International Housing Affordability
October 25, 2011
Housing affordability has steadily decreased in the United States and abroad over the past decade. This decrease is due in large part to strict land use regulations -- known by a variety of names, such as compact city policy, growth management, smart growth and prescriptive land use. Metropolitan areas such as Sydney, Australia, and Auckland, New Zealand, once defined by modestly priced, quality middle class housing, are now among the most unaffordable housing markets in the English-speaking world, says Wendell Cox, principal of the Wendell Cox Consultancy in metropolitan St. Louis, Missouri, and an adjunct scholar with the National Center for Policy Analysis.
A standard measure of housing affordability is the median multiple -- the median house price divided by gross annual local median household income.
- The Demographia International Housing Affordability Survey uses the median multiple to rate hundreds of markets in seven nations for which sufficient current house prices and household income data were available.
- Among the 82 major metropolitan markets examined, 20 were considered affordable, with a median multiple of 3.0 or lower; 25 were moderately unaffordable, with a median multiple of 3.1 to 4.0; and 13 were seriously unaffordable, with a median multiple of 4.1 to 5.0.
The affordable markets are characterized by less restrictive land use regulation that allows development to occur based upon market preferences consistent with fundamental environmental regulation. Each of the least affordable markets is characterized by restrictive land use regulation, such as smart growth or "livability" policies.
The higher costs caused by prescriptive land use makes housing less affordable. Consider:
- In Montreal, Canada, a median priced house, including additional mortgage interest, now costs a household at least $200,000 more than an affordable home in the past.
- In San Diego, California, the premium for a median priced home is $400,000.
- In London, England, the premium can be more than $480,000.
- In Sydney and Melbourne, Australia, the premium is more than $750,000.
Source: Wendell Cox, "International Housing Affordability," National Center for Policy Analysis, October 25, 2011.
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