Affordability scare-mongering?


Each year, as predictable as the last, Sydney and Melbourne are labelled the most unaffordable cities in the world, according to Demographia. Yawn! Can this really be believed?

Aren’t the conclusions in this study stale and misleading?

International? Really?   :(


Before the real estate bears start frothing at the mouth about yet another Chicken Little story - lets look for a moment at where this study comes from.

The guy who champions the Demographia study is Hugh Paveletich – a the New Zealand property developer who runs this anti-regulation think tank.

He and his partner Wendell Cox, create this study which compares figures on all major English speaking cities around the world.

Wo-oah there boy! Hold your horses! Did they say English speaking?

So! this so-called international survey only covers the USA, the UK, Australia, New Zealand and Canada. Gosh! Some international study hey!

Astonishingly, it does not seem to take into account many of the worlds truly unaffordable cities at all. None of the Asian giants! Where is Hong Kong or Tokyo, Kuala Lumpur or Singapore.

There are none of the Continental European cities either   - no Paris nor Frankfurt, no Rome nor Zurich, no Stockholm and no Barcelona. Well I suppose you could say its international - but it’s hardly global.

Heard of a straw man argument? Of course, when you compare US, rust-belt, inland, moribund towns suffering urban blight with poor employment prospects, against a gleaming, sexy, coastal metropolis like Sydney it’s always going to be an unfair fight.

Buyers in Sydney are always going to compete harder and have more money in the pockets to come to the negotiation table with, than say those buyers interested in Tucson, Arizona.

To be polite, the Demographia study is undoubtedly too one dimensional. In the study they don’t adjust for composition or density of housing (we have bigger lot sizes for instance).

It doesn’t adjust for location (coastal properties are always going to attract more demand than some inland ghost town in the mid-west of the US).

It doesn’t take into account employment rates or that the property markets here in Australia are largely subsidised by the taxpayer through grants, concessions, halving of capital gains tax and negative gearing allowances thus artificially propping up values.

There is also no mention of interest rates comparisons or analysis of local lending standards or the availability of credit.

Probably the most misleading factor is the income inputs to this study. It uses a median household income of $66,200. This is derived from the 2006 census.

Five years down the track and compounded by our growing propensity toward two income households, the actual median household income is likely to be 50% more than this for Sydney.

Affordability still an issue?

Don’t get me wrong, I am not arguing that affordability isn’t an issue for cities like Sydney and Melbourne, but, in my opinion, the picture painted by this study is opaque at best.

It exaggerates a true international comparison in order to make a point. The sub-text is “lets release more land and give developers more of a tax break”.

This study wouldn’t be the first with a pre-existing agenda and it won’t be the last.

So for all those would-be Generation Y buyers, Demographia has given you plenty of affordable cities to consider in comparison to Sydney or Melbourne.

Why not try Buffalo or Indianapolis, Cincinnati or Detroit? Oh I get it. You want somewhere where you can actually get a job?   ;)

Australia does and will encounter serious affordability challenges but does this survey really progress the discussion?   :(

Hi Crook,
I think the median house price in Melbourne is $500,000
& the median for the top 60 suburbs is $1 million   !!!!!!!!!!!!!!

It must be a bubble that will burst soon.
It just can't keep on going up.

Good day bobby, whats the old saying?.  What goes up, must come down.   :)

wrote on Jan 24^th, 2011 at 10:05pm:

Good day bobby, whats the old saying?.  What goes up, must come down.   :)

I think it's already going down.