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Amsterdam and Auckland among the least affordable places to buy a home

The affordable housing gap reached some $740 billion globally in 2018 with Amsterdam, Auckland and Hong Kong amongst the least affordable places to buy a home.

The figures from international real estate firm Knight Frank, which measures the difference between house prices and income, also shows that Los Angeles, San Francisco, Sydney, Toronto and Vancouver are also highly priced.

The most affordable cities are Dubai, Istanbul, Jakarta, Kuala Lumpur, Lisbon, Manila, Rome and Sao Paulo.

Some cities bucked the growing disparity trend. For example, 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.

Moscow saw the largest difference where real income growth outpaced real house price growth by 22% whereas Amsterdam, Vancouver and Auckland saw real house price growth outstrip real income growth by 59%, 46% and 32%.

The report says that affordability in Jakarta and Kuala Lumpur remains a key issue, despite the cities falling into the ‘most affordable’ group as developers are reducing the size of new residential units to maintain maximum capital value at accessible levels

It explains what factors are influencing affordability and these include land supply, regulation and the political expectation that there is a need for more affordable homes to be built.

It also points out that housing is now seen as a commodity as since the financial crisis, housing has shifted to become a complex investment vehicle attracting huge sums from funds and corporations.

‘The issue of affordability is not limited to one or two cities globally. While Hong Kong, San Francisco and London might spring to mind as the cities at the sharp end, the issue of how to ensure workers can access housing is relevant to almost all successful urban centres,’ said Liam Bailey, global head of research at Knight Frank .

As part of the report, Knight Frank has launched its global affordability monitor, which analyses affordability across 32 cities. It takes into consideration three key measures of house price to income ratio, rent as a proportion of income and real house price growth compared to real income growth.

The research shows that there is growing global disparity between house prices and income. Across the 32 cities covered, over the past five years, average real house price growth outpaced average real income growth by 16%.

‘The growing pressure on housing affordability is changing the development landscape. It is influencing the types of product on offer, the locations developers are focusing on and even the organisations becoming involved in the development process,’ Bailey explained.

The report also looks at how five cities, that is San Francisco, London, Hong Kong, New York and Mumbai, are tackling housing affordability and points out that co-living as a concept on the rise in many global cities.

Corporates are entering the development space with a prime example Facebook’s Menlo Park development consists of 1,500 housing units and there are also public private partnerships such as Transport for London which aims to play an integral role delivering affordable housing that prioritises quick delivery and multi-tenure options.

In Hong Kong cooling measures have been implemented to try to slowdown the property market but the report suggests that these have had a limited effect. However, the recent implementation of higher interest rates and a weakening economy led by a falling stock market may change this.

The Hong Kong Government is also actively trying to extend the amount of land it has to build on by reclaiming land to create new islands.

One issue that could work in Mumbai, it says is the lifting of floor space regulations to allow developers to build vertically, alleviating the pressure for space in the city, whilst increasing supply.

On top of this better, faster transport reducing commuting time would enable citizens to commute from further afield, potentially reducing high price areas and increasing the standard of living for commuters from satellite towns.