Thu Apr 5th, 2007 at 09:29:27 PM EST
I've been doing some analysis in this area over the past several months, and have found some reports and internet sites that have been very interesting to me. Since we discuss issues around housing, housing crashes from time to time, I thought one report I found might be interesting to some of you. It didn't surprise me to find that there has been a sharp change in housing affordability over the last several decades.
Affordability is defined as developing a ratio of the median housing price to the median income. This affordability ratio shows that the most impacted place by this trend is Australia, where the median housing price is an incredible 6.6 times the median income. As you'll see in the report, going back several decades this ratio was normally for these countries more like 3 to 1. (One drawback to this study is that it only includes the English speaking countries. I'm continuing to look for a broader study, but with the same level of detail as this report. I would appreciate it if anyone could refer me to other reports you may have seen.)
EXECUTIVE SUMMARY- The 3rd Annual Demographia International Housing Affordability Survey expands coverage to 159 major markets in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. The Demographia International Housing Affordability Survey employs the "MedianHouse Price to Median Household Income Multiple," ("Median Multiple") to rate housing affordability (Table ES-1).
Demographia Housing Affordability Ratings
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 or Less
In recent decades, the Median Multiple has been remarkably similar among the nations surveyed, with median house prices being generally 3.0 or less times median household incomes. This historic affordability relationship continues in many housing markets of the United States and Canada.
However, the Median Multiple has escalated sharply in Australia, Ireland, New Zealand and the United Kingdom and in some markets of Canada and the United States.
The report verifies an intuitive feeling that I had, that the US has comparatively very affordable housing. However, it is a nation of extremes, as some of the California housing markets, for example, rank at the top in terms of unaffordability.
2006 Housing Affordability Ratings
The most pervasive housing affordability crisis is in Australia, with an overall Median Multiple of 6.6. Affordability is only marginally better in New Zealand (6.0) Ireland (5.7), and the United Kingdom (5.5). On the other hand, the national Median Multiple in Canada is 3.2, indicating that housing is one-half as expensive relative to incomes as in Australia. The national Median Multiple in the United States is 3.7.
Least Affordable Markets: The least affordable markets are generally in California, Hawaii, the US East Coast, Australia, the United Kingdom, New Zealand and Vancouver. The least affordable market is Los Angeles & Orange County, with a Median Multiple of 11.4, far above the "severely unaffordable" threshold of 5.1 and approaching four times the 3.0 "affordability" standard. The Median Multiple is 8.5 in Sydney, 8.3 in London, 7.7 in Vancouver, and 6.9 in Auckland. All of the 25 least affordable markets are rated "severely unaffordable" (Table ES-2). Ireland's only surveyed market, Dublin is also rated severely unaffordable, at 5.7.
Affordable Markets Remain: At the same time, 42 markets remain "affordable." Seven of the "affordable" markets are in Canada and 35 are in the United States. The most affordable markets are Regina, Fort Wayne and Youngstown. Some of the fastest growing markets in the survey remain "affordable," such as Dallas-Fort Worth, Houston, Atlanta and Oshawa (Table ES-3).
The US can be an incredibly expensive place to live, or an incredibly inexpensive place to live--all depending on choices. As this report shows, there are nice cities in the US (not like New York, Paris, London of course) where the median housing price is only 2 times the median annual income. This is just one of the factors that leads to such diversity in the US on so many levels--including political, social, and economic levels.
I thought some of you might find this an interesting report, or at least reference.