Could it be time to celebrate housing unaffordability?
The latest Demographia International Housing Affordability Survey was published earlier this week and here is the surprise! - nothing has changed in each of the 10 years that this report has been published.
The top cities of the world, be it San Francisco, London, Hong Kong, Sydney, Melbourne or Auckland are assessed by the survey as severely unaffordable. These cities (24 in total from the 85 major markets with population over 1 million) are classed as having a ratio of house price to income of over 5. The past 10 years has not really seen much change. Certainly not in the line-up of the cities judged to be most unaffordable as well as those at the other end of the spectrum, being those cities assessed as being most affordable as the chart below shows.
In my view the judgement of affordability in this case is not actually true to the definition of the word. If these global cities were truly unaffordable then they would suffer a population exodus which would remove demand, free up supply of homes and drive down prices. That has not happened and will not happen anytime soon.
Scanning your eyes down the list of those cities that are least affordable as compared to those most affordable leads in my mind to a conclusion that people actually want to live in those cities that are unaffordable by this measure, and conversely don’t want to live in these cities that are affordable. The case in point in this survey are cities like Pittsburgh, Detroit and others in the US. In those cities properties are cheap due to low demand, whilst wages are around the median for the country overall leading to a low ratio of house price to income. The weak demand is a consequence of a weak economy as these cities fail to attract business and people.
This situation has parallels in NZ. There are many areas of this country where the ratio of house price to income is not 5+ but more like 3 but sadly these are towns that are struggling to maintain industry and jobs and are fighting to stop an exodus of workers.
The reality in my mind is that we cannot through any land policy (which this report’s authors place as the solution) influence what is a global shift of people to major cities. Cities that deliver jobs, facilities, lifestyle and opportunity. These dynamic and successful cities are growing and with growth comes pressure on demand for property and that leads to property inflation.
In my mind rather than bemoan the fact that we have ‘severely unaffordable' housing in Auckland that ranks us in the Top 10 most unaffordable cities in this report we should actually celebrate this fact. We are in the Top 10 because we have a vibrant economy in Auckland, we have a city that is attractive to business and immigrants to develop their lives. How depressing it would be if we were not in the Top 10, if our property prices were affordable. We would likely then be living in a less dynamic city with less economic activity and facilities, forgotten by the global economic tides and left to drift in the South Pacific.
We live in a global economy where mobility is the norm and where cities are the new brands that compete for talent. This new creative talent (have a read of Professor Richard Florida’s book ‘The Rise of the Creative Class’) is what is sought by businesses. This creative class wants to live and work in cities that offer the amenities and lifestyles that Auckland offers. Where this creative class goes, so business and money follow and so begins a virtuous cycle - one we need to be a part of to secure our economic future.
So whilst this may not be of immediate help to people looking to buy their first home, the trickle down benefit of the economic success for Auckland which defines us as severely unaffordable housing will assist the country. It is a case that ultimately equality should not be the end game - rather dynamic economic activity, placing NZ closer to centre of the global economy.