The research challenges the conventional usage of households' residential satisfaction as a guide for housing policy and development. A new housing indicator, ‘marginal residential improvement priority’, is introduced and is compared with residential satisfaction both theoretically and empirically. Within the context of neoclassical consumer theory it is shown that the former provides a superior indicator of households' housing preferences than the latter. It is then demonstrated empirically that these conceptual distinctions make for significant differences when the indicators are employed in a practical application. Using a sample of 971 households drawn from Wooster, Ohio, the paper considers their evaluations of four general dimensions of the residential environment and six specific features of the dwelling. Zero-order correlations between the indicators average only 0.40 across these ten dimensions. Households' relative satisfaction with these various aspects diverge substantially from the priority they place on improving these aspects in the future, with rank-order correlations not differing significantly from zero. More specifically, all household strata gave public services their lowest improvement priority and dwelling quality their highest, regardless of their relative degree of satisfaction with the dimension. Similarly, most groups gave high priority to improving interior condition and room size and low priority to improving exterior condition, independent of their satisfaction. Thus, if the efficacy of a limited amount of resources invested in a housing policy is to be maximized, they should not necessarily be directed toward those features of the residential environment with which households are least satisfied.