Early this week, Wendell Cox released his latest annual survey of housing affordability of metropolitan areas around the world. “Housing affordability cannot be evaluated except in relation to incomes,” he notes, and he compares median home prices with median household incomes in each of 293 urban areas.
At one time, he says, home prices in nearly all of these urban areas were between two and three times household incomes, and they still are in dozens of housing markets in the United States and Canada, as well as a few in Ireland. In other parts of the world, however, home prices have risen to, in some cases, more than ten times household incomes. Of the 293 urban areas documented by Cox, about a quarter have median home prices that are more than five times incomes, and another quarter are between four and five times incomes.
In the United States, lenders generally allow borrowers to pay up to 28 percent of their incomes on a mortgage. At 4 percent interest, a household can dedicate 28 percent of their income to a mortgage on a home that costs three times their annual income and pay it off in 15 years. When home prices reach four times their annual incomes, they need more than 20 years to pay off the loan. At five times their incomes, more than 30 years are required. At six times their incomes, they would need to get a 48-year loan, which is not available in current markets. At seven times their incomes, it becomes impossible for them to buy the house without dedicating more of their incomes to the mortgage than most lenders would allow.
“Typically, severely unaffordable markets have an urban containment land use policy,” notes Cox. With median home prices nearly twenty times median family incomes, Hong Kong has the least affordable housing in the world. With 7.4 million people in 427 square miles of land, the city’s population density is around 17,000 people per square mile. Geographically, it is located adjacent to hundreds of square miles of land in China, but politically the land outside of the Hong Kong Special Administrative Region is treated so differently that the border is an effective if unintentional urban-growth boundary.
Just a click can help in getting better levitra prices treatment. She liked his gene pool and had selected him to father her child. canada cialis 100mg Improvement in male sexual hormone leads to great sex drive that too helps improving erection quality. buy generic cialis order viagra Everyone carries on polite and earnest conversation as if this situation is very normal. Other urban-growth boundaries are more deliberate. The least-affordable market in North America is Vancouver, BC, which adopted its first growth-management plan in the 1960s. Although British Columbia is thinly populated (13 people per square mile) and has no shortage of land, Vancouver’s increasingly restrictive land-use policies have pushed median housing prices to more than twelve times median household incomes.
According to Cox’s report, the least affordable housing market in the United States is San Jose, which drew an urban-growth boundary in 1974 and has never expanded it. Cox reports that median prices there are more than ten times median family incomes. My numbers show that Santa Barbara is even less affordable than San Jose, but it was too small to be included in Cox’s report.
Cox’s numbers for American housing markets are slightly different from ones I’ve previously reported here. My numbers are based on urbanized areas, while his are based on metropolitan areas, which are sometimes a little larger and sometimes a lot larger. My numbers are based on family incomes, while his are based on household incomes, which are slightly smaller. The result is that his value-to-income ratios are slightly higher than mine (due to the lower household incomes) and the rank ordering might be different (depending on differences between urban and metropolitan areas).
I suspect Cox chose to use metropolitan areas and household incomes because those data are easier to find for other countries. In any case, Cox’s data provide a useful view of land-use policies and housing prices in other parts of the world.
It would be interesting to see what the size of these houses is. Condominiums are often counted as houses in the SF Bay area and tend to be smaller in living area.
From the PDF:
The point of this introduction is to explore how it fares when we pull it about: using more precise definitions of what spatial housing markets might really be, accounting for differences in housing unit size and looking at the impact of housing affordability for households at different places in the overall distribution of incomes. We do this using data for Britain: the cradle of housing unaffordability and the originator of the ideas and mechanisms of planning which have contributed so much to the problem: Green Belts and planning by unpredictable political processes!
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iii) Does adjusting for the size of houses make a difference?
Our initial thoughts were that once one controlled for their size, houses in the more expensive markets would be considerably less affordable than they appeared to be on the simple MM measure. The reasoning was that because they were more expensive relative to incomes, they would also be smaller, and simply measuring the median house price would not reflect that. Further thinking suggested, however, a countervailing force: while space might be more expensive, incomes are also generally higher in more expensive, larger cities, and research shows that people spend more on it as they get richer: they want bigger bedrooms for example and perhaps a spare one, possibly an additional bathroom.This might tend to make houses bigger where people are richer even though the unit cost of space may be higher. In fact, research estimating income elasticities of demand for housing space suggests that peoples’ spending on space in houses rises faster than incomes – if income increases by 10% spending on housing space increases by about 20%. Indeed, as one of us has frequently argued, this is one of the main drivers of increasing real house prices over time as incomes rise in the face of constraints on the space for houses imposed by restrictions on urban growth. These two forces might work against each other, therefore, meaning that adjusting for differences in house sizes might make only a small difference to affordability. The data on the price of space in houses is only available for England and Wales3 so in the columns of Table 1 showing the results, 6 and 7, we have had to exclude the Scottish markets. What we find is that whether we compare the Demographia Markets or the TTWAs we prefer, controlling for size makes not a lot of difference to measured affordability using the simple MM.