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Housing is an important health determinant, in particular for asylum seekers and refugees (ASR) living in state-provided accommodation and struggling for residential autonomy. However, few validated objective measurement tools exist to measure housing quality in the sense of the deterioration of the housing environment. We aimed to construct and validate an instrument to enable resource-efficient monitoring of and health research on such housing quality. After considering existing theoretical frameworks on housing effects on health, we constructed an easily applicable tool measuring the degree of “Small-area Housing Environment Deterioration” (SHED), based on the “Broken Windows” - index. In a validation study, we tested SHED index's objectivity and reliability, measuring inter-/intra-rater reliability and internal consistency and discussed its strengths and limitations by means of cognitive testing. We ran a field-test as part of a population-based, cross-sectional refugee health survey in a random sample of 58 shared accommodation centers across 44 districts of the German federal state of Baden-Wuerttemberg, enabling us to test index applicability and convergence with ASR's satisfaction with their living place. The new SHED index provides a validated and field-tested measure of deterioration of small-area housing environment with substantial reliability. Serving both researchers and policy-makers, SHED offers an easily applicable index to support epidemiological analyses on housing as a contextual and social determinant of health as well as evidence-informed decision making in questions of housing policies.