The latest housing affordability survey from Demographia has been released. Using data from Q3 2014, they conclude that in Australia, for the 11th year in a row all of Australia’s five major metropolitan areas were severely unaffordable. The latest survey also highlights the divergent trends in Australia’s main urban centres, and other parts of the county. This authoritative report adds further weight to the evidence that the property market is broken.
By way of background, 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). The Demographia International Housing Affordability Survey rates housing affordability using the “Median Multiple.” 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. 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). Here is the rating scale the report uses.
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.
The most affordable major metropolitan markets were in the United States, 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). At a more detailed level, Australia had 33 severely unaffordable markets, followed by the United States with 25 and the United Kingdom with 16.
Among the major metropolitan area markets the overall Median Multiple was 6.5. The least affordable market was Sydney, with a Median Multiple of 9.8. This is a substantial increase from last year’s 9.0. This makes Sydney the third least affordable out of the 86 major markets rated in this Survey. Housing affordability also deteriorated in Melbourne, rising to a Median Multiple of 8.7 in 2014 from 8.3 in 2013. Melbourne ranked 6th least affordable of the 86 major markets. Housing affordability deteriorated slightly in Adelaide (from 6.3 to 6.4), Perth (from 6.0 to 6.1) and Brisbane (from 5.8 to 6.0).
Among all markets, Australia’s Median Multiple remained severely unaffordable, at 5.5. After major market Sydney (9.8), Tweed Heads (Queensland) was the least affordable, with a Median Multiple of 9.1. Queensland’s Sunshine Coast ranked third least affordable with a median multiple of 8.3 (following Melbourne, which ranked fourth among all markets in Australia). The fifth least affordable market in Australia was Port Macquarie, with a median multiple of 8.2. There were signs of considerable improvement, however, among the smaller markets of Australia. Gladstone (QLD) achieved a moderately unaffordable rating, with a median multiple of 3.9. Townsville (QLD) and Latrobe (VIC) tied for fourth most affordable market, with a seriously unaffordable Median Multiple of 4.3. For the first time in the 11 years of the Demographia International Housing Affordability Survey, Australia had markets that were rated as affordable. The most affordable market was Karratha, in Western Australia’s Pilbara, with a median multiple of 2.6. Kalgoorlie, also in Western Australia was the second most affordable market, with a median multiple of 2.8. These improvements appear related to resource industry related demand decreases.
