There is nothing like an alarmist headline to sell newspapers! – and this one today was certainly right on the money, shoving Sir Edmund off the stage.
So is it true that we live in the world’s most expensive country where we pay the largest percentage of our income on property as the headline would make you think?
I decided to have a read of this report – 4th Annual Demographia International Housing Affordability Survey – 52 pages of detailed analysis and statistics; and as we all know those damned statistics can be portrayed to paint many a varied picture.
So image my surprise when I discovered the following facts of this report:
1. It is not a report of 6 countries property markets as the headlines claim – it is a report on 227 individual property markets, which in scale terms are mostly as big as or bigger than the whole of NZ
2. NZ is not the least affordable country (or aggregate of collective markets) – it is equal with Australia at a multiple of 6.3 times median price to median income, UK is 5.5, Ireland 4.7, US at 3.6 and Canada at 3.1
3. Using this multiple scale of median price to median income across these 227 markets, the report sets out the markets in ranked order with Los Angeles the most unaffordable (so much easier than saying “the most least affordable”!) you then step down through 5 US cities including San Francisco and San Diego before you get to the first non-US city – coming in at #6 Mandurah in Western Australia at a multiple of 9.5! Then descend through markets in the UK, Australia, Canada and more of the US until you get to 20th place at a multiple of 7.5 – Tauranga. Auckland comes in at 31st place on 6.9, Christchurch 34th place at 6.6 and Wellington 46th place at 6.1.
Now does this really point to us living in the most expensive country in the world?
So what does this report tell us really (as opposed to what the newspapers want to tell you). Well first off this report has an agenda which to be fair they do not hide. The authors actively and passionately believe that restrictions on land use on fringe land adjacent to cities should be freed up to allow for the ever growing expansion of cities. This theme is neatly segued by the former reserve bank governor and former leader of the National Party Don Brash who writes the forward to the report – naturally bringing the government to task for putting blocks in the way of such needed progress.
On a less political point of view the report really tells you what you already knew – the laws of supply and demand. If you create demand through economic growth in a market, this sucks in companies which suck in workers, this demand puts pressure on housing stocks and if you apply constraints on new supply of land and property then the solution is increased prices. If income wealth distribution does not significantly change then the median income does not budge and property looks to be more and more unaffordable.
Where is the evidence of this? – look no further than the top 10 of most unaffordable markets – West Australia (mining explosion), San Francisco (tech explosion), Bournemouth / Brighton (tech explosion and London exodus).
Equally look at the top 10 most affordable markets in the survey and low and behold you see the former rust belt of the US and the remotest parts of Canada (Canada has an Invercargill as well!) – places where either people are leaving in droves or people never came.
Can anything be done about this unaffordability in NZ? – simply put no, we live in a more and more global world market for property where talent moves to where the opportunities to work and enjoy life are rich and plentiful. With this migration of people follows money and companies, with this comes the pressures and demands on property, especially as in absolute terms NZ property prices are still cheap when compared to main global centers such as London, New York, San Francisco, Sydney, Singapore, Hong Kong etc.
This was the strategy espoused by Professor Richard Florida in his book “The Rise of the Creative Class” – basically you cannot stand against a tide of change, for NZ the skill is in harnessing the talent and wealth that comes with our natural attraction for this new immigration and build a lasting and vibrant economy and community in our unique part of the world.