_The Knight Frank Global Affordability Monitor 2019
To understand the scale of the affordability challenge across the world we have built a Global Affordability Monitor to assess 32 cities around the world and to consider relative performance in three important areas:
House price to income ratio – This measure is the most commonly cited affordability measure. For this we have looked at the ratio between average house price and average household income, after taxes.
Rent as a proportion of income – As the population of tenants increases globally it is critical to assess not only the affordability of buying a home but also how affordable it is to live in a city with respect to rented accommodation.
Real house price growth compared to real income growth – We have included this measure as we believe it demonstrates clearly whether affordability has improved or worsened over recent years. We have adjusted both house price and income growth for inflation, over the time period, to assess the real impact.
Above: Amsterdam is facing growing affordability pressure
We present our findings as quadrants of affordability with the ‘least affordable’ cities including Auckland, Hong Kong, San Francisco and Vancouver and ‘most affordable’ Dubai, Kuala Lumpur and Sao Paulo.
"Across the 32 cities there was an average five-year real house price growth of 24%, while average real income grew by only 8% over the same period."
However, compared to Demographia’s definition, many of our cities would be considered unaffordable with the average house price to income ratio being 8. According to Shelter’s rental definition many would be affordable with rent, on average, accounting for 30% of income, below their 35% threshold.
The Knight Frank Affordable Housing team works on behalf of developers, Local Authorities, Registered Providers and private landowners in all aspects of Affordable Housing.
Key findings
There is a growing global disparity between house prices and income. Across the 32 cities covered, there was an average five-year real house price growth of 24%, while average real income grew by only 8% over the same period.
Some cities bucked the trend, New York saw its income growth exceed real house price growth by 3%. Moscow, Singapore, Mumbai and Paris also saw their average real income, over the last five years, grow faster than real house prices, indicating an improvement in affordability and a contributing factor to their positions. In Moscow, where there was the largest difference, real income growth outpaced real house price growth by 22%.
Amsterdam, Vancouver and Auckland, however, saw real house prices outstrip real income growth by 59%, 46%, 32% respectively. This evident disparity between the two indicators is a clear contributing factor to these cities falling into the ‘least affordable’ quadrant. Berlin’s performance has been similar which has contributed to the city being placed in the ‘second least affordable’ quadrant.
Dublin’s strong economic performance over the last six years has led to an increasing demand for housing, however, the new housing supply has failed to keep pace.
This has given rise to affordability issues, placing Dublin in the second ‘least affordable’ quadrant. A lack of new supply was compounded by expensive debt and equity funding; stringent minimum design standards; and macroprudential measures which made it much harder for prospective buyers to access mortgage financing.
Things in Dublin are changing however. Design standards and the planning process have changed, which are helping to address development viability issues. And, while Ireland’s macroprudential measures may have supressed the pool mortgages that would otherwise be available, they have achieved their aim of reducing systematic risk in the market.
Developers and their funders are also adapting to the evolving landscape, by placing an increased focus on the private rented sector where there is an estimated €3 billion (US$3.4 billion) to €5 billion (US$ 5.7 billion) worth of capital available to be deployed to the Dublin market.
Affordability in Jakarta remains a key issue, despite the city’s ‘most affordable’ quadrant status. Indeed, to mitigate affordability pressures, developers are having to reduce the size of new residential units to maintain maximum capital value levels at accessible levels. In the year to September 2018, nominal prices in Jakarta increased by 3.3%.
In the year to June 2018, nominal house prices in Kuala Lumpur fell by 0.6%, helping to maintain the city’s presence in our ‘most affordable’ quadrant. The city’s high level of new supply has helped to increase price competition keeping prices attractive.
City-wide average affordability statistics are useful but they fail to highlight disparities in housing costs within sub-markets or across the income spectrum.
Therefore, even cities in the ‘most affordable’ quadrant still have room for improvement and may not be affordable to lower income groups. The discussions in the next section of this report will provide many examples on how cities are looking to alleviate affordability pressures.
* Affordability for Singapore is based on private housing. However it is worth noting that most Singaporeans tend to purchase public housing in addition to which many can utilise their mandatory/central provident fund savings to finance the purchase of a home
The Knight Frank Affordable Housing team works on behalf of developers, Local Authorities, Registered Providers and private landowners in all aspects of Affordable Housing.