Types of Affordability Assessment
There are four primary types of affordability assessment, categorized by their focus on financial, social, economic, and environmental aspects.
Main Categories
- Income-Based Assessment — determines affordability based on the ratio of housing costs to household income, with distinguishing characteristics including consideration of debt-to-income ratio and credit score, as seen in the 30% Rule used by the US Department of Housing and Urban Development.
- Cost-Benefit Analysis — evaluates affordability by comparing the costs of a project or investment to its expected benefits, with characteristics including consideration of opportunity costs and risk assessment, as used by the UK's National Audit Office to assess the affordability of large-scale infrastructure projects.
- Life-Cycle Costing — assesses affordability by considering the total cost of ownership or investment over its entire life cycle, with characteristics including consideration of maintenance, repair, and replacement costs, as used by Boeing to evaluate the affordability of its aircraft.
- Social Impact Assessment — determines affordability based on the potential social impacts of a project or investment, with characteristics including consideration of effects on community cohesion, health, and education, as used by the World Health Organization to assess the affordability of healthcare interventions.
Comparison Table
| Category | Cost Focus | Scale | Speed |
|---|---|---|---|
| Income-Based Assessment | Household income | Individual | Rapid |
| Cost-Benefit Analysis | Project costs | Large-scale | Medium |
| Life-Cycle Costing | Total cost of ownership | Long-term | Slow |
| Social Impact Assessment | Social costs | Community | Variable |
How They Relate
The categories overlap in several ways, with Income-Based Assessment and Cost-Benefit Analysis often informing each other in the evaluation of large-scale projects, such as the UK's High-Speed 2 rail project, which considered both the financial affordability of the project and its potential social impacts.
- Life-Cycle Costing and Social Impact Assessment are commonly used in conjunction to evaluate the long-term affordability of investments, such as the US Department of Defense's use of life-cycle costing to evaluate the affordability of its military equipment, while also considering the social impacts of its procurement decisions.
- Cost-Benefit Analysis and Social Impact Assessment are often confused, but they serve distinct purposes, with cost-benefit analysis focusing on the financial aspects of a project and social impact assessment considering the broader social effects, as seen in the European Commission's use of both frameworks to evaluate the affordability and social impacts of its policies.