A more complete perspective on the affordability equation.
The Demographia survey has been thoroughly debunked. There are massive flaws in that survey. It uses a very basic measure of 'affordability' - i.e. median house price to median income. This is a very blunt tool. Demographia compares house price to income ratios across various countries, however there is no reason why house price to income ratios would be consistent across different countries, because there are substantial differences between each countries housing markets. The survey fails to consider the following factors:
- Disposable/discretionary income
- Employment rate
- General cost of living
- Interest rates
- Rental yield
- Availability of public housing
- Marginal tax rates
- Mortgage default rates (Australian defaults are way below UK and USA default rates)
- Tax incentives such as negative gearing, FHOG, CGT reductions
- Land/Block size
- Dwelling size and quality
- Proximity to transport and infrastructure
- Currency exchange rates
- Economic and political stability
- Home ownership rates
- Urbanisation (much higher in Australia than in US, UK or Japan)
- Population growth: Australia (1.7%), USA (0.9%), UK (0.3%), Japan (negative)
- Demographics (ironic that a survey called Demographia ignores demographics!)
Of course, no survey is perfect and no survey can possibly hope to account for all these factors. The best we can do is try to look at as many different surveys as possible, each of which will address a few of these factors, and this will give an better general impression of comparative affordability in each country, rather than looking at just one survey (I have linked to nine alternative surveys below).
We should note that the historical '3-4 x income' house price affordability ratio that some D&Gers cling to is no longer valid, because interest rates are historically low, and a large number of buyers today have large deposits, dual incomes, and high
disposable income. These are the people who drive our property markets.
However, the RBA has also demonstrated that 25-39 year olds today still have
more disposable income left over after buying a 30th percentile house than at any time in the past (Keithj has some good posts on this).
Regarding the 'demographic' failings of the Demographia survey, take for example its assertion that a certain 'sea-change' town in Australia is particularly unaffordable. They base this on the median house price to medium income ratio in that town. What they fail to consider is that the median income there is largely irrelevant, because much of the population are cashed-up retirees (no income) who have saved up for their whole lives and purchased a nice big beach house, often with very low borrowings. Sure, these beach houses may be unaffordable for a first home buyer who works in the local supermarket, but that's not the primary demographic driving prices in that town. In reality, the Demographia survey is comparing apples with oranges.
Another key issue with Demographia is that it only compares Australia with five other countries, yet the media proceeds to claim that Australia is the 'most expensive country in the world'. The survey conveniently ignores all the many countries and cities around the world with much higher house prices than in Australia. For example: Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco. Here are some alternative studies...
World's Top 10 Priciest Cities To Own A Home
http://www.forbes.com/2009/02/09/cities-top-expensive-lifestyle-real-estate_0209_cities.html
Sydney - not in the top 10
GlobalProperty Most Expensive Cities 2008 (apartment price per sqm):
http://www.globalpropertyguide.com/investm...-cities-in-2008
Sydney - Number 13: US$7,085 per sqm
Mercer Most Expensive Cities (cost of living, including housing)
http://www.mercer.com/costofliving
Sydney - Number 21
CityMayors Expensive Cities
http://www.citymayors.com/economics/expensive_cities2.html
Sydney - Number 24
Knight Frank Survey (prime residential property)
http://www.finfacts.com/irelandbusinessnew..._10010019.shtml
Sydney - Number 8: EU$13,100 per sqm
Overseas Property Mall Survey
http://www.overseaspropertymall.com/proper...tional-markets/
Average home values for select 2,200 square foot single-family dwellings with four bedrooms...
Tokyo - $785,818, Sydney - $683,109
Aneki (most expensive countries to live in)
http://www.aneki.com/expensive.html
Australia - Not shown in the top 20
Most expensive countries in the world
http://www.associatedcontent.com/article/1...the.html?page=2
Australia - Not in the list
Most expensive rental markets
http://www.forbes.com/2008/02/11/properties-world-rent-forbeslife-cx_mw_0212realestate.html
Australia - Not in the list
(Two of the above surveys actually quote data from others, but they do also add their own additional information and commentary, so I have included them anyway).
Cheers,
Shadow.