Is the rent too high? Yes, in most cities globally
Emerging economies currently have the least-affordable housing, while London is the least-affordable major city in western Europe
As people around the world move into cities and look for housing, one thing is clear: Most will have a hard time paying for it.
Average monthly take-home pay would not cover the cost of buying a 1,000-square-foot residence or renting a three-bedroom home in any of the 105 metropolitan areas ranked by the Bloomberg Global City Housing Affordability Index – based on a general rule of thumb among US lenders that people should spend no more than 28 per cent of net income on housing costs. Only 12 cities would be considered affordable if they spend 50 per cent.
Residents face many obstacles, including urban land-use regulations, underdeveloped rental markets and difficulty getting financing, according to Enrique Martínez-García, a senior research economist at the Federal Reserve Bank of Dallas who studies housing prices. Policy solutions to these problems were not clear, he added.
“Not having access to credit is a challenge to develop a healthy housing market,” he said. “But opening it up too fast might be a problem as well; it might actually lead to a boom-bust episode.”
The Bloomberg index calculates the affordability of renting or buying in city centres and suburbs. Rankings are based on self-reported data, including net salary and mortgage interest rates, compiled by Numbeo.com, an online database of city and country statistics.
Since 2012, 48 cities in the Bloomberg index have become less affordable, while affordability improved in 51. (Historical data were not available for all 105.)
In nine of the bottom 10, average net income fell, while income in eight of the top 10 cities rose as rental and mortgage costs declined.
Emerging economies currently have the least-affordable housing, led by Caracas and Kiev in Ukraine.
The remaining cities among the bottom 20 include seven in Asia and six in Latin America. London is the least-affordable major city in western Europe, with average monthly rent and mortgage payments equalling 135 per cent of monthly net income.
In Rio de Janeiro, Brazil’s second-largest city, average monthly take-home pay of US$640 will not unlock a rental even on the outskirts of town, let alone provide the means to buy a house or flat in the city centre, where monthly mortgage payments approach US$2,000. This contributes to multiple-income households and also may explain why more than one in five Rio residents lived in informal shanty towns called favelas in 2010, the most recent data available. Six of the 10 cities with the greatest deterioration in the past five years are in Latin America.
Seven of the top 10 most-affordable cities are in North America: four in the US and three in Canada. The least-affordable metro area in the two countries is Vancouver, where an influx of foreign cash has caused a surge in home prices. New York ranked near the middle of the index.
Two of the cities with the greatest improvement are in China: Shenzhen and Guangzhou.
Even so, housing demand across the country continues to outweigh supply, “despite rapid construction and the large-scale delivery of new homes” in cities including Shenzhen, according to Kate Everett-Allen, head of international residential research at real-estate consultant Knight Frank in London.
That was because of “mass urbanisation” and relatively low wages, she said, adding that home prices in several cities grew at an annual rate of as much as 40 per cent last year.
Four Chinese metro areas, including Hong Kong, were among the 20 least-affordable in the index.