Summary
Housing affordability ratios compare house prices with earnings. Workplace based ratios use the earnings of people who work in an area. Residence based ratios use the earnings of people who live in an area. They can tell different stories, especially in commuter towns and employment centres.
Definition
A housing affordability ratio is usually calculated by dividing a house price measure by an earnings measure. A workplace based affordability ratio compares local house prices with earnings of people working in that geography. A residence based affordability ratio compares local house prices with earnings of people living in that geography. Workplace based ratios are useful for understanding whether jobs in an area support local prices. Residence based ratios are useful for understanding whether residents of an area can afford local homes. For buyer comparisons, record which version you are using and avoid mixing the two in the same scorecard.