The recently published Demographia Interntional Housing Affordability Survey has as ever captured the headlines.
This is the 5th such survey and as with the survey last January I have taken the time to read through the 46 page report to provide an insight and perspective to the facts and analysis. Interestingly I undertook this task last year – it is as ever interesting to reflect on the changes that have occurred in the local and global property market as well as the broader economic environment and think where we may be 12 months from now reviewing the 6th annual report!
The report provides a very valuable comparative model using the measure of median price to median income in reviewing 265 markets (cities) across 6 countries. It provides a rating scale from Affordable where the ratio of median price to median income is below 3, right through to Severely Unaffordable where the ratio is 5 or more.
When used to compare like-with-like within a country I think the report shows enormous value. The 8 NZ markets are bar one all classified at “severely unaffordable” with Tauranga topping out at a multiple of 6.6.
It is interesting to recalculate the multiples in the light of the past 3 month falls in median price since the report utilises September 2008 data (I have not made any assumptive change to the median household income). It shows that whilst all 7 of the 8 regions are still categorised as severely unaffordable the trend is downward with the exception of Auckland which has gone up.
Having provided a favourable assessment of the survey in the context of NZ data, I must share my misgivings as to the cross country analysis.
Firstly it seems odd that a survey that purports to provide an assessment of International Housing Affordability seems to apply a disproportionate weighting of contributing markets to the countries of NZ, Ireland and Australia. With a population base of just over 4 million NZ with 8 markets and Ireland with 5 are proportionately over represented as compared to the UK – 16 markets on a population of 61 million and even the US with 175 markets on 304 million – both making NZ some 3 to 6 times overrepresented.
This means that when you analyse the chart of the top 50 most unaffordable markets NZ has 5 markets represented, with the UK with just 6, Australia tops out with 21 in the top 50 and believe it or not the USA with just 13 of the 50!
There is no hiding the agenda of the authors of the report which is squarely focussed at the proposal that constraints on land availability drives up land prices and thereby property prices. This has already been latched onto by politicians who are eager to examine the rules around Maori land use for housing. However it is important to note that the markets identified in the report as those most severely unaffordable happen to be in the main cities bounded by the sea which does naturally created land use expansion constraints. Taking the top 50 most severely unaffortable markets you have to read down to #47 Boulder Colorado to find a land-locked city.
So whilst there is no denying the fact that using this measure of median multiple of household income to propery prices NZ does rank at a high level; to say that we have some of the most expensive property regions internationally is not truly comparing apples with apples.
Media speculation of the prognosis for this year’s property market has in my view started with a very level headed perspective – and I thank Anne Gibson of the NZ Herald for that.