Last year, Auckland was sixth on the least affordable scale of a major (population of one million plus) housing market. It has now leapt up to fourth.
The report provides housing affordability ratings using the median multiple, a measurement of income in relation to housing prices, in 92 metropolitan markets in eight nations - New Zealand, Singapore, Australia, the United States, the UK, Ireland, Canada and Hong Kong.
Anything above three is considered moderately unaffordable, above four seriously unaffordable and above five, severely unaffordable.
On the severely unaffordable scale, Auckland with a median multiple of 10 (up 1.4 from last year), comes in behind only Hong Kong on 20.7, Vancouver on 13 and Sydney 11.8.
Housing affordability deteriorated by more than 1.0 median multiple points in just one year — the equivalent of one year’s pre-tax median household income — in Vancouver, San Jose, San Francisco and Honolulu, with the greatest deterioration in Auckland (1.4 points) and Toronto (1.3 points).
The deterioration was from 0.5 to 1.0 --- six months of household income --- in Sydney and San Diego. Virtually all of the markets with severely unaffordable housing have urban containment policies that severely restrict building on the periphery
Only four markets are rated affordable, with median multiples of 3.0 or less — Pittsburgh, Rochester, Buffalo, and St. Louis, all in the United States.
The report says with the continuing global pandemic and lockdowns, it is not surprising housing affordability — given the large influx of new buyers, particularly in suburban and outlying areas — has continued to deteriorate.
As a result, many low-income and middle-income households, which already have suffered the worst consequences from housing inflation, will see their standards of living further decline.
Report author Wendell Cox says the affordability issue is particularly critical due to the strong increase in remote working (telework) during the pandemic which, in some cases, is accelerating the movement to more affordable places. “It will likely also help flatten or even reduce prices in some of the highest cost housing markets as other households seek less costly housing elsewhere.”
Historically, housing affordability had been similar between nations until a few decades ago. For example, national price-to-income ratios were 3.0 or less in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States until the late 1980s or early 1990s.
However since that time, housing affordability has deteriorated significantly and by 2019 national median multiples had increased to 4.0 in the United States and Canada, nearly 6.0 in Australia and 7.0 in New Zealand.
The difference between the least affordable and most affordable markets, measured in median multiple points, expanded from 1.7 in 1970 to 3.5 in 2000 and 7.2 in 2020 --- more than four times that of 1970.
By 2004, all of the major markets in Australia and New Zealand had become severely unaffordable.
He says the deterioration in housing affordability represents an existential threat to the middle-income households. Higher housing costs relative to incomes are strongly correlated with higher overall costs of living and thus lower standards of living.
The past year has involved material setbacks, mostly due to the impact of the pandemic, which has led to a home buying boom in some areas while suppressing incomes.
Cox says a considerable body of research associates worsening housing affordability with the implementation of stronger land use regulation. “At the same time many housing markets have adopted perhaps the most stringent land use regulation, urban containment at the housing market level, which is associated with substantially higher land costs.”
The largest housing affordability differences between major metropolitan areas arose as significant restrictions on urban fringe housing development were applied, says the report.
These measures include “growth management” and “compact cities” policies. A principal purpose of urban containment is to curb the physical expansion of urban areas - that is, conversion of rural land to urban land, or what some refer to as “urban sprawl.”
Unfortunately, this results in higher land costs having an effect on middle-income households.
Urban containment’s prototypical strategy is urban growth boundaries encircling urban areas. Urban containment can render it impossible to profitably build tracts of housing affordable to middle-income households due to much higher land costs.
According, to urban planning literature: “Urban development is steered to the area inside the line and discouraged (if not prevented) outside it.” Urban development is contrasted with …”traditional approaches to land use regulation by the presence of policies that are explicitly designed to limit the development of land outside a defined area…”
Harvard University showed the value of land tends to rise from the low agricultural values outside the built-up urban area to the centre. Land values tend to rise gradually as distances increase from the centre, but land values, and house prices, tend to be higher in a containment area the closer to the centre they are.