Demographia: Property “severely unaffordable”

 

The 2015 edition of Demographia is out.

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The 2015 11th Annual Edition …

The 11th Annual Demographia International Housing Affordability Survey covers 378 metropolitan markets in nine countries (Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States).  A total of 86 major metropolitan markets — with more than 1,000,000 population — are included, including five of the six largest metropolitan areas in the high income world (Tokyo-Yokohama, New York, Osaka-Kobe-Kyoto, Los Angeles, and London.

This year’s edition includes a comparison with housing affordability indexes by The Economist, for the major metropolitan areas in China (excluding Hong Kong, which is rated in the Demographia Survey) and by Kookmin Bank for South Korea (the Republic of Korea).

Rating Housing Affordability …

The Demographia International Housing Affordability Survey rates housing affordability using the “Median Multiple” in its analysis of Australia, Canada, Hong Kong, Ireland, New Zealand, Singapore, the United Kingdom and the United States. The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Joint Center for Housing Studies, Harvard University. The Median Multiple and other similar price-to-income multiples (housing affordability multiples) are used to compare housing affordability between markets by the Organization for Economic Cooperation and Development, the International Monetary Fund, The Economist, and other organizations.

Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices from 2.0 to 3.0 times median household incomes. However, in recent decades, house prices have been decoupled from this relationship in a number of markets, such as Vancouver, Sydney, San Francisco, London, Auckland and others. Without exception, these markets have severe land use restrictions (typically “urban containment” policies) that have been associated with higher land prices and in consequence higher house prices (as basic economics would indicate, other things being equal).

Table ES-1

Demographia International Housing Affordability Survey

Housing Affordability Rating Categories

Rating Median Multiple
Severely Unaffordable 5.1 & Over
Seriously Unaffordable 4.1 to 5.0
Moderately Unaffordable 3.1 to 4.0
Affordable 3.0 & Under

 

Housing Affordability in 2014 …Major Markets (Population 1 million +)

The most affordable major metropolitan markets in 2014 were in the United States, which had a moderately unaffordable rating of 3.6. Canada and Ireland were rated “seriously unaffordable,” with a Median Multiple of 4.3, along with Japan (4.4), the United Kingdom (4.7) and Singapore (5.0). Australia (6.4), New Zealand (8.2) and Hong Kong (17.0) were severely unaffordable (Table ES-2).

The most affordable major metropolitan markets (Figure ES-1) were in the United States (Figure ES-1), with 14 markets rated as “affordable.” Hong Kong’s Median Multiple of 17.0 was the highest recorded (least affordable) in the 11 years of the Demographia International Housing Affordability Survey. Again, Vancouver was second only to Hong Kong, with a Median Multiple of 10.6.  Housing affordability in Sydney deteriorated to a Median Multiple of 9.8, which was followed by San Francisco and San Jose (each 9.2). Melbourne had a Median Multiple of 8.7 and London (Greater London Authority) 8.5. Three other markets had Median Multiples of 8.0 or above, including San Diego (8.3), Auckland (8.2) and Los Angeles (8.0).

Table ES-2

Housing Affordability Ratings by Nation: Major Markets (Over 1,000,000 Population)

Nation Affordable

(3.0 & Under)

Moderately

Unaffordable (3.1-4.0)

Seriously Unaffordable (4.1-5.0) Severely Unaffordable (5.1 & Over)  

 

Total

 

Median

Market

Australia 0 0 0 5 5 6.4
Canada 0 2 2 2 6 4.3
China (Hong Kong) 0 0 0 1 1 17.0
Ireland 0 0 1 0 1 4.3
Japan 0 1 1 0 2 4.4
New Zealand 0 0 0 1 1 8.2
Singapore 0 0 1 0 1 5.0
United Kingdom 0 1 10 6 17 4.7
United States 14 23 6 9 52 3.6
TOTAL 14 27 21 24 86 4.2

 

Housing Affordability in 2014 … All Markets …

Among all 378 markets in the principal analysis, there were 98 affordable markets, 88 in the United States, five in Canada, three in Ireland and, for the first time, there were affordable markets in Australia (two). There were 119 moderately unaffordable markets, 97 in the United States, 16 in Canada, three in the United Kingdom and one each in Japan, Ireland and Australia. There were 76 seriously unaffordable markets and 85 severely unaffordable markets. Australia had 33 severely unaffordable markets, followed by the United States with 25 and the United Kingdom with 16. New Zealand and Canada each had five severely unaffordable markets, while China’s one market (Hong Kong) was also severely unaffordable (Table ES-3).

Table ES-3

Housing Affordability Ratings by Nation: All Markets

Nation Affordable

(3.0 & Under)

Moderately

Unaffordable (3.1-4.0)

Seriously Unaffordable (4.1-5.0) Severely Unaffordable (5.1 & Over)  

 

Total

 

Median

Market

Australia 2 1 15 33 51 5.5
Canada 5 16 9 5 35 3.9
China (Hong Kong) 0 0 0 1 1 17.0
Ireland 3 1 1 0 5 3.0
Japan 0 1 1 0 2 4.4
New Zealand 0 0 3 5 8 5.2
Singapore 0 0 1 0 1 5.0
United Kingdom 0 3 14 16 33 5.0
United States 88 97 32 25 242 3.4
TOTAL 98 119 76 85 378 3.8

Comments

  1. [devil’s-advocate]

    The implication is clear:

    . . . people are prepared to pay more to live in places where land use restriction are in place.

    Or could it be that as their incomes increase, people place higher value on preserving the intangible amenity of lower density housing?

    [/devil’s-advocate]

    • arescarti42MEMBER

      “The implication is clear:. . . people are prepared to pay more to live in places where land use restriction are in place.”

      I seem to recall reading a number of articles showing the massive net migration away from California towards Texas, and how much faster the population of cities in Texas were growing relative to constrained Californian cities.

      “Or could it be that as their incomes increase, people place higher value on preserving the intangible amenity of lower density housing?”

      In the case of urban containment restrictions, surely that creates greater pressures to increase density. If as a wealthy resident living in an established low density area, I want that area to remain low density, then the easiest way to achieve that is by allowing all the population growth to occur unrestrained on the fringe, avoiding pressure to increase density in my area to accommodate that growth.

      • “. . . the massive net migration away from California towards Texas, and how much faster the population of cities in Texas were growing relative to constrained Californian cities.”

        Migration of lower wage workers moving to take advantage of the fracking boom . . . which has now come to an end with the collapse in the oil price.

        One wonders what it will be like to live in the sprawling cities of Texas now that the money has dried up.

        Meanwhile the highly paid workers in hi-tech industries appear to enjoy California with its planning restrictions.

        I’m not saying it’s right. I’m just saying that one can interpret the data in different ways.

      • Nice try, Steven, but Texas has been growing approximately comparably to California since the 1950’s; it is just that California has gone into reverse from around 1980 onwards.

        This is about much, much more than fracking. It is about opportunity urbanism versus trickle-down “creative people’s playground” urbanism, which even Richard Florida has admitted to be a failure.

      • None of which rebuts the interpretation of the data as being consistent with the hypothesis that people place a higher value on intangible amenity (which they see coming through land use restrictions) as they become wealthier.

        Whether that is a “good thing” or a “bad thing” is a matter of preference.

        But one cannot rebut a positive interpretation with a normative statement.

  2. Funny, every time I fly into Melbourne there appears to be acres and acres of ‘farmland’ that doesn’t appear to be overly productive…

    • I have that thought every time I fly into Melbourne. Then I see the Inglis stables (recognisable by the enormous Inglis sign on the roof) and remember what it is going on.

      That land is being productively applied in the breeding or training of racehorses, as best I can tell. No higher or better use apparently.

      The other major activity appears to be accumulation of second hand equipment/cars trucks etc – in large rusting piles. For later recycling I presume.

    • arescarti42MEMBER

      Apparently Karratha and Kalgoorlie (median multiples of 2.6 and 2.8 respectively).

      Presumably those mining workers who haven’t been laid off and are still on big incomes are finding housing pretty affordable, the others having lost their jobs, moved away, and caused prices to crash.

    • I’ve lived and worked in Kalgoorlie before. It always was, and still is a shithole. All the empty shops make it seem shittier now. I see it as a canary for WA.

  3. demographia 2015 – more of the same

    more opinionated and not even trying to fix methodology errors