Concrete AnalysisHousing affordability ratio alarming for Hong Kong, Guangzhou, Shanghai
Research shows that home prices in Hong Kong, Guangzhou and Shanghai have risen to levels that are out of reach to the general public
Despite the introduction over the past two years of measures to cool house prices on the mainland and in Hong Kong only minor price corrections have been witnessed in many cities.
In Hong Kong, prices have continued to rise and have now surpassed their previous peak level.
This has led to discussions about how home prices have surged ahead of income levels, and the serious consequences of this mismatch for housing affordability.
To compare housing affordability in Hong Kong, Shanghai and Guangzhou, we have used a price-to-income ratio to gauge the relative price levels of the markets for new private homes in the three cities. The ratio is a widely used measure of housing affordability and is calculated by dividing the average market price of a standardised home by the average or median annual household income.
We assume a standard new apartment in Shanghai and Guangzhou is 950 square feet - since small flats are rare in the mainland's residential market - and have adopted a standard size for a new or secondary apartment in Hong Kong of 600 square feet.
Due to availability of data, average household income is used in Shanghai and Guangzhou while median household income is used in Hong Kong.
Housing prices in Shanghai and Guangzhou are citywide average new private home prices, taking into account differences in property type, location, fittings, and whether they were presale or completed apartments. Those of Hong Kong are derived from the Rating and Valuation Department's average home price data.