DEFINING HOUSING AFFORDABILITY HAS CREATED A CHALLENGE FOR ACADEMICS, INDUSTRY AND GOVERNMENT OVER MANY YEARS WHILE RANKING THE AFFORDABILITY OF CITIES IS EVEN MORE CHALLENGING WITH OVER SIMPLIFICATION BEING THE MAJOR ISSUE.
Measures such as dividing median house price by median income to provide comparison gives an indicator of housing affordability but it is only a starting point. With those limitations noted, the 9th International Housing Affordability Survey makes interesting reading.
The report is prepared by Demographia, which has a reputation for having a fiercely free market philosophy. The report argues that planning constraints have a negative impact on housing affordability, in particular, moves towards “compact cities” constrain land supply leading to shortages and price increases.
At a superficial level the evidence is compelling. Lower density cities rank as the most affordable which in economic terms makes sense; an unconstrained supply removes upward pressure on the market. But local market conditions are also extremely important. Detroit came in as the most affordable housing market in the study requiring just 1.5 times median household income to meet the median house price. However that city has suffered through the collapse of their local economy with their population falling twenty five percent in the last decade meaning there is plenty of housing capacity.
All five major markets in Australia are rated as severely unaffordable having moved from around three times median household income in the 1980’s (with the exception of Sydney) to an average of 6.5 times median household income. According to the report, Perth was middle of the pack in terms of affordability with Sydney (8.3), Melbourne (7.9), Adelaide (6.5) and Hobart (6.0) all above Perth’s 5.9. Brisbane (5.8), Canberra (5.1) and Darwin (5.2) were more affordable.
Mandurah in Western Australia continues to rank as one of the least affordable places in the world with median housing costing seven times median household income. The fact that Mandurah has a significant number of retired people with waterfront homes but have more modest incomes because they are no longer working, is not taken into account.
Karratha (4.9), is ranked as more affordable than Perth (5.9) because of the high median household income, but try finding a place to live if you salary does not have the benefit of the mining multiplier effect! Averages and median’s however, can hide the real story of those who are struggling with affordability.
An interesting read but not the full story.