NEW REPORT: How does Australia’s property affordability compare to NZ and the rest of world?

It may come as cold comfort to those locked out of Australia’s appallingly unaffordable housing market, but the likes of Sydney and Melbourne are not the least affordable cities in the world – they are just among them.

The newly released 2024 Demographia International Housing Affordability annual report assesses housing affordability in 94 major markets across eight nations (Australia, Canada, China, Ireland, New Zealand, Singapore, United Kingdom and the, United States).

The least affordable market was found to be Hong Kong, with a median multiple of 16.7, followed by Sydney at 13.3, Vancouver at 12.3, San Jose at 11.9, Los Angeles at 10.9, Honolulu at 10.5, Melbourne at 9.8, San Francisco and Adelaide at 9.7, San Diego and 9.5, and Toronto at 9.3.

With housing inevitably the most expensive element of household budgets anywhere in the world, Demographia’s finding that housing affordability is worsening will only add to the sense of cost of living despair being felt globally.

Peter Holle, President of the US-based report authors, the Frontier Centre for Public Policy, said its 20 annual editions have robustly documented the deterioration of housing affordability.

“This deterioration has been the principal driver of the present cost of living crisis affecting the middle and working classes,” he said.

“Generally, housing affordability is worse, and the cost of living is higher, where land use regulation is the most restrictive at the housing market (metropolitan area) level.”

He said there is a genuine need to substantially restore housing affordability in many markets.

“These high prices are largely the product of policies that seek to limit growth on the periphery, which has been the usual way that cities have grown,” Mr Holle said.

“The Demographia report has shown that where such policies predominate, for example in the United Kingdom, California, Washington, Oregon, Colorado, New Zealand, Australia and much of Canada, the results are disastrous, at least for potential homebuyers.

“The study also has grave implications on the prospects for upward mobility.

“High housing prices, relative to incomes, are having a distinctly feudalising impact on … young people, minorities and immigrants.”

So let’s take a trip around the world and see where Australia stands against other major international centres.

Australia

In Australia, markets have an ‘impossibly unaffordable’ median multiple of 9.7, having deteriorated from 6.9 in 2019. This represents an increase of 2.8 years of median household income, in just three years. All five of Australia’s major housing markets have been severely unaffordable since the early 2000s or before.

Demographia found that Sydney has the least affordable market, with an impossibly unaffordable median multiple of 13.8, making it the second least affordable market internationally (ranking 93rd in affordability out of 94 markets).

Sydney has had the first, second or third least affordable housing of any major market in 15 of the last 16 years. Melbourne, with an impossibly unaffordable median multiple of 9.8, is the 88th least affordable of the 94 markets.

Even Adelaide had an impossibly unaffordable median multiple of 9.7, ranked 86th among the 94 markets. Three other markets were severely unaffordable: Brisbane at 8.1, ranked 80th, while Perth at 6.8, was the 75th least unaffordable market.

Perth’s relative affordability is offset by separate data showing that its rental market is one of the worst in the developed world when it comes to finding a home to rent. Its rental vacancy rate of 0.4 per cent is far worse than the second rated international alternative Berlin, with 0.8 per cent.

The June CoreLogic Home Value Index rose for the 16th consecutive month, this time by 0.8 per cent, as Australian property prices continue to break median price records around the country. The median dwelling value is now $785,556, up 8.3 per cent in 12 months.

United States

Property affordability in the US is such that there is a mass exodus from many of the most challenging real estate markets.

Between 2010 and 2015, the severely unaffordable markets (value to income ratio over 5.0) an net average loss of 76,000 residents annually. This worsened to an average loss of 315,000 between 2015 and 2020 and had increased approximately 10 times, to an annual loss of 810,000 during the pandemic period in 2020 to 2022.

Source: US Census Bureau, Harvard University, Demographia

The affordable markets (value to income ratio of 3.0 or less) on the other hand rose from an annual net migration loss of 171,000 to 4,000 gain annually in 2020-2022 (the most recent data available).

The average United States home value is A$546,000, up 4.3 per cent over the past year. But unlike Australia, where real wages have been slammed by inflation, to March 2024, inflation in the US amounted to 3.5 per cent, while wages grew by 4.7 per cent.

The affordability situation, while not as dire as Australia’s, is worsening. According to Demographia, the US median multiple in 2023 was 4.8, up from 3.9 in 2019, indicating an increase of 0.9 years of median household income since before the pandemic.

United Kingdom

Just as in many other countries, the housing market in the UK grew substantially during the coronavirus pandemic, fuelled by robust demand and low borrowing costs.

Nevertheless, high inflation and the increase in mortgage rates has led to house price growth slowing down. According to the forecast, 2024 is expected to see house prices decrease by three percent, well below Australia’s current trajectory. Between 2024 and 2028, the average house price growth is projected at 2.7 percent, according to Statista Research Department.

So far this year, average values have increased by 1.1 per cent. The outlook for 2024 has improved since our last November forecasts, primarily thanks to falls in the cost of mortgage debt. We now expect UK house prices to rise by 2.5 per cent this year.

In 2023 according to Demographia, the United Kingdom had an affordability median multiple of 5.0, up from 4.6 in 2019. Among its markets, nine were severely unaffordable, and another 10 severely unaffordable. Two markets were moderately unaffordable.

The largest increase has occurred in Greater London, where house prices increased at 3.1 times the rate of earnings between 1997 and 2022.

“The current cost-of-living crisis in the United Kingdom has been significantly driven by these house price increases,” Mr Holle said.

“These increases began at about the same time that the Blair Labour Government imposed a planning target for 60 per cent of new housing to be infill (brownfield development).

“This further market distortion may have contributed to these house price increases, making regulation even more restrictive than under the existing urban containment environment.”

Hong Kong

Despite rapidly tumbling property prices, Hong Kong retains its dubious mantle as the world’s most unaffordable property market – a title it has held for 14 consecutive years.

The average family would have to bank its entire income for 16.7 years to amass the average selling price of a home in the city. This span is down from last year’s 18.8 years and represents a further improvement from 20.8 years in pre-pandemic 2019, as home prices have declined and incomes have risen, the Demographia report said.

Last month’s Global Property Guide showed that Hong Kong’s residential property price index fell sharply by 13.2 per cent in Q1 2024 from the same period last year, its ninth consecutive quarter of year-on-year decline.

From 2008 to 2013, Hong Kong’s dwelling prices skyrocketed by 134 per cent (95.7 per cent inflation-adjusted), driven by a flood of money in the wake of the global financial crisis.

Nervous property investors who bought more recently will be further worried by Hong Kong, along with Zurich, Tokyo, Miami, Munich, and Frankfurt, also topping the 2023 UBS Global Real Estate Bubble Index.

“Between 2003 and 2018, real house prices in Hong Kong nearly quadrupled while incomes stagnated and rents increased by just 50 per cent in inflation-adjusted terms.

“Housing is barely affordable: a skilled service worker requires more than 20 times the average annual income to buy a 60sqm flat.

“The city has constantly been at bubble risk levels since the first edition of this study in 2015,” said the UBS report.

Singapore

In the city state now favoured by many Australian expatriates in the wake of Hong Kong’s loss of its previous standards of liberty, property prices have been flatlining.

Median asking prices experienced a year-on-year increase of 1.0 per cent in Q1 2024. Rents were showing signs of cooling.

According to Savills, it was the top end of the market that was faring the worst, with prime property expected to slide 3.9 per cent this year.

Of Demographia’s 94 markets measured, Singapore ranks as the 11th most affordable market this year.

Singapore’s home ownership rate above 90 per cent is by far the highest home ownership rate among the eight nations in the Demographia International Housing Affordability report.

New Zealand

Across the ditch, Kiwis living in the capital have endured affordability constraints close to Australia’s level of discomfort but there are signs of improvement.

Auckland has a severely unaffordable median multiple of 8.2. This is an improvement from the 8.6 in the last pre-pandemic year (2019). Important drivers were strong income trends, combined with the recovery of about half of the Covid-era demand shock that occurred from 2019 to 2021.

As in Australia, housing is a hot button issue.

The newly elected Coalition government (National/ACT/New Zealand First) government plans to implement a housing policy, based principally on moderating the land costs that have skyrocketed in the urban containment policy environment over the past 30 years.

Home value growth nationally has disappeared in the past two months, with values dipping by 0.2 per cent in May, after a minor 0.1 per cent fall in April.

CoreLogic’s House Price Index now shows an average property value across NZ of $931,438, up by 1.0 per cent from a year ago, but still roughly 11 per cent below the peak.

CoreLogic NZ Chief Property Economist, Kelvin Davidson, said the rest of 2024 could remain fairly subdued for the housing market, both in terms of sales volumes and property values.

“Affordability remains stretched and significant falls in mortgage rates probably remain a story for next year not this, especially if there’s risk the upcoming tax cuts do prove to be slightly inflationary.

“The removal of first home grants is unlikely to have a lasting or significant impact on new buyer demand, and the caps on debt-to-income ratios won’t bite straightaway either.”