresholds are used as the need standard for such assistance programs as AFDC (see Chapter 8). 19 It would certainly be possible to make some ad hoc adjustments to our index, but we did not believe it desirable for us to attempt such an effort.

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of:

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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