2014 Demographia Housing Affordability Survey

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By Leith van Onselen

The 10th Annual Demographia International Housing Affordability Survey has just been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed.

This year’s report assesses 360 urban markets in nine countries: Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, United Kingdom, and the United States. The survey employs the “Median Multiple” (median house price divided by gross annual median household income) to rate housing affordability. This measure is widely used for evaluating urban markets, and has been recommended by, amongst others, the World Bank and the United Nations, and is used by the Harvard University Joint Center on Housing.

The Survey ranks urban housing markets into four categories based on their Median Multiple, from “Affordable” (3.0 or less) to “Severely Unaffordable” (5.1 & Over) [Table ES-1]. Average multiple data (average house price divided by average household income) is used in Japan, since data for estimating medians is not readily available.

According to the Survey, housing affordability deteriorated somewhat in the major metropolitan markets in 2013.

At the national level, Hong Kong has by far the most unaffordable housing, with a median multiple of 14.9. Australia and New Zealand are tied for second most unaffordable market out of the nations surveyed (both 5.5), followed by Singapore (5.1), United Kingdom (4.9), Japan (4.0), Canada (3.9), United States (3.4), and Ireland (2.8):

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As shown above, all of Australia’s 39 markets captured in the survey are ranked as either “Seriously Unaffordable” (14) or “Severely Unaffordable” (25). Australia currently has no housing markets ranked as “Affordable” or “Moderately Unaffordable”. The result represents a slight improvement on last year’s survey, where 30 markets were ranked as “Severely Unaffordable”. A break-down of Australia’s rankings are provided in the below table:

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Looking at the major metropolitan areas only – i.e. those with more than 1 million inhabitants – you can see that Australia ranks as third most expensive after Hong Kong and New Zealand (Auckland):

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Overall, Australia has moved down the league tables, registering 5 out of the 20 most expensive housing markets identified in the Survey, versus eight in last year’s survey:

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The overall decline of housing affordability in Australia over the past few decades (and the modest recent improvements) is clearly evident in the below Demographia chart, which shows the change in Median Multiples in Australia’s major urban markets. The RBA has previously shown similar findings.

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Whereas all major Australian markets, except Sydney, had Median Multiples of three in the early 1980s, today all are ranked at around five or above.

One of the key contentions of the Demographia Survey is that higher land prices are the principal contributor to the rapidly increasing home prices in unaffordable markets, as well as increased speculative activity. These land prices include the cost increasing influence of land supply restrictions (such as urban growth boundaries), excessive infrastructure fees and other overly strict land-use regulations:

Operating at cross-purposes, many governments have adopted urban containment land regulations (also referred to as “densification,” “compact development,” “urban consolidation,” “growth management,” “smart growth,” or “livability” policies) that ration land for development… [These policies lead] to materially higher land prices, which makes houses more expensive, just as rationing oil increases the price of petrol…

Regrettably, virtually no government administering urban containment policy effectively monitors housing affordability…

Typically, land use policy authorities fail to compare credible measures of housing affordability with historical standards [above]. Moreover, when faced with the reality that housing costs rise disproportionately relative to incomes, they seek to identify virtually any cause except for the principal cause itself: the destruction of the competitive market for land…

Severely unaffordable markets are also more attractive to buyers seeking extraordinary returns on investment and short term profits. This further raises prices in markets where urban fringe development is largely prohibited by urban containment’s land rationing policies. Substantial international investor activity has been reported in London, Vancouver, the US West Coast markets of Vancouver, Seattle, the San Francisco Bay Area, Los Angeles and San Diego and others. These price increases make such metropolitan areas less livable for average and lower income households.

The key to preserving housing affordability is a “competitive land supply,” which appears to be incompatible with urban containment policy both in economic theory and practice. Further, out-of-control house price escalation destabilizes economies, retarding metropolitan area economic growth and job creation.

And in the 2011 Survey, Demographia noted the following about Australia:

In Australia, 95 percent of the increase in inflation-adjusted new house (and land) costs were attributable to land, rather than construction from 1993 to 2006. In more restrictively regulated San Diego, house prices were 250 percent higher than in Dallas-Fort Worth in 2007, yet cost only 15 percent more to build…

Demographia’s contention that Australia’s rising home prices have been caused primarily by escalating land costs is supported by evidence. The below chart shows aggregate Australian housing values relative to GDP broken down by the land component and the structure component. As you can see, almost all of the growth in Australian housing values (relative to GDP) has been in rising land values:

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Further, this escalation of land costs has occurred across Australia’s housing markets, as evidenced by all capital city markets experiencing strong growth in vacant land values in the decade to 2012, according to RP Data:

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A key reason for this land price escalation in Australia (as well as in New Zealand, the United Kingdom, and the expensive markets of the United States and Canada) is that the market’s ability to quickly provide low priced new housing supply is being hampered by restrictive land use regulations, many of which have come into effect since the mid-1990s (Sydney has had long-standing limits on housing development on the urban fringe). Demographia describes the key features and consequences of restrictive housing markets as follows:

Urban containment (More Restrictive Land Use Regulation) relies on intrusive land use regulation, and includes markets where residential development (new construction) is strongly controlled by comprehensive plans or development limits. Generally, it is an urban planning objective to make urban containment the only legal regulatory structure. There is a strong campaign to make the principal alternative, liberal regulation (below), illegal.

Urban containment may also be characterized by terms such as “densification policy,” “compact development”, “urban consolidation”, “growth management” “and ” smart growth.” Generally, urban containment regulation is “plan-driven,” as planning departments and governments determine where new housing is allowed to be built. There is a “negative presumption,” with new development generally prohibited, except in limited areas where it is permitted by government plans.

By severely limiting or even prohibiting development on the urban fringe, urban containment eliminates the “supply vent” of urban fringe development, by not allowing the supply of housing to keep up with demand, except at prices elevated well above historic norms. In addition to higher housing costs relative to incomes, the higher densities in urban containment markets are associated with greater traffic congestion and longer average work trip journey times.

Urban containment policies are normally accompanied by costly development impact fee regimes that disproportionately charge the cost of the necessary infrastructure for growth on new house buyers. There is particular concern about the cost increasing impacts of these fees, especially in Australia, Canada (Canadian Mortgage and Housing Corporation), New Zealand (New Zealand Productivity Commission) and California.

By contrast, affordable housing markets, like Texas and Georgia in the United States, utilise open market-based land use structures whereby plentiful new housing supply is able to be built quickly and cheaply on the urban fringe, thereby preventing rapid house price escalation. Demographia describes these markets as follows:

Liberal Land Use Policy (Less Restrictive Markets) applies in markets not classified as “urban containment.” In these markets, residential development is allowed to occur based upon consumer preferences, subject to reasonable environmental regulation. Generally, liberal land use regulation is “demand-driven”. There is a presumption allowing land to be developed, except in limited areas, such as parks and environmentally sensitive areas. By allowing development on the urban fringe, liberal land use regulation allows the “supply vent” to operate, which keeps house prices affordable. Less restrictive regulation can also be called traditional or liberal regulation. In addition to lower costly housing costs relative to incomes, lower population densities in liberal markets are associated with less intense traffic congestion and shorter average work trip journey times.

So under an open market-based model (provided there are not also substantial physical barriers to housing supply), increased demand, such as from reduced lending standards and easier availability of credit, quickly leads to the building of additional low priced housing on the urban fringe, which helps keep house prices in check and reduces the likelihood of speculative housing bubbles developing. Further, highly leveraged speculators are less likely to be encouraged into open land markets, since there is little prospect of achieving strong capital gains. Investing in open land markets is, instead, more about rental yield.

I will add that restrictive urban planning structures should not be viewed as a one-way bet for house prices, with unresponsive land supply also more likely to result in higher levels of house price volatility and boom/bust price cycles – a fact also acknowledged by Demographia. Why? Because strict land-use policies (planning) steepens the supply curve, which makes house prices more sensitive to changes in demand, increasing the likelihood of the housing market experiencing boom/bust price cycles as demand rises/falls.

The full 2014 Demogrphia Housing Affordability Survey can be downloaded here.

[email protected]


Unconventional Economist


  1. Looks like QE is doing it’s job in the USA pushing up California and Hawaii to Australia-like levels. Well done.

      • Most of them were behind Sydney last year. Anecdotally, I can’t see how Honolulu is pricier than Sydney.

    • Santa Barbara, Santa Cruz, San Louis Obispo…..

      These are by far the best places to live (on the list of “20 most unaffordable housing markets”). Fantastic climate. Super-rich like retired Presidents and Hollywood stars live there.

    • San Jose is expensive for the reason (huge concentration of productive capital on relatively small area). Port Macquarie not really!

      • The ability to convert rural land to urban use – or not – makes a massive difference. Even if there is a concentration of capital.

        NYC was surprisingly affordable until the greater urban area ran up against rural zoning at its fringes.

      • NYC is still very affordable everywhere outside Manhattan and some parts of Brooklyn.

        You can find nice large houses in decent parts of Queens or even parts of Brooklyn for $150k

        Manhattan is expensive because of high concentration of rich people who don’t like idea of living close to median earners.

      • Good point.

        I reckon Manhattan would not be so expensive if it did not have a natural moat in the form of the Hudson River.

        Without that, there would have to be a gradual transition from the high-value CBD per se, to the surrounding lower-value land.

        Part of the value, is the PR value of the exclusive “address”. “Our Head Office is in Manhattan”, “we live in an apartment in Manhattan”, that kind of thing. This would be far more difficult to do if the cluster of development that is NYC’s finance district was slowly growing onto plentiful adjacent land.

        There are some fascinating accidents of geography and history and economic evolution that go into the way things are.

  2. I look forward to reading the full report.

    Interesting how the top 10 cities are all hotbeds for Chinese property investment.

    They are like a plague locusts eating their way across the property markets of the world.

    • Frederic Bastiat

      In some sick and twisted way, having corrupt Chinese money as one of the major losers in the coming global property deflation will be a somewhat fair outcome. Ill-gotten gains, obtained through graft and lost through economic stupidity.

      • Yeah, but a lot of it will simply be these people bailing out of China in time before their own crash and political meltdown. In a way they won’t mind the price they paid.

  3. Thanks Leith, Hugh and others.
    Your work in revealing the truth of this giant charade does not go unappreciated.
    Let’s hope it gets some coverage in the MSM.
    Cue the annual cries of derision, attacks on methodology and “it’s different here” from the usual assorted spruikers in 3..2..1…

    • +1
      Great research all.
      Pre-internet this kind of knowledge was not widely known. Now we have all the evidence we need to see that the game is a scam. The evolution of the internet seems to be coinciding with the rise of the power of the individual. FIRE economy, MSM, vested interests and their voice-piece – our elected “leaders” have tried to hide what is happening.
      The more people who come to know they are being had and that the next generation is being set up as debt-lackeys for irresponsible bankers, the better. Keep on educating the wider public.

  4. It’s worth taking their claims with a few pinches of salt because there are a few issues with their methodology, which are well-described in these posts: http://transportblog.co.nz/tag/demolishing-demographia/

    For example:
    – Demographia’s use of the “median-median” measure instead of rent/income and others is not well-supported- the Harvard study links to a UN page, which lists median-median as one of a range of indicators. The core issue is: what is housing- an asset or a service? The Economist’s property index, for example, offers a variety of measures: http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
    – Demographia’s definition of “income” excludes taxes and transfers, which can be very different across and within countries;

    Another point to consider are differences in how open countries are foreign investment in property- a structural issue that has had a pretty significant impact on property prices internationally over the last few years, and led to the use of macro-prudential policies in countries like Singapore.

  5. Frederic Bastiat

    Hi Leith – top work again on this topic.

    I wonder what happens when house prices and land prices start falling, but our State and Territory Governments are forced to continue releasing land due to:

    1) Need for continued revenue stream from sale of land.
    2) Demand (economic and political) from First Home Buyers that want to buy land and build.

    So although the Ministers and Agencies responsiple for stranging land release may think they can hold back land and stop deflation in land prices, is there any overseas experience that debunks this? I mean, were / are they still releasing land in the property crash hotspots (Florida, areas of California, Spain, Ireland etc…)?

    What can we learn from this from an Australian perspective?

    Sorry I know this may be something you are not across, but thought I would check.

    • My belief is that government actors in those bubbles were “releasing land” just as fast as there was a lucrative revenue stream to be had from it. Short run elasticity of supply was low, but as pressures built up in the market and prices inflated, suddenly there was substantial “planning gain” that government could tap into a share of, and they became belatedly interested in “supply”.

      The music kept playing just as long as speculators crazed with greed kept paying the prices necessary to support the government exactions. As far as I know, this continued right until the time the crash came – even while the price of houses selling in the existing market were commencing their fall, there were speculators buying up land banks and providing plenty of fee income to government as new houses continued to be whacked up. (Oh, it’s just a temporary tremor in the trend to the moon, that sort of thing).

      There was no chance of the government maintaining its revenue stream once the crash was there and definitely not going away. A cascade of bankruptcies among the private sector participants, caused fresh waves of forced sales of houses and land, causing another cohort to go into negative equity; and so it went on. No-one had the streams of income or profit necessary to survive.

      This is why Ireland and Spain are so stuffed now. The USA benefited from the fact that it was not the entire country involved and the finance sector could recover with a bit of a bailout. Now, the prices are on the way back up in LA, SF, San Jose, Phoenix and Las Vegas. One cause is apparently the finance sector getting into these markets through shadow agents, as “cash buyers” to clean the foreclosures out of the market. There are actually still foreclosures happening because so many people can’t keep up their payments due to job loss or new costs (like Obamacare or energy price rises) or other misfortune. But this is no longer forcing the market down because of (alleged) direct Wall Street involvement in the local market. “Dr Housing Bubble” blog is posting regularly on this phenomenon.

      And “supply” seems to be stuffed for good in those markets. The developers all went broke in the last phase, and the finance sector isn’t lending to developers – it’s lending to house buyers.

      This is even starting to worry them in Houston – as if the finance sector is trying to directly manipulate markets into unaffordability by direct strangling of “supply” by withholding lending to developers. Yes, Houston has a strong developer sector and supply has always been highly elastic – but there is a problem starting to show up.

      They are not dumb in Houston and will probably find a way to outwit Wall Street. That’s my pick.

      But in the markets already stuffed by one cycle of high volatility? “Supply” is a “UK level” phenomenon now. “Planning Departments” including in Spain and Ireland now regard it as their duty to not allow “supply” at all, because “look what happened last time we did”.

      • Frederic Bastiat

        Thanks Phil, that was a great read! If you dont mind, I have a couple other questions about how this all started (I am 31, so when the housing boom acoss the world was starting, I was too busy at the Uni Bar to take note of what is going on, and I find land policy a very unexplored issue – unless you have sources to point me towards):

        1) With your final point about Ireleand and Spain, you rightly point out that the ‘Planning Departments’ are now claiming they are justified in holding back supply now due to the recent housing bust, but in the words of Hayek….don’t blame the bust, blame the boom! Land supply in these nations must have been somewhat restrictive (at some point), if prices rose so rapidly. If developers and investors were going gangbusters with demand (even if speculative and unsustainable), then surely the Government of these regions are partly to blame for letting the market go up so quickly when land costs were the main driver. If they released land at a more rapid rate, the prices wouldnt have gone up as much and the correction would be so much smaller. I see this as a total policy failure, where the goal of price stability has gone out the window and inflation rates on land are accepted to be 10% YoY. The reason I raise this point is that I see a similar thing starting to unfold in ACT. Mr Andrew Barr MLA is trying to claim that he has a duty to not flood the market and crash prices, but it was the failure to release land more consistently over the past decade or so that has caused us to be in this predicament.

        2) Won’t political forces in Australia be forced to continue to sell land, with so many jobs reliant on construction. With Australia’s manafacturing sector slowly withering and Mining coming off the boil, it will not be a good policy for job creation to starve developers and builders of land and FHBers of the right to build the house of their dreams? Do you really think they can just shut off the supply when prices start to tank? (sorry, this is a question, I assure you, just think that this may be the key to understanding how the Australian Housing bust plays out)….quite frightening when you think what role ill-informed State / Territory Housing Ministers have to play in this fiasco over the coming years.

  6. Interesting that ‘gross’ household income is used….makes the results look less terrifying at first blush I guess. As I’ve noted in previous comments, use of household income (as opposed to individual income) understates the increase over time, as households have gone from majority single income to majority dual income. For households with only one income in today’s market, the situation is truly dire. Similarly, those happy professional newlyweds who can easily service the mortgage on two incomes suddenly find things a lot tougher when their first-born comes along. We’ve created a dual income market by stealth, a fact these types of analyses tend to gloss over.

    • We’ve created a dual income market by stealth, a fact these types of analyses tend to gloss over.

      But then what will politicians gloat about when they have no baby bonus or childcare rebates to fix?

    • Uni Prof. Elizabeth Warren became a YouTube sensation and got elected to the US Senate by pointing out the fact that while global capitalism has brought down the cost of food, clothing, appliances, cars and mobility, and a lot of discretionary items, somehow “housing” now swallows a higher proportion of double incomes than it swallowed of a single breadwinner’s income in 1970.

      I think she is dead from the neck upwards about the role that urban planning has played in this, but she makes a LOT of good points about the consequences:
      “The Coming Collapse of the Middle Class”


      The “savings” (in food, clothing, appliances) have been in low-proportion and “discretionary” spending items. The big increases have been in “basic” and unavoidable expenses. In fact, I would like to inform her that when there is a successful closed-loop land-rent-extraction effect at work in the urban economy, savings made in other areas will be sucked up in increased cost of urban land.

      Single income families in the 1970’s made less money, BUT “big basic expenses” absorbed 50% of their income, while the 2-income household now needs 75% of their combined income to meet these costs, and have less discretionary income.

      The typical household now is at HIGHER risk – if one earner loses their income or some of it. The 1 earner household had the chance of the non-working spouse adding a little income in times of stress; or even becoming the main breadwinner (as many widowed and separated women did). But now? Both adults are already fully committed and there is no slack able to be taken up.

      Elizabeth Warren presents some very interesting breakdowns of data. Income volatility is higher for everyone now than it used to be, but is highest of all for two income families.

      Housing cost for families with no children, is up 50%; for families with children, it is up 100%, obviously representing the need for more space.

      There are more children in bankrupt households, than in divorced households. 85% of bankrupt households successfully hide the fact.

      The households who are fortunate enough to get through life without suffering a reversal (health, accident, job loss) will probably “make it” without dropping out of the middle class. but even so, will never get financial security, and are always on the treadmill, in contrast to their parents (1 income earner) generation.

      Everyone who does suffer even one significant reversal drops, most likely permanently, into the bottom class.

      As Hugh Pavletich calls it: the bankers benefit scheme; women becoming mortgage slaves along with their husbands. Pity about the collateral damage, eh?

      • It is a system that is doomed to collapse as the cost of housing squeezes out participants or overtime housing costs cannot be supported by 2 income households. This seems to be happening on the income side in the US as middle class jobs are eliminated and are being replaced with low income part time jobs.

        The US is becoming a ‘rentier’ economy as house ownership falls and big landlords from the financial services sector have emerged and have acquired tens of thousands of homes.

  7. I don’t think Median Multiple is good measure of house prices. Reason is simple – houses are not the only things income needs to pay for and other costs of living are not proportional to house prices or income.

    Paying 50% of a low income (e.g. $1200) is quite different than paying 50% of high income (e.g. $3000).

    When comparing countries, this becomes even more extreme. Median household income in SF is roughly the same as in Sydney. Median multiple very similar and you would think that housing is equally unaffordable … but …

    taxes are lower in SF, other living costs are much lower, interest rate is almost half (and can be fixed low forever), interest payments are tax deductible in SF …
    buying a $700k in SF is much easier ($2000 left in pocket after a monthly mortgage repayment is more than enough), than buying a $720k house in Sydney ($1500k left after a monthly mortgage repayment is not enough to survive)

    So Median multiple of 9 is relatively affordable for median earner in SF, but it’s not even close to affordable for a median earner in Sydney.

    • But is an affordability index that includes current interest rates, more honest or less honest than one that doesn’t?

      The most important factor by far in a mortgage is always the size of the principal relative to incomes.

      We are reaching the point in some markets around the world, where a household will NEVER be able to pay off the principal, yet an “affordability” index that takes low interest rates into account will rate that market as “affordable”…..!

      The incidence of “interest only mortgages” has risen because of this. It is just “renting plus debt”.

      And along with SF, consider the truly affordable US cities. How easy peasy must it be for FHB’s in a city with a median multiple of 3, that also has all the benefits that you say SF has? Those local economies must be absolutely ROMPING with the discretionary income that they must be awash with. Hmmm, perhaps this is why those local economies ARE romping and even SF actually isn’t, comparatively?

      • for couple of reasons interest rate in US must be included into calculation when comparing house prices with the rest of the world : first and most important is ability to fix rate for a life (3.5% is not current IR for buyers, it’s the maximum IR they will ever have to pay for house they buy now). In addition,interest paid is tax deductible.

        But even when comparison is done between cities with the same credit and tax conditions, simple median multiple is not good measure because as I said, paying 30% of a low income is quite different than paying 30% of high income.

        For example, Port Macquarie with Median Multiple at 8.1 looks more affordable for an median buyer than Sydney with median Multiple of 9. Reality is that, after mortgage repayment for a median house, an average family in Port Macquarie is left with $1200 per mth, while similar family is Sydney is left with $1700 per month (and most of non-housing costs being very similar).

      • “…..paying 30% of a low income is quite different than paying 30% of high income……”

        The top part of the income distribution is expected to buy the homes in the top part of the price distribution. The bottom part of the income distribution are expected to buy the homes in the bottom part.

        If the median multiple is high, the whole position will be skewed so that the second quintile, not the bottom one, will be the new “stretched but just coping” buyers of the bottom-quintile houses; and anyone below that, probably the entire bottom quintile, can’t buy anything and will have to suffer renting inadequate housing which is associated with health problems and so on.

        Your point is probably correct, that at the top end of the market it doesn’t matter so much. Note too, that the price inflation is always worst at the bottom end of the market. This is because all the inflation is in the LAND component of the “housing” price. A house that might have been $40,000 structure value (old, depreciated) and $80,000 land value (central location) in a median-multiple-3 city, ends up as $40,000 structure value and $800,000 land value in a median-multiple 8 city. I am not kidding – I can prove this from RE sites.

        But the Mansions that were already going to be $1,000,000 structure value and $200,000 land value, end up as $1,000,000 structure value and $2,000,000 land value. The inflation is from $1,200,000 to $3,000,000 – which is bad enough. But the people at the top end of the market can probably cope with this, as you argue – whereas the people at the bottom end of the market cannot cope with THEIR housing option being $840,000 instead of $120,000.

        Seeing as we live in an age where we are meant to be concerned about social justice, I would have thought this mattered. It is a gripe I have with the Demographia Survey, that it does not present a “bottom quintile multiple” as well as the “median” one. My pick is that in a city with a median multiple of 3, the bottom quintile multiple will also be 3; but in a city with a median multiple of 8, the bottom quintile multiple will be over 20, possibly close to 30. That is, abandon hope all ye who enter here.

      • “It is a gripe I have with the Demographia Survey, that it does not present a “bottom quintile multiple” as well as the “median” one. My pick is that in a city with a median multiple of 3, the bottom quintile multiple will also be 3; but in a city with a median multiple of 8, the bottom quintile multiple will be over 20, possibly close to 30. That is, abandon hope all ye who enter here.”

        very good point. There are houses in SF metro that cost well below median price (there are houses for less than $200k just 20km from SF CBD), so even poeple earning third of a median income can buy a house for 9 times their income.

        Not in Sydney, not even close

    • I don’t think Median Multiple is good measure of house prices. Reason is simple – houses are not the only things income needs to pay for and other costs of living are not proportional to house prices or income.

      It is a capital outlay which is required to be paid back.

      You have 35-45 years wage earning power, and it’s abuot how many of these you dedicate to paying off a house.

      The intrest expense is a carryin cost to acquire debt for the house, a tax burden is for common-wealth services, and just an aggregated cost of living.

      Paying 50% of a low income (e.g. $1200) is quite different than paying 50% of high income (e.g. $3000).

      When comparing countries, this becomes even more extreme. Median household income in SF is roughly the same as in Sydney. Median multiple very similar and you would think that housing is equally unaffordable … but …
      taxes are lower in SF, other living costs are much lower, interest rate is almost half (and can be fixed low forever), interest payments are tax deductible in SF …

      taxes are lower because many services are not common-wealth, and are user pays. An after-tax disparity does not mean it will automatically go into housing.

      It means health services will be paid out of pocket, and not into a national pool of socialised healthcare.

      Interest expense is a real cost and/or distortion of government policy, they are not fixed, nor to be expected to be enduring at the same cost.

      buying a $700k in SF is much easier ($2000 left in pocket after a monthly mortgage repayment is more than enough), than buying a $720k house in Sydney ($1500k left after a monthly mortgage repayment is not enough to survive)

      Good, the extra money SF is used to pay for extra healthcare, schooling, etc.

      The same services are paid for, it’s just whether it’s via a socialised pool or not.

      So Median multiple of 9 is relatively affordable for median earner in SF, but it’s not even close to affordable for a median earner in Sydney.

      No it’s not, you’re muddying the waters for your own benefit.

      • If you want to be exact, it’s even more affordable in SF. Median household income in USA does not include benefits (non-cash benefits like health care, retirement contributions, …).

        Income in Australia includes even non-existing stuff like imputed rent.

        Reality is that for similar median multiple as calculated by Demographia, affordability is much higher in SF than in Sydney (total income is higher, tax and interest are lower in SF than estimated by Demographia, income in Sydney is lower than estimated, … )

      • So that might explain why SF (and other CA) median multiples went to around 12 last time before they crashed.

        Expecting Sydney to carry on up to this sort of peak before crashing might be unrealistic.

        Nevertheless, the Demographia Reports are a good starting point for analysis and discussion.

        I note that Alain Bertaud, in the intro, infers that it is an indication of the culpability of bureaucracies in this debacle, that accurate and harmonised data is never available; and lightly-resourced individuals like Cox and Pavletich have to devote massive amounts of time to digging data out and putting it into presentable form.
        It would be really helpful if the critics of Demographia’s methodology directed some of their criticism to the bureaucracies whose main interest seems to be in maintaining the highest possible level of public ignorance on the subject.

        Hugh is right – “institutional failure” is really where this problem needs sheeting home to. Vested interests and ideological capture are really just opportunistic movers in consequence of the institutional failure.

        Singapore seems to be one place where the bureaucracies are actually “proofed” against this sort of thing. Lee Kuan Yew was a very wise observer of human nature, in the way he designed the bureaucracy there. Kind of like “compulsory military training” – you’re selected; you’re in for 3 years; then you’re back out into the real world. And remuneration is heavily performance-based.

  8. A quibble I have with the demographia stuff is that their definition of ‘unaffordable’ at 3+ is nonsense. If your income is $100K and a median house is $300K then your repayment on a 80% (LVR) loan would be about 18% of your income. are they using gross income or after-tax income?

    • How else do you measure a “market” and its systemic affordability?

      No-one would bother to read one that had a market-by-market analysis of how each type of household could cope with each type of housing in each location. We need something easier to digest.

      If anything, the median multiple using gross income is too kind on some of the most important points. The biggest inflation occurs in the bottom quintile, because the inflation is all in the land. The “land” component of the “house plus land” package for older worn out homes in mature suburbs, goes from 25% of the value to 95%, with the price of the “house” more than trebling – when the median multiple has the market overall only doubling; with the top quintile only inflating some 40% or so.

      We live in a world that claims to care about poor people and social justice – so I would prefer to see an affordability survey that more effectively drew attention to the bottom quintile. It would represent a far greater “shaming” of the perpetrators of this disgrace.

    • A quibble I have with the demographia stuff is that their definition of ‘unaffordable’ at 3+ is nonsense.

      No, it’s your framing of the situation which is nonsense, probably due to paranoia about price regression.

      You’re no longer entitled to have quibbles about it, cease immediately.

      If your income is $100K and a median house is $300K then your repayment on a 80% (LVR) loan would be about 18% of your income. are they using gross income or after-tax income?

      Do you see what you’ve done there? Do you see how it works?

      Iit’s rhetorical.. you don’t

      The calculation of demographia are based on median incomes. $100k income is not median, it’s well above median. Everything is more affordable when you’ve above median.

      If EVERYONE is earning $100k, then that becomes the median, and the ratio comes down.

      Again, do you see how that works? it is dumb… really dumb …to say ‘everyone should earn above average/median’

      Likewise, $300k for the house/loan.

      You elect a figure that is way below average cost of housing.

      So in what I can only believe you thought was offering real insight, by picking above median wages, and below median cost of housing, all you did was dumb everyone down on this forum.

      “Everyone should earn above average wages”

      “Everyone should buy below average housing”

      Ummm, distribution doesn’t work thaty way.

    • It’s not so much a “rule of thumb” but a “rule of big fat elbow”

      Without taking tax levels, welfare benefits such as FA and child care rebates, different cost of living, purchasing power parity and local factors into account it’s not a great guide at all.

      • “different cost of living, purchasing power parity ”

        Do you really think Australia ranks favourably on that score?

        The whole “its not a perfect comparison so its useless” is a bit of a tired argument, don’t you think?
        “We have generous child care rebates so housing being 100% more expensive relative to incomes isn’t as bad as it seems. Plus it’s really sunny here.”.

        Give me a break.

      • “Do you really think Australia ranks favourably on that score?”
        Favourably on some, less favourably on others, but if you don’t factor everything in you are just kidding yourself.

        By any logic it’s a crap yardstick, but if you are going to do it then do it correctly..

  9. I would like to know what the multiples were in Ireland before the RE adjustment there. Also of interest in Ireland (2.8) is the lower in fact much lower multiples in regional locations.

    Is this what a bust looks like ? It really shows why the fire keeps getting stoked.

    • In the 2006 survey the median multiple for Ireland (just Dublin I think) was 6.0 (at the time Australia was 6.2).

      • And Dublin was the most expensive city…..!

        Cork 4.7
        Dublin City/County 5.4
        Dublin Exurbs 5.0
        Galway 4.6
        Limerick 3.5
        Waterford 4.1

        Cork 5.4
        Dublin 6.0
        Galway 5.6
        Limerick 4.3
        Waterford 4.9

        Cork 3.6
        Dublin 4.7
        Galway 3.2
        Limerick 4.2
        Waterford 3.7

  10. I totally agree with all of the demographia conclusions and most of above but while on the subject of comparing markets there is one MAJOR addition to gross incomes between countries which has not been discussed above…super…

    That is a major issue and does understate for example the gross household income for Sydney of $80,000 by circa $8,000

    And when that can now be directed at housing it does understate Sydneysiders ability to pay

    However all this is irrelevant when businesses cannot afford to pay these salaries so Sydney will fall to the same deflationary spiral regardless as median household incomes drop

  11. More issues about the report coming out on Twitter:

    – @lukechristensen: With the exception of Atlanta all of Demographia’s top ten most affordable markets are declining rust belt cities.
    – @lukechristensen: Demographia survey gives Rockford, IL best score. Stagnant population since 1970 and ranked one of worst cities in USA. Inner city blighted.
    – @FrankMcRae: Demographia study excludes Germany. Is it because the data would conflict with conclusion that sprawl is only way to achieve affordability?

    Let’s be careful about taking too much out of the report’s conclusions.

    • I’m shocked!

      I thought nit-pickers had been banned from the Internet.

      I’m also stunned that affordable housing could be found in declining rust-belt cities. I thought they would be the most expensive place to buy! The demographia report must be wrong!

    • Presumably @lukechristenson regards the UK’s rust-belt blighted cities like Liverpool and Newcastle, as thriving boom cities because their median multiples are 5.3 and 4.8; rather than suffering cities being slowly euthanised by economic rent, a legacy of the planning system.

      News flash: busted-arse cities SHOULD have median multiples of “2”. This might aid their economic recovery.

      Normal healthy cities should have median multiples of “3”.

      Can someone on the Twitterverse please point this out to @lukechristensen?