13th Annual Demographia International Housing Affordability Survey: 2017 Rating Middle-Income Housing Affordability

From Demographia International

…Demographia’s reports and countless other surveys and studies do not leave the slightest doubt that unaffordable housing is almost everywhere and every time caused by the same factor: housing supply restrictions. The more restrictive the market, the more prices will increase over time.

To any undergraduate student of economics, this will not come as a surprise. But it is still a relatively novel discovery for many planners and politicians.

Fortunately, the media are waking up to the realisation that housing and land supply matters. The most powerful infographic of 2016 was produced by The Wall Street Journal. It showed what happened to house prices in US cities that had expanded their residential areas between 1980 and 2010 – and those that had not.1 As was to be expected, greater land supply went hand in hand with lower price increases.

The same link can be seen internationally. On its website, The Economist allows readers to compare house price developments across a range of developed economies. 2 The linked figure contrasts the United Kingdom, Australia, the United States and Germany and other countries over the past 40 years.

What stands out about The Economist’s graph is the stark contrast between Germany on the one hand and the English-speaking world on the other. It was this contrast which initially drew me into the housing debate.

Germany is probably the country with the most boring housing market in the world. It is a place where nothing ever happens (at least as far as housing is concerned). German house prices remain stable, and if it had not been for the euro crisis and negative interest rates, the Germans would probably still be able to buy houses for the same prices in real terms that they paid twenty or thirty years ago.

The story for other countries like Australia, New Zealand, the United Kingdom and large parts of the United States is a different one. There, house prices have gone through the (now unaffordable) roof.

My own housing research focused on this difference: Why did Germany (and similarly Switzerland) provide housing stability where much of the Anglosphere did not?3

In a nutshell, the answer to this question has a lot to do with the way councils are funded. In jurisdictions where local decision-makers stand to gain from new development, they will be much more eager to make it happen.

In Germany and Switzerland, council budgets largely depend on their ability to attract new residents and taxpayers. This is why both countries are have traditionally had a more responsive and flexible housing supply side. The available financial incentives to planners and councillors made all the difference to house prices in the long run.

In our work at The New Zealand Initiative, we have developed this ‘incentives approach’ further. We have argued that it could be the key to solving housing affordability in New Zealand4 , and we have applied this thinking to other aspects of local government and resource management as well.5

Of course, planning reform and liberalisation remain both important and desirable. But without a financial framework that encourages and incentivises development, we will always struggle to deliver the houses we need.

We need to tackle housing affordability urgently because the effects of unaffordable housing on society are becoming more visible by the day. Policies that raise housing costs are always likely to hit those on low incomes the hardest. Thus in our work on different measures of poverty and inequality, we have argued that the best way to tackle both issues would be to make housing more affordable.6

Especially at a time when there is a growing threat of populism to Western democracies, there is a social imperative for making housing more affordable….

read … Entire Report

Key Excerpts:

There are 26 severely unaffordable major housing markets in 2016. Again, Hong Kong is the least affordable, with a Median Multiple of 18.1, down from 19.0 last year. Sydney is again second, at 12.2 (the same Median Multiple as last year). Vancouver is third least affordable, at 11.8, where house prices rose the equivalent of a full year’s household income in only a year. Auckland is fourth least affordable, at 10.0 and San Jose has a Median Multiple of 9.6.

The least affordable 10 also includes Melbourne (9.5), Honolulu (9.4), Los Angeles (9.3), where house prices rose the equivalent of 14 months in household income in only 12 months. San Francisco has a Median Multiple of 9.2 and Bournemouth & Dorsett is 8.9. San Diego has a Median Multiple of 8.6 and London 8.5, the same as last year. Toronto has a Median Multiple of 7.7, like Vancouver, showing a year-on-year house price increase equal to a year of household income….

Housing Affordability & Land Regulation: In the United States, more restrictive regulation markets (Table 1) include those classified as “growth management,” “growth control,” “containment” and “contain-lite” in From Traditional to Reformed A Review of the Land Use Regulations in the Nation’s 50 largest Metropolitan Areas (Brookings Institution, 2006) as well as additional markets Demographia has determined other U.S. metropolitan areas to have urban containment policy or other policies that have similar effects (New York, Boston, Chicago, Minneapolis-St. Paul, 13th Annual Demographia International Housing Affordability Survey (2016: 3rd Quarter) 70 Washington and Honolulu)….

World’s 10 most expensive housing markets in 2017

1. Hong Kong, China

2. Sydney, NSW, Australia

2. Vancouver, BC, Canada

4. Auckland, New Zealand

5. San Jose, CA, US

6. Melbourne, VIC, Australia

7. Honolulu, HI, US

8. Los Angeles, CA, US

9. San Francisco, CA, US

10. Bournemouth & Dorset, UK