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Australia's cities 'severely unaffordable'

27 January 2015 James Mitchell

Australia’s five major metropolitan areas have been “severely unaffordable” for 11 consecutive years, according to a new report.

Australia’s five major metropolitan areas have been “severely unaffordable” for 11 consecutive years, according to a new report.

The 11th annual Demographia International Housing Affordability Survey, conducted by US firm Demographia, uses the ‘median multiple’ – a price-to-income multiple method for calculating housing affordability – to assess 378 metropolitan markets in nine countries: Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and United States.

Historically, the median multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the UK and US, with median house prices from two to three times median household incomes, according to the report.

However, in recent decades, house prices have been decoupled from this relationship in a number of markets, such as Vancouver, Sydney, San Francisco, London, Auckland and others, it said.

“Without exception, these markets have severe land use restrictions (typically ‘urban containment’ policies) that have been associated with higher land prices and, in consequence, higher house prices (as basic economics would indicate, other things being equal).”

The report found all of Australia's five major metropolitan areas were severely unaffordable.

“This is in significant contrast to broad housing affordability that existed before implementation of urban containment (urban consolidation) policies,” it said. “Before urban consolidation was adopted, each of Australia's major markets had housing that was affordable.”

Urban containment policies have been implemented to stop ‘urban sprawl’, yet cities cover comparatively little land area, the report argued.

“Moreover, cities are not expanding at a rate that would threaten agricultural production,” it said.

According to the report, the anti-sprawl justification is being challenged by the increasing awareness that strong restrictions on land supply drive up the cost of housing, which reduces the standard of living.

“Urban containment policy is also justified as a means to reduce greenhouse gas (GHG) emissions. Yet, urban containment policy is not among the most cost-effective strategies. In requiring higher expenditures per tonne than necessary, urban containment policy is likely to reduce employment growth and economic growth, other things being equal.”

Paul Cheshire of the London School of Economics refers to a "fatal mismatch between the operational concepts of demand and supply in markets and the parallel concepts with which the planning system works.

“As noted above, younger households are among the most significantly victimised by the housing affordability losses,” he said.

“The lucky ones will inherit homes from their parents – which is a big step away from legendary urbanologist Sir Peter Hall's ‘ideal of a property-owning democracy’,” he said.

Among Australia’s major metropolitan area markets, the overall median multiple was 6.5. The least affordable market was Sydney, with a median multiple of 9.8, a substantial increase from last year's 9.0.

“This makes Sydney the third least affordable out of the 86 major markets rated in this survey,” the report found.

Housing affordability also deteriorated in Melbourne, rising to a median multiple of 8.7 in 2014 from 8.3 in 2013. Melbourne ranked 6th least affordable of the 86 major markets.

Housing affordability deteriorated slightly in Adelaide (from 6.3 to 6.4), Perth (6.0 to 6.1) and Brisbane (5.8 to 6.0).

Among all markets, Australia's median multiple remained severely unaffordable, at 5.5. However, there were signs of considerable improvement among the smaller markets of Australia.

Gladstone, Qld, achieved a moderately unaffordable rating, with a median multiple of 3.9. Townsville, Qld, and Latrobe, Vic, tied for fourth most affordable market, with a seriously unaffordable median multiple of 4.3.

The most affordable market was Karratha, in WA's Pilbara, with a median multiple of 2.6. Kalgoorlie, also in WA, was the second most affordable market, with a median multiple of 2.8.

These improvements appear related to resource industry-related demand decreases.

Australia's cities 'severely unaffordable'
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