Sunday, January 23, 2011

International Study: Most Affordable Housing? Saginaw, MI. Least Affordable Housing? Hong Kong

The "7th Annual Demographia International Housing Affordability Survey: 2011" was just released for metropolitan markets in Australia, Canada, New Zealand, U.K., U.S. and Hong Kong, based on housing and income data for the 3rd quarter of 2010 for 82 major metropolitan markets (those with more than 1,000,000 population).  "Housing Affordability" is based on the median house price divided by gross annual median household income, and here are some of the results:

1. Housing affordability in 2010 was little changed from previous years, with the most affordable housing markets being in the United States and Canada. The United Kingdom, Australia and New Zealand continue to experience pervasive unaffordability.

2. The most affordable major market was Atlanta, with a median house price of $129,400, and a Median Multiple of 2.3 (see chart above). Indianapolis ($120,200) and Rochester, N.Y. ($121,500) tied for 2nd most affordable major market, at a Median Multiple of 2.4. Cincinnati, Cleveland and Detroit tied for 4th most affordable, with a Median Multiple of 2.5, followed by Buffalo, Las Vegas and St. Louis at 2.6. Eleven other US major markets were rated affordable, including fast growing Dallas-Fort Worth, Houston, Jacksonville and Nashville.

3. All major markets in Australia and New Zealand, as well as Hong Kong were severely unaffordable. Hong Kong ranked as the least affordable major market (82nd), with a median multiple of 11.4 (see chart above). Sydney ranked second most unaffordable, at a Median Multiple of 9.6 (81st), having slipped behind last year’s most unaffordable market, Vancouver at 9.5 (which ranked 80th). Melbourne ranked 79th, with a Median Multiple of 9.0. Plymouth & Devon, San Francisco, London and Adelaide all had Median Multiples of more than 7.0.

Why does housing affordability matter?

"The cost of unaffordable housing extends to metropolitan area competitiveness. This is illustrated by an analysis of housing costs, using the Median Multiple, for more than 500 United States metropolitan areas. Between 2000 and 2009, the more unaffordable metropolitan areas lost 9.6 percent of their residents (4.7 million) by domestic migration to other areas, nearly 10 percent of their 2000 population. By contrast, the less expensive metropolitan areas gained 4.2 million domestic migrants (2.3 percent of their population). Of course the migration of households between metropolitan areas is the result of a number of factors. But the unprecedented housing affordability differences that have developed in US metropolitan areas are strongly associated with domestic migration trends. All things being equal, households will be drawn to less costly metropolitan areas and away from more costly metropolitan areas, as they seek to enhance their overall standard of living."

What cities in the U.S. have the most affordable housing? See chart below, Saginaw, Michigan is #1, Flint, Michigan is #2 and four out of the top six cities are in Michigan:

What contributes to high or low housing affordability?  Land use regulation is one factor, and as expected, the more (less) restrictive the land use regulation, the higher (lower) the housing affordability, see chart below:


At 1/24/2011 7:18 AM, Blogger geoih said...

It takes more than some affordability metric to attract buyers. There are other significant reasons why housing in these locations is "affordable" (e.g., low demand because of high crime, high taxes, poor economic prospects, etc.).

I imagine the housing costs in Darfur are pretty low, too.

At 1/24/2011 9:07 AM, Blogger Hydra said...

Maybe, but the point remains, land use restrictions raise cost, and therefore prices. but, unlike adding a new deck or making some physical improvemnet, the land use restrictions often add no intrinsic value. As a result, locations with big land restrictions and inflated prices have seen the some of largest price drops.

Those places that were unattractive to begin with, may be affordable, and not seen the big price drops. Besides, since affordability index is based on local median wages, the argument that poor economic prospects are part of the reason loses its clout.

National policy makers interested in improving the economy might consider the extent to which their efforts are being undermined by local land use policy.

At 1/24/2011 9:49 AM, Blogger morganovich said...

isn't this kind of a foolish study methodology?

using "house" as opposed to dwelling makes a VERY big difference.

note that all of the "worst" areas are places where people tend to live in apartments and actual "houses" are quite scarce. (well, except san fran)

At 1/24/2011 10:10 AM, Blogger Hydra said...

Apartments tend to be built where the land prices are so high that houses are impractical. The prices paid per square foot show that the market prefers apartments and other conjoined dwellings, or at least they prefer the areas where such dwellings predominate.

Single Family homes have some kinds of positive attributes and apartment, condo, townhouse dwellings have other kinds of positive attributes. The study lets those attributes trade off against each other and only considers what is sold (available) compared to what proportion of income is available to pay for it.

I atgree, a more complex study might give better answers, but I don't see that the general trend suggested is wrong.

At 1/24/2011 10:20 AM, Blogger Michael Ward said...

So unaffordable == "high public good amenities" (ocean, hills, natural beauty, or vibrant social activities). And people who live in places with local public good amenities erect barriers to entry so that the public goods are not diluted.

At 1/24/2011 11:28 AM, Blogger Hydra said...

So unaffordable == "high public good amenities" (ocean, hills, natural beauty, or vibrant social activities). And people who live in places with local public good amenities erect barriers to entry so that the public goods are not diluted.


You just described my county perfectly, and a couple of others I used to live in.

Only thing is, it is not so much the people that live there: it is the new people who move in and want to slam the door behind them.

The old, old original families, that preserved thie land the longest, get hurt most in the end, when the new famlies erect barriers to protect themselves, with some ostensible environmental cover story.

At 1/24/2011 12:05 PM, Blogger morganovich said...


i think you get a pretty severe skew. to argue that melbourne is less affordable than london is just ridiculous. it's just an artifact of the house to apartment ratio and a function of the size of the homes that were built relative to the apartments in which most people live.

if you ran this study based on rents, you'd get a totally different result.

in an urban area, actual independent houses are always going to be available to only the very richest inhabitants and to be larger and better appointed. you'll find very few 2 BR houses in manhattan.

trying to use such a non representative sliver of the market to compare competitiveness with saginaw michigan, where nearly all the housing is free standing is ridiculous.

a 5th avenue borwnstone has no meaningful relationship to something in saginaw that once had wheels nor do the former's inhabitants provide a useful comparison to those in the latter in assessing competitiveness.

this study inherently sets out to compare bentley's to kias.

there may be some basic trend info here that may be correct, but i think this methodology pretty much dooms the study from the outset.

i find it very odd that they would use house prices as there metric when there is so much other data that would have been better.

At 1/24/2011 12:18 PM, Blogger Benjamin Cole said...

The quality of life is important to homebuyers.
Parks, schools, environment, traffic, public safety--whoops, that means local government.

At 1/24/2011 12:21 PM, Blogger Hydra said...

Are the more affordable places growing faster and producing more jobs?

At 1/24/2011 12:23 PM, Blogger Hydra said...

i find it very odd that they would use house prices as there metric

Aren't the housing affordability studies done by real estate associations?

At 1/24/2011 12:24 PM, Blogger Hydra said...

to argue that melbourne is less affordable than london is just ridiculous.


Not if the mean salary is a lot higher in London.

At 1/24/2011 12:25 PM, Blogger Hydra said...

How do we kow that affordable housing means only houses, and doesn not include condos, etc.?

At 1/24/2011 12:30 PM, Blogger Hydra said...

A study was done showing that residents of Houston had more disposable income after othe expenses, including housing, then residents of the New york boroughs.

Why do I care if I'm living in a brownstone or a prefab? Isn't it all about the money I have left to spend as I please, reckognizing that I may eventually pul more out of the brownstone?

At 1/24/2011 12:32 PM, Blogger Hydra said...

I did not read house price literally, I took it to mean owner occupied dwellings of all sorts.

Is there actually such a thing as a HOUSE in Hong Kong?

At 1/24/2011 1:01 PM, Blogger morganovich said...


read the study itself. it is clear they are talking about house prices, not dwelling prices.

sure, there are houses in hong kong. i have been in one. as you can imagine, they cost about as much as the entire city of saginaw.

while i get your point about income, in the case of melbourne and london, there is no meaningful difference in income. 63.1k aud vs 34.2k gpb for london + exurbs or 41.6k gbp for london proper. (current exrt for GBP to AUD is 1.6) so you are looking at very little difference.

At 1/24/2011 1:16 PM, Blogger AIG said...

From the article it is not entirely clear what they define as "housing". Or maybe I missed the part where they did. Surely neither "dwelling" nor house nor apartment would be an appropriate measurement of comparison. Maybe some measure that takes into account cost per sq. foot.

"Are the more affordable places growing faster and producing more jobs?"

The article mentions that between 2000-2009, the most unfordable cities in the US lost about 10% of their population, while the more affordable cities gained about 2.4%

At 1/24/2011 2:08 PM, Blogger morganovich said...


read the actual study and it becomes clear that they mean house, not dwelling.

"Are the more affordable places growing faster and producing more jobs?"

of course not. the causality goes the other way. places like new york and san francisco, where there are jobs, see prices spike while places like michigan, where jobs are scarce, see prices erode.

the kind of people that are driving today's information economy don't want to live in saginaw. this puts a serious brake on development there as do the network effects of any rapidly evolving business. there is just no substitute for being around all the other folks doing what you do. it's why internet start ups stay focused in 2-3 major cities as do movies and investment banking and investment management. you need to be where the buzz is and where you can feel the zeitgeist.

putting a hot new internet start up in catbutt wyoming would certainly be cheaper, but the isolation of it is just too damaging.

sure, cheap housing ought to be good for incremental business, but in reality it is more often the sign of a place nobody wants to do business.

At 1/24/2011 3:13 PM, Blogger AIG said...

"of course not. the causality goes the other way. places like new york and san francisco, where there are jobs, see prices spike while places like michigan, where jobs are scarce, see prices erode."

Not necessarily. Atlanta, Indianapolis, Houston, Dallas, Charlotte etc are the highest growing cities. Conversely NYC is growing too, but it is growing from foreign immigration (while driving people like myself out, because it is an insanely insane place)

Either way there's certainly no causality to be inferred here. Other factors are at play.

At 1/24/2011 3:31 PM, Blogger Jet Beagle said...

morganovich: "places like new york and san francisco, where there are jobs, see prices spike while places like michigan, where jobs are scarce, see prices erode."

Yes, demand does impact housing prices, and so some rust belt cities have more affordable housing. But supply of land for houses also varies tremendously across our nation.

Dallas, Atlanta, and Houston have been huge job generators over the past few decades, yet housing prices remained far below those in other high growth cities. Very little land around those cities has been restricted. Also, neither Atlanta nor Dallas has natural barriers to growth. Most of the high cost cities in this nation are on the ocean.

At 1/24/2011 4:11 PM, Blogger morganovich said...

aig and jet-

"Not necessarily. Atlanta, Indianapolis, Houston, Dallas, Charlotte etc are the highest growing cities" etc

fastest growing by what metric? population? economic output?

there is no doubt that it's easier to keep costs down for housing if you have stacks of undeveloped land around you, but you can't just magic up another couple square miles of the SF peninsula or manhattan island. it's all already developed. it's not just development rules. much of it is just geographic reality. how would you change use rules in manhattan to drop costs?

so sure, there are other factors, but availability of jobs has a major influence. ask detroit. it's not a coincidence that so many of the cheapest markets are in michigan.

so, absolutely, this is not a one factor model, but be careful in confusing geographic opportunity with policy. you cannot really compare las vegas or atlanta with their infinite sprawl to new york of san francisco. policies the former can pursue are simply not available to the latter.

At 1/24/2011 4:51 PM, Blogger Jet Beagle said...


Thanks for the lecture on geography. Did you read my comment before responding to it?

At 1/24/2011 5:18 PM, Blogger AIG said...

Morganovich, all you said stands. However, if geographical limitations draw up prices in San Fran or NYC (which is certainly the case), then what is the requirement for preventing high-density development in Queens or Brooklyn or Staten Island?

Markets would certainly require a higher cost for an apartment in Manhattan, but the point of the post (which may not necessarily be supported by the article presented, very much), is that this can be alleviated by allowing the market to figure out an outlet (such as, high-density development in Queens or Harlem, or tearing down rent-controls in the Bronx etc).

At 1/24/2011 6:34 PM, Blogger Jet Beagle said...

morganovich: "fastest growing by what metric? population? economic output?"

According to the U.S. census, the metro areas with the largest population growth since 2000 are:

1. Dallas-Fort Worth-Arlington, TX

2. Atlanta-Sandy Springs-Marietta, GA

3. Houston-Sugar Land-Baytown, TX

4. Phoenix-Mesa-Scottsdale, AZ

5. Riverside-San Bernardino-Ontario, CA

Among the 20 largest metro areas, these are the largest in percentage growth as well, with each having gained 25% or more since 2000. New York and San Francisco, by contrast, had a less than 5% increase in population.

I do not know where to find statistics on economic growth. But I suspect that Dallas, Houston, and Atlanta would also be at the top of any list of large cities.

The point we were trying to make, morganovich, is that there is not a strong relationship between economic/population growth and housing prices. IMO, availability of land is a more important factor overall than growth for the larger cities. Yes, Detroit and other Michigan cities are outliers.

At 1/24/2011 9:26 PM, Blogger morganovich said...


"The point we were trying to make, morganovich, is that there is not a strong relationship between economic/population growth and housing prices."

i think you are wrong about that.

i watched san francisco housing prices and rents more than double (and in many cases triple) in 4 years due to an influx of people and uptick in economic activity from about 1996 to 2000.

there is a VERY strong causal relationship between population growth, economic growth, and housing costs.

housing is a high elasticity of demand item good like oil. if demand outstrips supply even a tiny bit, prices skyrocket.

each of the places you cite as having huge population growth has huge amounts of land around it, so sure, you can keep costs down if you just build and sprawl, but the more established metro areas do not have that ability.

dallas can just up supply, but new york cannot.

however, your claim that economic activity and population growth do not drive home prices is just plain false. you are basing it on specious logic. net change does not necessarily tell you anything about the impact of one variable.

if i light a fire in the fireplace and you open the window to cool the room so it stays the same temperature, the fire is still warming the room, it's just being offset by another effect.

this is precisely analogous to the real estate argument. we see dramatic effect in places like NYC and SF because there is no window to open whereas houston has a huge sliding door available. this is not a policy issue, but a function of geography. (as well as the misery of living in houston)

we still see significant effects even in the areas that sprawl.

atlanta's metro home price index has dropped from 136 in 2007 to 103 now. that was caused by economic downturn.

prices in the good parts of town (like buckhead) boomed with economic activity, it's just that the overall metro area was held down by the addition of new, crappy stuff a 50 minute commute from downtown. if you looked at individual homes in a good part of town, you'd see the very direct effects of economic and population growth.

dallas and houston are tricky examples to use as they are on a different economic cycle than most of the country. their markets tend to move with oil and while construction is easy, an oil dip to $40 would wreck them.

so, i think you are wrong on this. there is a great deal of evidence that population increases and economic growth drive home prices.

i find it hard to understand how you can argue that increases in demand and buying power do not increase the price of houses. you are literally arguing that demand going up does not increase price. ceteris paribus, of course it does.

an increase in supply MAY be able to offset that demand, but only by building in less desirable areas, but new supply in cartersville on the wrong side of the ring-road does not mean that the prices of a home in buckhead did not soar with the economic boom and drop with the bust.

this is part of the issue with aggregates: if you keep filling in the bottom end with new entrants (like the immigrants to the US) they push the whole average down and make it look like little is happening when in fact, individuals (or specific homes) are making a great deal of progress.

At 1/25/2011 10:54 AM, Blogger Jet Beagle said...


We are not in disagreement, though you seem to believe we are.

Supply of land for development is definitely restricted in a few large cities in America. In most cases this is due to geographical barriers but in some cases due to to land use barriers. Where supply of land is rtestricted, then small demand changes can drive housing prices. We do not disagree on this point.

For many more large cities in the U.S. - including Dallas, Houston, Phoenix, Atlanta, Denver, Minneapolis, St Louis, Philadelphia, Oralando, Charlotte, Nashville, and dozens more - the supply of land is not nearly so limited. For those metropolitan areas, economic and population growth has a limited impact on housing prices.

I believe the abundant land metro areas to far outnumber the New York's, San Francisco's, Seattle's, and other land-restricted metro areas. For that reason, I argued that, overall, he realtionship between growth and housing prices is not that strong.

You can argue that San Francisco and New York represent the rule rather than the exception. I will disagree with that argument until you provide evidence to the contrary.

At 1/25/2011 11:08 AM, Blogger Jet Beagle said...

morganovich: " their markets tend to move with oil and while construction is easy, an oil dip to $40 would wreck them."

Not sure what you mean by "wreck them".

I think your knowledge of Dallas is dated. Oil no longer drives the economy of the Dallas-Fort Worth metro area.

A list of the top employers in the Dallas-Fort Worth metro area reveals that no energy or energy-related firm even made the Top 25 employers. Rather, the economy of DFW is dominated by industries such as transportation (American Airlines and Southwest Airlines), retailing (J.C. Penney, Walmart, and Neiman Marcus), health care, technology (Texas Instruments, EDS), and defense (Lockheed and Bell Helicopter).

Dallas metro has a very diverse economy - perhaps as diverse as any city in the nation.


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