Investors are typically concerned with the housing sector in their respective area – and rightfully so. Entrepreneurs of every level focus the majority of their attention on local markets because it is easier and cost effective. However, we currently live in a world with a global economy. It is not difficult to imagine housing sectors across international boarders and the impact they may have on other geographical regions. Accordingly, it is just as important to understand the housing markets around the world, as it is to understand our own. According to the most recent Demographia International Housing Affordability Survey, Hong Kong and Vancouver are two of the most unaffordable cities to buy property in the world.
According to last week’s survey, Hong Kong was labeled the most unaffordable city to buy property in, followed by Vancouver and San Francisco. Two Australian cities rounded out the top five, as Sydney and Melbourne completed the rankings, respectively.
The survey gathered information from a total of 360 cities in nine countries: Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, the U.K. and the United States. After implementing a World Bank and United Nations evaluation method, the survey determined whether or not each city fell into one of the following categories:
- Severely unaffordable
- Seriously unaffordable
- Moderately unaffordable
According to the survey, which has been in place for approximately ten years, Hong Kong’s average home price rose to 14.9 times that of the gross annual median household income. As recently as 2013, the average home price was 13.5 times the gross annual median income. The rise has witnessed property values more than double since 2009. Strong increases may be attributed to both record-low mortgage rates and high demand in Mainland China. Some analysts fear that a housing bubble may be looming on the horizon. Such a scenario would undoubtedly impact the United States’ housing market, as China is our largest foreign investor.
Warnings have also carried over to Canada and Australia, where low interest rate environments and strong demand from Asia has fueled record demand. Canadian home prices are up nearly 100 percent since 2000. Vancouver, in particular, saw homes rise to 10.3 times that of the average household income.
Of particular concern, however, was the sharp deterioration in home price affordability the survey acknowledged in California. The state harbors 11 of the most unaffordable markets in the United States. San Francisco’s home prices are 9.2 times that of the gross annual median household income, significantly more than last year’s 7.8.
“There are indications of a substantial worsening housing affordability situation in California, which was the core of the U.S. housing bust of the last decade that precipitated the Great Financial Crisis. House prices in the six major markets of California have risen nearly 40 percent relative to incomes since bottoming out in 2009,” read a report on the survey findings.
In addition to major metropolitan areas, the survey evaluated the affordability of each countries’ overall property market. Australia, New Zealand and Hong Kong are each considered to be “severely unaffordable.” However, at the other end of the spectrum, the most affordable geographies were Ireland, the U.S. and Japan, each of which had a ‘moderately unaffordable’ rating.