HOUSING: by Patrick J. ByrneNews Weekly
Australia has the least affordable housing
, February 19, 2011
Australia has the highest priced housing relative to household incomes in the English speaking world, according to the 7th Annual Demographia International Housing Survey: 2011.
In Australia's major housing markets, median house prices are 7.1 times median household income, a level exceeded only by Hong Kong at 11.4.
The annual survey rates city and national housing markets as follows:
• Affordable, 3.0 or less.
• Moderately affordable, 3.1 to 4.0.
• Seriously unaffordable, 4.1 to 5.0.
• Severely unaffordable, 5.1 and over.
The report says that, historically, most Western world housing markets had affordable markets of median housing prices being only 3.0 times median incomes, or less, and that Australia had a good record of affordable housing, until recent times.
The survey shows that of the 82 metropolitan markets surveyed across the English-speaking world, Sydney, Melbourne, Brisbane, Adelaide and Perth are all in the "severely unaffordable" category.
Outside of Australia's major metropolitan markets, Coffs Harbour (NSW) was the least affordable at 9.1, the Sunshine Coast (Qld) at 8.4, while the Gold Coast (Qld-NSW) was 7.7 on the housing affordability scale.Demographia
surveys housing prices in 325 housing markets - including 82 metropolitan markets - in Australia, Canada, Hong Kong, Ireland, New Zealand and the United States.
The annual survey is conducted by Wendell Cox and Hugh Pavletich. Cox runs Wendell Cox Consultancy/Demographia, in St Louis in the American state of Missouri, is a fellow of numerous conservative think-tanks, and is a frequent commenter in conservative US and UK newspapers.
Hugh Pavletich is managing director of Pavletich Properties Ltd, a commercial property development and investment company, based in Christchurch, New Zealand.
The authors argue that while there are more elaborate indicators, which mix housing affordability and mortgage affordability, these can mask the "structural elements" of house pricing which are often not well understood outside the financial sector.
In contrast, the authors say that using the ratio of median house prices to median household incomes method - recommended by the World Bank and the United Nations and is used by the Harvard University Joint Center on Housing - gives a better snapshot of affordability.
After all, they say, "If house prices double or triple relative to incomes, as has occurred in many severely unaffordable markets, mortgage payments will also be double or triple, whatever the interest rate."
The report says that even after the global financial crisis (GFC), there has been an ongoing housing bubble in markets, with Los Angeles, San Francisco, New York and Boston, Greater London, Vancouver and Toronto all experiencing high ratios of housing cost to income.
It goes on to say: "But perhaps most remarkable has been the shift in Australia, once the exemplar of modestly priced, high-quality middle-class housing, to now the most unaffordable housing market in the English-speaking world."
The report says that soaring house prices have been due to advocates for "smart growth" succeeding in placing restrictions on development on the edge of the urban fringe. This has tended to drive up prices in many markets, including those, such as in Australia, where land remains relatively plentiful near major cities.
Indeed, according to the report, "in Australia, 95 per cent of the increase in inflation-adjusted
new house (and land) costs were attributable to land, rather than construction from 1993 to 2006."Demographia
says that the Organisation for Economic Cooperation and Development (OECD) has warned Australia to "ease" its housing supply constraints, which have driven up housing prices.
"Smart growth" ideology seeks to limit urban sprawl by creating dense communities built around transit lines.
These high-density estates replaces large areas that could accommodate both parks and lower-density middle-class housing. These areas are essentially walled off and often left only to those wealthy enough to afford large estates and second homes.
Although "smart growth" is labelled as "progressive", Demographia
argues that it's a "regressive" concept because it forces up the price of housing, thereby depriving many families of the chance to be able to buy a home.
Further, "smart growth" embraces the idea of families renting rather than buying their own home.Demographia
warns: "This is a very dangerous concept, essentially promoting a form of neo-feudalism which reverses the great social achievement of dispersing property ownership."Patrick J. Byrne is vice-president of the National Civic Council.