Home prices outpace income growth in these eight cities

A growing gulf between disposable household incomes and real housing prices over the last five years

Eight major urban housing markets in the world have been deemed most unaffordable, according to the debut Urban Futures report by Knight Frank.

Vancouver and Auckland saw real home prices outstrip real income growth by 59 percent, 46 percent, and 32 percent, respectively, according to the report’s Global Affordability Monitor.

The cities join Hong Kong, Los Angeles, San Francisco, Sydney, and Toronto in the monitor’s “least affordable” quadrant.

Real house prices grew 46.4 percent in Toronto over a five-year period ending September 2018, versus just a growth of 8.4 percent in disposable household incomes.

In Hong Kong, home prices surged 37.6 percent over the period, compared with 3 percent for incomes, while Sydney home prices posted a rise of 33.3 percent vis-à-vis a growth of 2.8 percent for incomes.

Home price growth in Los Angeles hit 25.5 percent over the period while incomes rose 15.5 percent.

Knight Frank’s findings come on the heels of the release of the 15th annual Demographia survey of unaffordable cities.

Like Demographia, Knight Frank also used house price to income ratio as an affordability measure, in addition to rent as a proportion of income. However, the consultancy also conducted a comparison of house price growth to income growth, a measure the consultancy believes demonstrates clearly whether affordability has improved or worsened over recent years.

“Compared to Demographia’s definition, many of our cities would be considered unaffordable with the average house price to income ratio being 8,” Knight Frank stated in its report.

According to Shelter’s rental definition, many of the cities tracked in the monitor would be affordable, the consultancy also conceded. Rent on average accounted for 30 percent of income, below Shelter’s 35 percent threshold.