Accounting for housing costs

Housing costs are an essential element of household expenditure and tend to absorb a significant part of income. This can mean that people on low incomes have relatively little left over to meet other essential needs. In some Member States, therefore, such as in the UK, indicators of the risk of poverty are calculated both before and after housing costs.

At the same time, housing is a durable consumer good and is a source of satisfaction - just like any other such good. Within limits, most people can choose to have a more or less attractive house, depending on how much they are willing to spend on it, even if their choice might be tightly constrained by their income and other circumstances. But a house or an apartment is equally an asset - a store of wealth - and this tends to differentiate it from most other consumer durables.

Both of these things are complicating factors, in the sense that the cost of housing and its variation (both within and between countries) therefore reflect not only the situation in the housing market and the costs of maintaining, heating, cooling and lighting a house, but also individual choice to opt for a more attractive and/or comfortable house or to invest in this form of asset rather than in another.

In other words, if housing absorbs a high proportion of someone's disposable income, this may be because the person concerned chooses to have a high-quality house in an attractive and convenient location and/or to put their money into an asset that is expected to increase in value, rather than to spend their income in other ways. This would argue against deducting housing costs when assessing the risk of poverty. In practice, however, there is no easy way of distinguishing this situation from one in which people are obliged to pay a lot for housing and the associated costs because of the nature of the market or because their circumstances leave them relatively little choice over how much to spend in this regard.