Housing Unaffordable In Australia – Demographia

The latest 14th edition of the Annual Demographia International Housing Affordability Survey: 2018, using 3Q 2017 data continues to demonstrate the fact that we have  major issue in Australia. There are no affordable or moderately affordable markets in Australia. NONE!

The major markets of Australia (6.6), New Zealand (8.8) and China (19.4) are severely unaffordable. By international standards houses are big in both Australia and New Zealand but relatively unaffordable.

Using a standard methodology across geographies, the study benchmarks affordability of middle income housing, using an index on average prices and incomes – formally, Median Multiple: Median house price divided by median household income.

Sydney is second worst in terms of affordability after Hong Kong, with Melbourne, Sunshine Coats, Gold Coast, Geelong, Adelaide, Brisbane, Hobart, Perth, Cains and Canberra all near the top of the list.  [Click on the graphic to see it larger].

In recent decades, house prices have escalated far above household incomes in many parts of the world. In some metropolitan markets house prices have doubled, tripled or even quadrupled relative to household incomes. Typically, the housing markets rated “severely unaffordable” have more
restrictive land use policy, usually “urban containment.”

Sydney is again Australia’s least affordable market, with a Median Multiple of 12.9, and ranks second worst overall, trailing Hong Kong. Sydney’s housing affordability has worsened by the equivalent of 6.6 years in pre-tax median household income since 2001. This is a more than doubling of the Median Multiple. In contrast, Sydney’s housing affordability worsen less than one-fourth as much between 1981 and 2001.

At 12.9 Sydney’s Median Multiple is the poorest major housing affordability ever recorded by the Survey outside Hong Kong. Additionally, the UBS Global Real Estate Bubble Index rates Sydney as having the world’s fourth worst housing bubble risk (tied with Vancouver).

Melbourne has a Median Multiple of 9.9 and is the fifth least affordable major housing market internationally. Only Hong Kong, Sydney, Vancouver, and San Jose are less affordable than Melbourne. Melbourne’s Median Multiple has deteriorated from 6.3 in 2001 and under 3.0 in the early 1980s. Just since 2001, median house prices have increased the equivalent of more than three years in pre-tax median household income.

Adelaide has a severely unaffordable 6.6 Median Multiple and is the 16th least affordable of the 92 major markets. Brisbane has a Median Multiple is 6.2 and is ranked 18th least affordable, while Perth, with a Median Multiple of 5.9 is the 21st least affordable major housing market in Australia.

The report argues that:

The key to both housing affordability and an affordable standard of living is a competitive market that produces housing (including the cost of associated land) at production costs, including competitive profit margins.

None of that currently exists in Australia, with land prices sky high, linked to lack of supply (strange given the size of the country!) as well as the financialisation of property and the massive investment sector.

In contrast with well functioning housing markets, virtually all the severely unaffordable major housing markets covered in the Demographia International Housing Affordability Survey have restrictive land use regulation, overwhelmingly urban containment. A typical strategy for limiting or prohibiting new housing on the urban fringe an “urban growth boundary,” (UGB) which leads to (and is intended to lead to) an abrupt gap in land values.

Australia is perhaps the least densely populated major country in the world, but state governments there have contrived to drive land prices in major urban areas to very high levels, with the result that in that country housing in major state capitals has become severely unaffordable.

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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