2007 Demographia International Housing Affordability Survey

[ani]

The report covers:

United Kingdom Republic of Ireland

United States Canada

Australia New Zealand




http://www.demographia.com/dhi-ix2005q3.pdf

 

[duncan_m]

Wow.. thats a fairly chilling read and I've only skimmed it so far.. Australia features prominently as having VERY unaffordable housing.. I feel we're way out on a limb..

Check out the graph on page 10.. showing median multiples of income required to buy property in each Australian capital over the last 20 years.. frightening.

 

[TJamesX]

Wow.. thats a fairly chilling read and I've only skimmed it so far.. Australia features prominently as having VERY unaffordable housing.. I feel we're way out on a limb..

Check out the graph on page 10.. showing median multiples of income required to buy property in each Australian capital over the last 20 years.. frightening.

Remeber seeing last years report, and nothing much has changed (got a little bit worse). I think we really are in unchartered waters - affordability continues to go down at a time when interest rates are historically low.... as long as the music doesn't stop, its all good.

As much as the low/med income earners would like blame the Federal Govt, I think a lot of the problem lies fairly at the door of local councils and labour state govts (restricting supply, impeding development and applying disproportionate taxes)

 

[Peter Parker]

A few comments:

1. Rather than using city-wide average prices, it would have been good if they included information on dispersion of prices (eg 25, 50 & 75 percentiles).

2. High dispersion may indicate greater opportunities for people to get an affordable house. Eg Melbourne seems to be more dispersed than Canberra in that it has a bottom end where houses in some suburbs can still be purchased for four times a $50k pa annual income (ie fairly affordable and better than Melbourne's 6.6 average).

3. The trap is that high dispersion may also mean housing sharply divided on class lines.

4. Some of the apparently affordable US cities may be very affordable because they have large sections of 'no go' areas. Such areas may be considered so derelict that aspiring homebuyers would rather rent elsewhere than buy in a ghetto. These very cheap ghettos would drag down the city's average, making its overall affordability look good.

5. The 'party line' of Demographia/Wendell Cox is that planning and zoning pushes up house prices by limiting the supply of land. They will cite the good affordability of places like Dallas and Houston (which don't have much town planning) as evidence.

6. However even if this happens it may be a false economy; if you compare the litres of fuel used per capita in these cities it is much higher than Australian and Canadian cities. Hence what people save on house prices they may have to spend on fuel and (through taxation) more roads. So overall welfare and spending power may not be any better there and other externalities (eg pollution) may be higher.

Peter

 

[tonyc00]

Parramatta

Hi

I note from the report that most affordable places are Regina (Can), and Youngstown and Fort Wayne (US), all with an affordability index of 2 (ie the median house price is only twice the median household income).

I think those places deserve a visit !!

However more seriously, I did a similar exercise for Parramatta. The median household income (2001) was $45,860 and the median unit price (Dec 2005) was $320,000, thus an (un)affordability index of 6.98.

I guess I can take some consolation that my IP's average about $240,000 each thus providing an index of 5.23 (but still severely unaffordable).

Tony

 

[tonyc00]

Parramatta

Hi

I note from the report that most affordable places are Regina (Can), and Youngstown and Fort Wayne (US), all with an affordability index of 2 (ie the median house price is only twice the median household income).

I think those places deserve a visit !!

However more seriously, I did a similar exercise for Parramatta. The median household income (2001) was $45,860 and the median unit price (Dec 2005) was $320,000, thus an (un)affordability index of 6.98.

I guess I can take some consolation that my IP's average about $240,000 each thus providing an index of 5.23 (but still severely unaffordable).

Tony

 

[Peter Parker]

Hi

I note from the report that most affordable places are Regina (Can), and Youngstown and Fort Wayne (US), all with an affordability index of 2 (ie the median house price is only twice the median household income).

I think those places deserve a visit !!

Or at least some research to find out why they're cheap.

Regina

http://www.rcmp-grc.gc.ca/enviro/scan2002june_i_e.htm
http://en.wikipedia.org/wiki/Regina,_Saskatchewan

In high-crime state with declining population. About the size of Geelong or Hobart. Contains worst neighbourhood in Canada.

Fort Wayne

http://en.wikipedia.org/wiki/Fort_Wayne
http://fortwayne.areaconnect.com/statistics.htm

'Rust belt' industrial town again of similar size to Geelong (Newcastle if area population is included). Had a severe recession in the '70s with population decline but steady rise since. 11% rental vacancy rate!

Youngstown

http://en.wikipedia.org/wiki/Youngstown,_Ohio

Rustbelt city smaller than Ballarat. Was double its current size in the 1950s, and hardly bigger than it's 1910 population now. 25% poverty rate and average household income of just $24k pa. There must be something wrong when people boast about the safety of the local uni campus!


Property markets can sometimes be imperfect with some cities priced lower than what their facilities, economy and lifestyle justify (eg many places in WA circa 2002-2003).

However in other places the market can be spot-on. Homes and towns may be cheap because they have lost their attractiveness to existing and prospective residents.

At least for the above cities it looks as if the market may have it about right.

Peter

 

[Les]

G'day Tonyc,

An interesting post

However more seriously, I did a similar exercise for Parramatta. The median household income (2001) was $45,860 and the median unit price (Dec 2005) was $320,000, thus an (un)affordability index of 6.98.

However, with values taken from 2005 and incomes from 2001, it doesn't come across as very believeable. Since I don't follow Sydney, I can't comment from experience.

But I would've thought that incomes in 2005 might be higher than in 2001 - thus reducing this unaffordability ratio.

Were figures that were better aligned not available?

Regards,

 

[Michael Yardney]

Affordibiltiy is mainly an issue for those not in the market.

Sure it hinders first home owners and is an issue for over leveraged investors or some home buyers who have overstretched themselves, but it is not a real concren to established proeprty investors.

And it is definately not a reason not to invest in a proeprty market - even though it may stunt short term capital growth

You see...it's great news for all those who already own property.

Ask those people who bought a proeprty in Perth a few years ago if the lower affordabilty in that City is a concern to them..

Latest studies show that the proportion of tenants in Australia will increase from 30% of the population today to close to 40% of the population by 2011.
And obviously this is mainly caused by affordibility issues.


But this creates tremendous opportunities for investors who own the right type of property.

 

[natedog]

Hi Michael,
I would love to read where you got that info about 40% rental market by 2011, are you able to tell me where you got it from...or if another forumite knows, thats a huge increase over a 4 year period, that would take the rental proportion to a level not seen since before WW2 wouldnt it??!
Cheers guys,

 

[Michael Yardney]

Hi Michael,
I would love to read where you got that info about 40% rental market by 2011, are you able to tell me where you got it from...or if another forumite knows, thats a huge increase over a 4 year period, that would take the rental proportion to a level not seen since before WW2 wouldnt it??!
Cheers guys,

Its a scary statistic isn't it. Or its one we can take advantage of.

Its one I came across doing my research for my round of seminars in March

The research came from the Australian Housing and Urban Research Institute
http://www.ahuri.edu.au/

 

[redsquash]

It is very unwise to compare the cost of housing from one country to the next
Some issues I have not seeen addrerssed are

Houses built in different countries use different materials eg brick v wood v concrete. So of course prices will be different .
Land size also isnt necessarily the same .
The infra strucutre of particular cities may be more or less developed sothis can impact on costs.
The area a city covers is also widely different.

Some structures are 2 story or have a basement depending on the country and may also require special techniiques for building. This may be as a result of hurricanes or severe seasonal climate change. Again comparing housing just doesnt seem like a good idea except in very genral terms.

The size/area of housing may be increasing or decreasing in certain places so this also affets the cost.

 

[alexlee]

What I'm wondering is, do cities naturally become more unaffordable as they grow in size and the mix of employment changes?

Transition from a manufacturing (factory) based economy to service jobs-based economy usually means greater income inequality. Simply because some people have more knowledge than others from education, etc while in a manufacturing environment you just want bodies to replenish your workforce.

The greater the income inequality, the more polarised the housing market becomes. i.e. there are more (numerically) highly-paid people who can afford expensive places, and they then use that money and equity to buy investment properties as well. Knowledge based job (office work) salaries tend to increase faster than labour-based jobs.

In short, economic growth and a country's transition from manufacturing to services (i.e. mature economies including Australia) naturally increases income inequality. You see this in New York, Tokyo, London, etc. You simply can't afford to buy or even rent a place on average wages. Yet New York and London (Tokyo is a special case) keep going up. You can keep opening new areas for development, but the city loses its soul and just becomes one sprawling thing (as anyone who has flown above Los Angeles can see).

If that is the case, then increased unaffordability isn't something that can be solved if you want the economy to keep growing. You would have to downgrade lifestyles. 20 years ago Australia was more affordable. We also didn't have world-class restaurants, big banking industries, as many 5-star hotels or cafes on every corner. Now, life is a lot less affordable for ordinary people, but if you're on a high income Sydney is a lot more fun than it was 20 years ago.

I just remember when my family went to Oz 20-odd years ago, even Sydney was known as a bit of a backwater. Shops closed early, and there were few good restaurants. Now we're talking Michelin stars everywhere.

Maybe lack of housing affordability is a natural state of mature economies. Australia might develop into a more US-type model where many people just chronically rent. Incidentally, this gives rise to big residential property trusts (which are absent in Oz).
Alex

 

[sailor]

What I'm wondering is, do cities naturally become more unaffordable as they grow in size and the mix of employment changes?
Maybe lack of housing affordability is a natural state of mature economies. Australia might develop into a more US-type model where many people just chronically rent. Incidentally, this gives rise to big residential property trusts (which are absent in Oz).
Alex

Is this why there are more renters in Europe?

 

[alexlee]

Is this why there are more renters in Europe?

When the society doesn't view home ownership as a symbol of success, I suppose less people force themselves to buy a property. More generous government benefits and pensions and stronger unionism also means people get better retirement payments and therefore you don't need the house as a fallback.

It's a bit of a cycle. Fewer renters (because everyone tries to buy if they can) means fewer investment properties constructed. The general lack of high density housing means investment properties do not attract big players like property trusts (by contrast the US has lots of big residential property trusts). In the US, many property trusts do their own development and then own the buildings afterwards, using money from insurance companies, etc. The purchase of investment properties therefore depends on retail mum and pop investors, who don't have deep pockets and get killed in market crashes.

By contrast, if you have more renters (home ownership rates in the US aren't much lower than Australia, but with such a big population the sheer number of renters means you need higher-density dwellings) it creates more demand for high density housing. Sydney hasn't developed into Hong Kong, for example, because there hasn't been any need to..... yet.

If we have more immigration, public transport remains crap and properties close to the city remain high because of more income inequality (i.e. more highly paid people who can afford properties while the lower salary people lose out), then we might develop a bigger rental pool at the lower end. For example, if rents spike now because there aren't enough investment properties, would governments give developers and fund managers tax concessions to build and hold large investment blocks?
Alex