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
Steve Keen
DebtDeflation
