Accounting for Housing Costs in Regional Income Comparisons

Abstract

This paper discusses a series of methodological issues that arise when assessing regional differences in the propensity of households to be relatively poor, focusing specifically on whether it is better to base such comparisons on measures of income that are defined before or after deducting housing costs. It is argued on conceptual grounds relating to the factors that give rise to regional differences in housing costs, that an after-housing costs measure of income is preferable for some, but not all, regional analyses. It is also demonstrated that differences in housing costs are not always offset by differences in transport costs and, in fact, transport costs are higher on average in major cities than in the balance of Australia. Regional income comparisons of income both before and after housing costs are presented derived from unit record data from the latest (1998-99) Household Expenditure Survey and from the 2001 Census. Despite differences in data coverage and definition, the patterns are not sensitive to the data source used, both sources indicating that while the percentage of people in low-income (bottom quintile) households is lower in major urban locations than in the rest of Australia, these differences are much smaller when account is taken of housing costs. These results contradict other studies that show a large gap in regional living standards in Australia.