The Demographia International Housing Affordability Survey 2007 has been released. Although the survey is limited to markets in the United States, Canada, Australia, United Kingdom, Ireland and New Zealand it still contains a lot of interesting data and commentary.
The survey focues on the affordability of housing in each market, as measured by the ratio of average house prices to median household income in each market. The overall ratios per country are:
1.Australia 6.6 (meaning the average house price is 6.6 times the average income)
2. New zealand 6.0
3. Ireland 5.7
4. United Kingdom 5.5
5. United States 3.7
6. Canada 3.2
The survey states that a ratio of 3.1 or higher is "unaffordable" to some degree or other while a ratio of 3.0 or less is "affordable". Ratios of 4.0 or more were rare before the 1990s.
There are of course huge differences between different locations in each market with Los Angeles Orange County (11.4) being the least affordable market and Fort Wayne, IN being the most affordable (2.0).
The causes of the huge decline in affordability in many markets are largely attributable to increases in the price of land (90%) which has risen at roughly doubly the rate of general price inflation. The reasons for the increase in the price of land are largely supply side factors such as land use resrictions, planning regulations, time and other costs of approval processes and costs of related infrastructure.
The implications are obvious: lower rates of home ownership (especially for younger persons and lower income groups), lower quality housing, denser housing (smaller section sizes and more high rise developments) and a greater portion of household income going into housing (with less left for other forms of investment and consumption).
The survey made interesting reading.