Hand a real estate analyst a demographics report – whether it’s one page or ten – and most will immediately look at two numbers – population and median household income. Ultimately, these are both components and at best surrogates for the real question – how much demand is there in this area for our product?
Often, the measure of income chosen is median household income, understandably, since it is widely used and relatively well understood. As we all know, different income distributions can result in the same median income and a deeper dive is usually merited.
We have in the past urged users to find the right measure of ‘market size’ instead of just using total population. Should the population in group quarters be included or excluded? Is the consumer an individual or a household? Is the product oriented towards only specific age groups? Or one gender only? Surprisingly enough, we have seen many cases where the site location strategy doesn’t match the reality of who the likely customers are.
With income, the problem is exacerbated by the complexity of the concept itself. The census definition of income is quite different from the IRS definition, or the BEA definition used in GDP estimates. In addition, we all know that $100,000 in income in San Francisco, California is radically different from that same income in Hays, Kansas.
The AGS approach to income allows users to select the most appropriate income distribution for their particular problem. There are two main components to determining what income distribution (and median) is most appropriate:
- What income measure are we talking about? AGS provides three separate measures of income that provide unique insights –
- Total household income
- Disposable household income, which is income after taxation (which varies substantially from state to state)
- Discretionary household income, which is what is left over after taxation, committed expenditures (such as a car loan), and basic living costs (shelter and food)
- What is the universe of households of interest to us? For example, if our product is renter’s insurance, we should not be including owner households in our income measures. Several breakdowns are available in our standard release –
- Household income by household type (family, non-family)
- By age of householder
- By tenure (owner/renter)
- By tenure and age of householder
This allows for a considerable degree of fine tuning the income measure for any particular application. The standard measures that AGS publishes in standard data files are only those which we expect to have widespread usage. Our synthetic household model allows us to generate income estimates for any combination of the following:
- Type of income (total, disposable, discretionary)
- Type of household
- Size of household
- Age of householder
- Tenure
- Vehicles available
- Value of owner occupied dwellings (owners only)
- Contract rent (renters only)
On a custom basis, we can provide very targeted income estimates that fit your particular needs. If you really need the discretionary income of homeowners who are at least age 35 and have two or more vehicles, but are using total household income for all households, a custom income solution could substantially improve your analytics.
Having a wide range of available income measures is a great reflection of our basic philosophy – provide as much detail as possible in order to closely match each end user’s unique needs.