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.
The Federal Housing Finance Agency recently published a working paper where they looked at within-city house price gradients for a selection of US cities over a 40 year period. The goal of the study was to address what they call a “persistent blind spot” in local house price measurements.
Here is their diagram showing annual average real appreciation from 1990 to 2015 for 9 US cities:
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:
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.
The Federal Housing Finance Agency recently published a working paper where they looked at within-city house price gradients for a selection of US cities over a 40 year period. The goal of the study was to address what they call a “persistent blind spot” in local house price measurements.
Here is their diagram showing annual average real appreciation from 1990 to 2015 for 9 US cities:
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 darker areas indicate more appreciation. They are generally clustered around each city’s CBD.
And here is an excerpt from the paper’s conclusion:
“In an area with a highly elastic housing supply, a permanent housing demand shock is first capitalized into prices, but over time as quantities adjust, prices return to pre-shock levels (see Glaeser, Gyourko, Morales, and Nathanson, 2014). In contrast, near the CBD, where buildable sites are less available and regulation is presumably more onerous, a permanent demand shock can outpace supply responses, leading to permanent price increases.”
What stood out for me was this last sentence. It’s a reminder of the perfect storm that many cities now find themselves in.
When everyone wanted to live in the suburbs, it was fairly easy to just build more homes. Supply was relatively elastic. And this kept prices in check.
However, the same is not true for city centers. Supply is relatively inelastic, meaning it’s much harder to build more homes when demand increases. And demand has been increasing.
So what we have today is a situation where many central cities are operating with basically a perpetual supply deficit. Hence the the comment about “permanent price increases.”
I don’t want to oversimplify the situation, the potential solutions, and/or the well-documented mistakes, but there was arguably a middle class price benefit to mass produced sprawl.
What should we be doing today to address housing affordability concerns?
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.
The darker areas indicate more appreciation. They are generally clustered around each city’s CBD.
And here is an excerpt from the paper’s conclusion:
“In an area with a highly elastic housing supply, a permanent housing demand shock is first capitalized into prices, but over time as quantities adjust, prices return to pre-shock levels (see Glaeser, Gyourko, Morales, and Nathanson, 2014). In contrast, near the CBD, where buildable sites are less available and regulation is presumably more onerous, a permanent demand shock can outpace supply responses, leading to permanent price increases.”
What stood out for me was this last sentence. It’s a reminder of the perfect storm that many cities now find themselves in.
When everyone wanted to live in the suburbs, it was fairly easy to just build more homes. Supply was relatively elastic. And this kept prices in check.
However, the same is not true for city centers. Supply is relatively inelastic, meaning it’s much harder to build more homes when demand increases. And demand has been increasing.
So what we have today is a situation where many central cities are operating with basically a perpetual supply deficit. Hence the the comment about “permanent price increases.”
I don’t want to oversimplify the situation, the potential solutions, and/or the well-documented mistakes, but there was arguably a middle class price benefit to mass produced sprawl.
What should we be doing today to address housing affordability concerns?
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.
