Latest Demographia Housing Affordability Survey Available

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The 7th ANNUAL DEMOGRAPHIA INTERNATIONAL HOUSING AFFORDABILITY SURVEY (data 3rd Qtr 2010) has just been pub­lished and is down­load­able from this link

http://www.demographia.com/dhi.pdf

I repro­duce below Demographi­a’s press release, which lays the blame for hous­ing unaf­ford­abil­i­ty on land use reg­u­la­tions. As reg­u­lar read­ers of this site know, I see finance as the core prob­lem in house price bub­bles rather than land use reg­u­la­tions, but every Ponzi Scheme needs a plau­si­ble sto­ry, and land use reg­u­la­tions pro­vides one (which has been used to great effect in Aus­tralia) while the absence of reg­u­la­tions takes the wind out of a Ponzi yarn.

Jan­u­ary 24, 2011

325 MAJOR URBAN MARKETS

OF

AUSTRALIA    CANADA
IRELAND    NEW ZEALAND
UNITED KINGDOM    UNITED STATES
& HONG KONG (CHINA)

HOUSING AFFORDABILITY – HOW DOES YOUR CITY RATE?

INTRODUCTION

The 2011 7th Annu­al Demographia Inter­na­tion­al Hous­ing Afford­abil­i­ty Sur­vey (data 3rd Qtr 2010) has been expand­ed to 325 urban mar­kets of Aus­tralia (32 urban mar­kets); Cana­da (35); Hong Kong, Chi­na (1); Ire­land (5); New Zealand (8) Unit­ed King­dom (33) and the Unit­ed States (211).

This Annu­al Sur­vey has been called the “gold stan­dard” for assess­ing hous­ing afford­abil­i­ty of the urban mar­kets it cov­ers – and will be expand­ed to oth­er mar­kets  going for­ward, as more robust data on house prices and house­hold incomes become avail­able.

HOUSING SHOULD NOT EXCEED 3.0 TIMES GROSS MEDIAN ANNUAL HOUSEHOLD INCOME

For hous­ing mar­kets to rate as “afford­able”, hous­ing should not exceed three times gross annu­al house­hold income (the Medi­an Mul­ti­ple). If this “afford­abil­i­ty thresh­old” is breached, it indi­cates local polit­i­cal imped­i­ments to the pro­vi­sion of afford­able hous­ing that need to be dealt with.

Hous­ing mar­kets are rat­ed as “afford­able” at or below 3 times gross annu­al house­hold income (Medi­an Mul­ti­ple), “mod­er­ate­ly unaf­ford­able” at or below 4 times income, “seri­ous­ly unaf­ford­able” at or below 5 times income and above 5, rat­ed “severe­ly unaf­ford­able”.

HONG KONG MOST SEVERELY UNAFFORDABLE METROPOLITAN AREA
AUSTRALIA MOST SEVERELY UNAFFORDABLE COUNTRY

Hong Kong has the most unaf­ford­able hous­ing of the 325 urban mar­kets sur­veyed, with hous­ing at 11.4 times house­hold income, fol­lowed by Syd­ney, Aus­tralia at 9.6 and Van­cou­ver, Cana­da at 9.5

Of the coun­tries sur­veyed, Aus­tralia (32 urban mar­kets) has the most intense hous­ing stress with hous­ing prices at 6.1 times house­hold incomes, fol­lowed by New Zealand (8) at 5.3 times, Unit­ed King­dom (33) at 5.2, Ire­land (5) at 4.0, Cana­da (35) 3.4 and the Unit­ed States (211) with over­all the most afford­able hous­ing at 3.0 times gross annu­al house­hold incomes.

There are 115 afford­able hous­ing mar­kets (all in the Unit­ed States and Cana­da), 94 mod­er­ate­ly unaf­ford­able mar­kets, 42 seri­ous­ly unaf­ford­able mar­kets and 74 severe­ly unaf­ford­able mar­kets.

27 of the 32 Aus­tralian hous­ing mar­kets are severe­ly unaf­ford­able, with the remain­ing 5 seri­ous­ly unaf­ford­able.

MAJOR URBAN MARKETS – ONE MILLION POPULATION +

For the first time, the Annu­al Demographia Inter­na­tion­al Hous­ing Afford­abil­i­ty Sur­vey addi­tion­al­ly sep­a­rates the 82 major urban mar­kets with pop­u­la­tions exceed­ing one mil­lion. There are 20 afford­able major urban mar­kets, with 25 mod­er­ate­ly unaf­ford­able, 13 seri­ous­ly unaf­ford­able and 24 severe­ly unaf­ford­able mar­kets.

The fast grow­ing Atlanta, Geor­gia, USA is the most afford­able of the 82 major met­ros, with hous­ing prices at 2.3 times house­hold income. Being an “open mar­ket”, Atlanta over pro­duced mar­ket priced hous­ing, but did not bub­ble. “Scarci­ty” trig­gers hous­ing bub­bles — finance is sim­ply the “fuel”.

SURVEY INTRODUCTION – ACCLAIMED AUTHOR JOEL KOTKIN

Joel Kotkin, a Cal­i­for­nia based writer on urban issues and exec­u­tive edi­tor of New Geog­ra­phy, con­tributed the Intro­duc­tion “Why Afford­abil­i­ty Mat­ters” stat­ing –

“Lit­tle dis­cussed have been the social and eco­nom­ic impli­ca­tions of such poli­cies (stran­gling urban expan­sion). Although usu­al­ly thought of as “pro­gres­sive” in the Eng­lish speak­ing world, the addic­tion to “smart growth” can more read­i­ly be seen as social­ly “regres­sive”. In con­trast to the tra­di­tion­al poli­cies of the left of cen­ter gov­ern­ments that pro­mot­ed the expan­sion of own­er­ship and access to the sub­ur­ban “dream” for the mid­dle class, today regres­sive “pro­gres­sives” actu­al­ly advo­cate the clos­ing off of such options for poten­tial home­own­ers.”

“……..It is a very dan­ger­ous con­cept, essen­tial­ly pro­mot­ing a form of neo feu­dal­ism which revers­es the great social achieve­ment of dis­pers­ing prop­er­ty own­er­ship.”

“…..But per­haps most remark­able has been the shift in Aus­tralia, once the exem­plar of mod­er­ate­ly priced, high qual­i­ty mid­dle class hous­ing, to now the most unaf­ford­able hous­ing mar­ket in the Eng­lish speak­ing world.”

The Intro­duc­tions to ear­li­er Sur­veys had been pro­vid­ed by Aus­tralian envi­ron­men­tal sci­en­tist Dr Tony Rec­sei (2010), Amer­i­can hous­ing author­i­ty and author Dr Shlo­mo Angel (2009) and the for­mer long term Gov­er­nor of New Zealand’s Reserve Bank Dr Don­ald Brash (2008).

AFFORDABLE HOUSING MARKET DEFINED

Hugh Pavletich of Per­for­mance Urban Plan­ning, the ini­tia­tor and co author of the Annu­al Demographia Inter­na­tion­al Hous­ing Afford­abil­i­ty Survey’s , pro­vides a con­cise ver­sion of an afford­able hous­ing mar­ket with­in this year’s Sur­vey –

“For met­ro­pol­i­tan areas to rate as “afford­able” and ensure that hous­ing bub­bles are not trig­gered, hous­ing prices should not exceed 3.0 times gross annu­al house­hold earn­ings. To allow this to occur, new starter hous­ing of an accept­able qual­i­ty to the pur­chasers, with asso­ci­at­ed com­mer­cial and indus­tri­al devel­op­ment, must be allowed to be pro­vid­ed on the urban fringes at 2.5 times the gross annu­al medi­an house­hold income of that urban mar­ket (refer Demographia Sur­vey Sched­ules for guid­ance).”

“The crit­i­cal­ly impor­tant Devel­op­ment Ratios for this new fringe starter hous­ing should be 17 – 23% ser­viced lot – the bal­ance the actu­al hous­ing con­struc­tion.”

The fringe is the only sup­ply / infla­tion vent of an urban mar­ket.”

There is a tru­ism, well under­stood by respon­si­ble devel­op­ers and real estate financiers inter­na­tion­al­ly  -

“If you get the land price wrong – every­thing else is wrong.”

Due to unnec­es­sary polit­i­cal­ly inflat­ed land costs, hous­ing mar­kets are “very wrong” in Hong Kong, Aus­tralia, New Zealand, the Unit­ed King­dom, Ire­land and some parts of Cana­da and the Unit­ed States.

RESTORING HOUSING AFFORDABILITY – RELEARNING HISTORY

Soon after World War 11, dur­ing the era of Demo­c­rat Pres­i­dent Har­ry S. Tru­man and the ear­li­er enact­ment of the G I Bill,  the great Amer­i­can con­struc­tion indus­try entre­pre­neur William  (Bill) Levitt , “the father of sub­ur­bia”  ( 1950 Time mag­a­zine “Man of the Year” refer HOUSING: Up from the Pota­to Fields — TIME) trans­formed the cos­set­ed and anti­quat­ed “horse and bug­gy” con­struc­tion indus­try to the mod­ern, dis­ci­plined and com­pet­i­tive pro­duc­tion one we know today.

As the hor­rif­ic World War 11 drew to a close, polit­i­cal author­i­ties inter­na­tion­al­ly were acute­ly aware of the polit­i­cal costs fol­low­ing the con­clu­sion of World War 1, when social con­di­tions were neglect­ed. This led to social dis­rup­tion in the Unit­ed States, the spawn­ing of fas­cism in Ger­many and this is turn led to World War 11. In the Unit­ed States, the polit­i­cal author­i­ties ensured the polit­i­cal and com­mer­cial bar­ri­ers to the pro­vi­sion of afford­able hous­ing were effec­tive­ly dealt with. In 1944 hous­ing starts were just 114,000. By 1950 they were 1.7 mil­lion (refer The GI Bill of Rights — Chang­ing the social, eco­nom­ic land­scape of the Unit­ed States).

The dis­ci­plined and con­sumer focused Levitt meth­ods of con­struc­tion spread quick­ly through­out the Unit­ed States and oth­er coun­tries, includ­ing France (refer France: A Les­son from Levitt — TIME). The 1965 Time mag­a­zine arti­cle states –

“Post­war pros­per­i­ty has enabled West­ern Europe to catch up with the US stan­dard of liv­ing in such basic human needs as food and cloth­ing. When it comes to hous­ing, though, most of the Con­ti­nent still lags decades behind.”

“New Euro­pean hous­ing often looks ele­gant from the out­side, but much of it is back­wards in kitchen equip­ment, bath­room lay­out, floor plans, heat­ing, plumb­ing and light­ing – the innards that make the shell tru­ly liv­able.”

“Thus it is not sur­pris­ing that the French have enthu­si­as­ti­cal­ly greet­ed an inva­sion by Long Island’s William J Levitt, the US’s biggest home­builder. More than 60,000 French­men have poured out of Paris to gape at Levitt’s recent­ly opened Amer­i­can style sub­di­vi­sion in sub­ur­ban Le Mes­nil-Saint – Denis…”

“So des­per­ate is France’s need for more hous­ing that even Levitt’s French com­peti­tors cheer his ven­ture – the first such in Europe by a US builder. ‘He’s help­ing to fill the need,’ says Builder Jacques Boulais  ‘and he’s giv­ing French con­trac­tors a good les­son in the mod­ern way to build a house’.”

In large part – restor­ing hous­ing afford­abil­i­ty requires relearn­ing his­to­ry. And learn­ing from the grow­ing afford­able hous­ing mar­kets iden­ti­fied with­in the Annu­al Demographia Inter­na­tion­al Hous­ing Afford­abil­i­ty Sur­vey. Par­tic­u­lar­ly Texas – with its open land mar­kets, appro­pri­ate financ­ing of infra­struc­ture with the bond financed  Munic­i­pal Util­i­ty Dis­trict mod­el and sen­si­ble Mort­gage Con­sumer Pro­tec­tion Law.

Check out what they pay for hous­ing in Hous­ton (refer Hous­ton Asso­ci­a­tion of Real­tors with its lat­est Month­ly Report) — and ask – “why aren’t I pay­ing the same price in my own city?”.

For fur­ther infor­ma­tion, com­mu­ni­cate with the Sur­vey co authors –

Wen­dell Cox
Demographia
St Louis, Illi­nois, USA
Email: demographia2@earthlink.net
Tel +1.618.632.8507 Unit­ed States

Hugh Pavletich
Per­for­mance Urban Plan­ning
Christchurch
Email: hugh.pavletich@xtra.co.nz
Tel +64 3 343 9944 New Zealand