The survey measured the affordability of “middle-income” housing in Australia, Canada, China (Hong Kong), Ireland, Japan, New Zealand, Singapore, the United Kingdom, and the United States.
The survey measured the affordability of “middle-income” housing in Australia, Canada, China (Hong Kong), Ireland, Japan, New Zealand, Singapore, the United Kingdom, and the United States.
It is based on a “median multiple” approach, which tries to normalize house prices across the world by looking at median house prices over median household incomes.
The above list probably won’t surprise you, as well as the report’s focus on land supply. But I did want to call attention to the following remark:
My own housing research focused on this difference: Why did Germany (and similarly Switzerland) provide housing stability where much of the Anglosphere did not?
In a nutshell, the answer to this question has a lot to do with the way councils are funded. In jurisdictions where local decision-makers stand to gain from new development, they will be much more eager to make it happen.
The topic of incentives is not something that is often focused on when we talk about land supply. But it’s a really interesting point. Because the reality is that, in many cases, the incentives probably work in the opposite direction to the one described above.
Seeing how we’ve started looking at data from last year, I thought it would be interesting to look at global home prices as of Q4 2015. Here’s a chart from Knight Frank, which they refer to as their Global House Price Index:
The key concept here – which is critical to understanding urban real estate economics – is that home values are essentially made up of two things: the land and the improvements (i.e. the building).
When home prices rapidly appreciate, as has been the case in cities like Vancouver (see below) and Toronto, it’s not the building, but the land that’s really driving the price up.
And as you can see from the chart below (which Daniel shared in his post), it is possible for multifamily housing to be less expensive than single family housing.
It is based on a “median multiple” approach, which tries to normalize house prices across the world by looking at median house prices over median household incomes.
The above list probably won’t surprise you, as well as the report’s focus on land supply. But I did want to call attention to the following remark:
My own housing research focused on this difference: Why did Germany (and similarly Switzerland) provide housing stability where much of the Anglosphere did not?
In a nutshell, the answer to this question has a lot to do with the way councils are funded. In jurisdictions where local decision-makers stand to gain from new development, they will be much more eager to make it happen.
The topic of incentives is not something that is often focused on when we talk about land supply. But it’s a really interesting point. Because the reality is that, in many cases, the incentives probably work in the opposite direction to the one described above.
Seeing how we’ve started looking at data from last year, I thought it would be interesting to look at global home prices as of Q4 2015. Here’s a chart from Knight Frank, which they refer to as their Global House Price Index:
The key concept here – which is critical to understanding urban real estate economics – is that home values are essentially made up of two things: the land and the improvements (i.e. the building).
When home prices rapidly appreciate, as has been the case in cities like Vancouver (see below) and Toronto, it’s not the building, but the land that’s really driving the price up.
And as you can see from the chart below (which Daniel shared in his post), it is possible for multifamily housing to be less expensive than single family housing.
At the top of the list is Turkey, with an 18.4% increase from Q4 2014 to Q4 2015. (Supposedly this is because it has recently become easier for foreigners to buy property in the country.) Canada is 13th with a 6.2% increase (during this same time period) and the United States is 17th at 5.4%.
This is obviously a high level analysis. There are lots of regional and local variations within each country. For instance in Canada right now, Calgary is a very different place than, say, Vancouver or Toronto.
Nonetheless, it’s still valuable to see the relative performance of each country and see what their (Knight Frank’s) prediction is for 2016:
“Our outlook for 2016 is muted. We expect the index’s overall rate of growth to be weaker in 2016 than 2015. The global economy is experiencing a potentially dangerous cocktail of low oil prices, a strong [US] dollar and a continued slowdown in China.”
It’s also interesting to see how the countries rank in terms of affordability:
Once again, Canada ranks as being one of the least affordable countries in terms of home prices.
So why was someone arguing that multifamily housing is more expensive?
Well if you look at just construction costs, then this is generally true. Single family housing is typically wood frame construction, whereas multifamily housing is usually reinforced concrete or some other material that allows you to build up. In these latter cases, the price per square foot to build is going to be higher.
But Daniel’s argument is that when you build multifamily housing, you also begin to amortize the cost of the land over more housing units. So you begin to use land more efficiently and that offsets the higher construction costs.
However, two thoughts come to mind.
First, the value of a piece of land is entirely dependent on what you can build on it. And the more you can build on it, the more the land is worth. So as densities increase, so do land prices.
Second, a big part of why condominiums are so much more affordable is that they’re smaller. In 2014, the average condo size in Metro Vancouver was estimated to be 840 square feet. I couldn’t find the average size of a detached house in the city, but let’s assume for a second that it’s 2,500 sf.
If that were the case, then a detached house, despite being more expensive overall, would still be cheaper on a per square foot basis. You would be paying less for every square foot of livable space. True that doesn’t make the house more affordable, but I think it’s a bit unfair to compare apples (small condo) to oranges (large house).
So what I would really like to see is a graph of all-in low-rise and high-rise per square foot prices over time and for various cities. Because I would be curious to see at what point – if ever – they intersect.
At the top of the list is Turkey, with an 18.4% increase from Q4 2014 to Q4 2015. (Supposedly this is because it has recently become easier for foreigners to buy property in the country.) Canada is 13th with a 6.2% increase (during this same time period) and the United States is 17th at 5.4%.
This is obviously a high level analysis. There are lots of regional and local variations within each country. For instance in Canada right now, Calgary is a very different place than, say, Vancouver or Toronto.
Nonetheless, it’s still valuable to see the relative performance of each country and see what their (Knight Frank’s) prediction is for 2016:
“Our outlook for 2016 is muted. We expect the index’s overall rate of growth to be weaker in 2016 than 2015. The global economy is experiencing a potentially dangerous cocktail of low oil prices, a strong [US] dollar and a continued slowdown in China.”
It’s also interesting to see how the countries rank in terms of affordability:
Once again, Canada ranks as being one of the least affordable countries in terms of home prices.
So why was someone arguing that multifamily housing is more expensive?
Well if you look at just construction costs, then this is generally true. Single family housing is typically wood frame construction, whereas multifamily housing is usually reinforced concrete or some other material that allows you to build up. In these latter cases, the price per square foot to build is going to be higher.
But Daniel’s argument is that when you build multifamily housing, you also begin to amortize the cost of the land over more housing units. So you begin to use land more efficiently and that offsets the higher construction costs.
However, two thoughts come to mind.
First, the value of a piece of land is entirely dependent on what you can build on it. And the more you can build on it, the more the land is worth. So as densities increase, so do land prices.
Second, a big part of why condominiums are so much more affordable is that they’re smaller. In 2014, the average condo size in Metro Vancouver was estimated to be 840 square feet. I couldn’t find the average size of a detached house in the city, but let’s assume for a second that it’s 2,500 sf.
If that were the case, then a detached house, despite being more expensive overall, would still be cheaper on a per square foot basis. You would be paying less for every square foot of livable space. True that doesn’t make the house more affordable, but I think it’s a bit unfair to compare apples (small condo) to oranges (large house).
So what I would really like to see is a graph of all-in low-rise and high-rise per square foot prices over time and for various cities. Because I would be curious to see at what point – if ever – they intersect.
