The great house price/wage debate
The gap between earnings and house prices has been drifting further and further apart over the last few years, making it impossible for many wannabe homebuyers to bridge the distance, but now, with the current economic climate, a recent report has shown that housing fortunes have improved slightly in the six countries surveyed...
International survey firm Demographia has issued its fifth annual report which studies the gap between wages and property prices in the United States, Australia, Britain, Ireland, Canada and New Zealand.
Whilst most examinations of housing affordability focus on national data, which can mask significant differences between markets, the ‘Demographia International Housing Affordability Survey' assesses the international housing affordability at a regional market level.
The survey brings together the growing body of evidence that placing restrictions on urban land supplies leads to serious house price escalation and suggests that land supply restrictions may have been at the root of the current financial crisis.
The survey has expanded this year to include 265 cities within the six countries covered and a median multiple is used so median houses prices are divided by the gross annual median household income to give the total number of years of income needed to pay off a mortgage.
Whilst the drop in global property prices has been catastrophic for many, especially those caught up in the US subprime mortgage crisis, the fall has helped to bridge the gap between wages and prices in some countries.
In a major Change from previous years, most of the least affordable markets are outside the United States. Last year, the five least affordable markets were in the United States whilst this year, three of the least affordable markets are in Australia and only one in the United States.
This Change is the result of the steep housing price declines that have been experienced in some markets in the United States, such as Florida and California.
New Zealand, which a year ago recorded the most unfavourable income and property comparison, is now only the second worst, behind Australia. Thus, housing affordability in New Zealand has improved slightly in the past year when compared to other countries.
Although the survey says that the United Nations and World Bank recommend that no more than three years of annual household income should be required, New Zealand buyers need five years and seven months of full earnings to be able to afford a house.
In the least affordable region of New Zealand - the Tauranga/Western Bay of Plenty area - it was found to take six years and six months to pay for a house. Second least affordable was Auckland at six years and four months and then Christchurch at six years and one month.
But, before New Zealand buyers get too excited, although affordability had improved marginally, highly expensive and extremely constrained urban land supplies led to the lack of affordability in the first place and that hasn't really changed.
The new New Zealand Government has already put into place an aggressive plan to tackle the housing affordability crisis, which includes amending the Building Act 2004 to reduce the excessive costs imposed on councils and the building industry.
Planning restrictions are to be eased and shared ownership and other financing arrangement for buyers are also in the pipeline.
Affordability improves
There are 87 affordable markets, 77 of which are in the United States and ten in Canada. As in 2007, the affordable markets include the three markets with a population of more than 5,000,000 with the greatest demand - Atlanta, Dallas-Fort Worth and Houston.
Winnipeg is Canada's largest affordable market. Last year, Canada's Thunder Bay was the most affordable place. Now, following the spectacular fall from grace of America's property market, Ohio's Youngstown is the easiest place to buy, with a buying time of one year and eight months.
But unaffordable markets remain
The least affordable markets are generally in Australia, British Columbia in Canada, New Zealand, the UK and California.
However, many of these severely unaffordable markets have experienced steep price
declines in the last year. Among the major markets, Vancouver is the least affordable, with eight years and three months (8.3), followed by Sydney (8.3), San Francisco (8.0), San Jose (7.2), Adelaide (7.1), Melbourne (7.1) New York (7.0) and London (6.9).
The 64 severely unaffordable markets include 24 in Australia, 16 in the United States, 10 in the United Kingdom, seven in New Zealand, four in Canada and three in Ireland.
The most unaffordable place is Australia's Sunshine Coast (9.6), followed by Honolulu, 9.1; the Gold Coast, 8.7; Vancouver, 8.4; Sydney, 8.3; San Francisco, 8; San Jose, 7.4 and Victoria, British Columbia, 7.4.
Picture by brookenovak