Why Housing Affordability Issue is Important?
The 15th Annual Demographia International Housing Affordability Study 2019 published list of cities with most unaffordable house price, collected from respondents in 309 cities in 8 countries. The rank is composed, lists cities from the most affordable place to the most unaffordable one.
The criteria based on Price to Income Ratio (PIR), i.e. comparing median annual income with median housing value. PIR valued less than 3.0 means that house value is considered affordable. PIR valued 3.1. to 4.0 is moderately unaffordable. PIR 4.1. to 5.0 is seriously unaffordable. Lastly, PIR more than 5.1 means severely unaffordable.
Hong Kong is the most unaffordable city in the world (PIR
20.9), followed by Vancouver (12.6), Sydney (11.7), Melbourne (9.7), Santa Cruz
(9.6), San Jose (9.4), Los Angeles (9.2), Tauranga (9.1), Auckland (9.0), and
San Francisco (8.8).
Hongkong’s PIR 20.9 means its median house value ($7,169,000) is 20.9 times higher than its median income ($343,000). While Singapore, has PIR 4.6 means Singaporean need to spend 4.6 times annual income ($87,000) to pay off median house price ($400,000).
For country-level, countries that have unaffordable house price are Hong Kong (PIR 20.9), New Zealand (9.0), Australia (6.9), U.K. (4.8), Ireland (4.8), Singapore (4.6), Canada (4.3), and the USA (3.9).
Hongkong’s PIR 20.9 means its median house value ($7,169,000) is 20.9 times higher than its median income ($343,000). While Singapore, has PIR 4.6 means Singaporean need to spend 4.6 times annual income ($87,000) to pay off median house price ($400,000).
For country-level, countries that have unaffordable house price are Hong Kong (PIR 20.9), New Zealand (9.0), Australia (6.9), U.K. (4.8), Ireland (4.8), Singapore (4.6), Canada (4.3), and the USA (3.9).
Many lessons learned from
this survey.
First, a higher economic activity usually drives to higher living cost, including house price.
Cities with high PIR usually also the engine growth for the country.
Hong Kong is the major economic hub in East Asia and Toronto is the third largest city in Canada.
Both Sydney and Melbourne are the two biggest cities in Australia while Auckland is the biggest city in New Zealand.
San Jose is strongly connected with Silicon Valley while Santa Clara and San Francisco are the base for technology-driven companies such as Apple, Google, Facebook, and Twitter.
Thus, the economic bring good fortune as well as higher cost.
First, a higher economic activity usually drives to higher living cost, including house price.
Cities with high PIR usually also the engine growth for the country.
Hong Kong is the major economic hub in East Asia and Toronto is the third largest city in Canada.
Both Sydney and Melbourne are the two biggest cities in Australia while Auckland is the biggest city in New Zealand.
San Jose is strongly connected with Silicon Valley while Santa Clara and San Francisco are the base for technology-driven companies such as Apple, Google, Facebook, and Twitter.
Thus, the economic bring good fortune as well as higher cost.
Second, economic activity is not the single factor for
unaffordable house prices.
Least affordable cities also the indication of the city’s attractiveness, not only in economic term. The simple example is in New Zealand case. Tauranga is NZ’s least affordable city to buy a home, eight worst in the world.
Tauranga out-ranks Auckland (the biggest city in the country) and Wellington (the capital). Tauranga’s median house price is $623,000 with median income 68,800. While households in Auckland receive a median income of $94,400 should meet $845,000 in median house price.
Wellington’s median house price is $577,000 with a median income of $91,700.
Then, many first-home buyers from Auckland choose Tauranga because of lower house price, beachside location, easy lifestyle, supported with a relatively short distance from Auckland. Others choose Tauranga for retirement.
However, this condition leaving housing price be out of reach for most locals. Tauranga’s local households need 9.1 times their annual income to pay off a house.
Least affordable cities also the indication of the city’s attractiveness, not only in economic term. The simple example is in New Zealand case. Tauranga is NZ’s least affordable city to buy a home, eight worst in the world.
Tauranga out-ranks Auckland (the biggest city in the country) and Wellington (the capital). Tauranga’s median house price is $623,000 with median income 68,800. While households in Auckland receive a median income of $94,400 should meet $845,000 in median house price.
Wellington’s median house price is $577,000 with a median income of $91,700.
Then, many first-home buyers from Auckland choose Tauranga because of lower house price, beachside location, easy lifestyle, supported with a relatively short distance from Auckland. Others choose Tauranga for retirement.
However, this condition leaving housing price be out of reach for most locals. Tauranga’s local households need 9.1 times their annual income to pay off a house.
This condition is quite similar to Indonesia.
Even with lack of comprehensive data, we can easily observe people living in high wage cities, such as Jakarta or Surabaya, tend to find a second home for investment or retirement in less expensive cities or full-of-attraction-cities, such as Yogyakarta and Malang.
Both latter cities have attractiveness cannot found in other big cities, such as easy living and low living cost.
Even with lack of comprehensive data, we can easily observe people living in high wage cities, such as Jakarta or Surabaya, tend to find a second home for investment or retirement in less expensive cities or full-of-attraction-cities, such as Yogyakarta and Malang.
Both latter cities have attractiveness cannot found in other big cities, such as easy living and low living cost.
This is good news for
local property developers. For local government, it is a sign of money inflow
and the city’s attractiveness.
However, this condition can raise house price as more demand is available. Higher house price usually not a big deal for non-locals, but a big problem for local households, especially they who live under minimum wage.
Newly formed households will sacrifice their dream to own a decent house. Out-of-budget house price will push them to occupy substandard and overpopulated dwelling or in prone-disaster areas.
This will be worsening the disparity between the rich and poor.
However, this condition can raise house price as more demand is available. Higher house price usually not a big deal for non-locals, but a big problem for local households, especially they who live under minimum wage.
Newly formed households will sacrifice their dream to own a decent house. Out-of-budget house price will push them to occupy substandard and overpopulated dwelling or in prone-disaster areas.
This will be worsening the disparity between the rich and poor.
It is important to conduct comprehensive
research about housing affordability in Indonesia. The vast region of Indonesia
can lead to different characteristics of the housing
market.
The important message is the government and households should always consider housing affordability issue since it is the optimal way to accumulate wealth.
Therefore, the household’s inability to own a house is likely to preserve poverty and a lack of social cohesion.
The important message is the government and households should always consider housing affordability issue since it is the optimal way to accumulate wealth.
Therefore, the household’s inability to own a house is likely to preserve poverty and a lack of social cohesion.
(Thomas Soseco)
