The latest release of Demographia’s annual survey of house price affordability has created headlines for highlighting how chronically unaffordable property is in Hong Kong. Median property prices in the territory were a staggering 19 times median household incomes in the third quarter of 2015, a new record in the twelve years that the survey has been published. Hong Kong has beaten its own record set in 2014 of properties being valued at 17 times median incomes, which in itself beat the record it set in 2013 (14.9).
What hasn’t received quite so much attention is at the other end of the scale, properties which are affordable compared to median incomes. Remarkably, out of the 367 property markets tracked by the survey across nine countries over four continents, it is the property market in Limerick which is judged to be the most affordable.
The median property in Limerick in 2015 was €100,000, and with median household incomes in the area of €51,200, a typical house can be bought for less than two years’ worth of gross income, a fraction of the nineteen years’ worth of income a property in Hong Kong would cost.
Limerick’s house price multiple of 1.8 is the lowest multiple outside the United States over the period that the survey has ran, and even inside the United States the only markets with appreciably lower income multiples have been seen in the famously troubled real estate markets in Michigan (Flint, Detroit and Saginaw) in 2011 and 2012, and all have seen substantial rebounds since. In both 2014 and 2015, it has been the nearby market of Waterford which was the second most affordable property market, with an income multiple of 2.1 in 2015 (down from 2.2 in 2014).
The graph below shows a selection of house price multiples across the UK & Ireland. It is notable how, despite the ongoing boom in London property prices, compared to incomes they still haven’t reached the heights experienced in Belfast in 2007 (Belfast is the only Northern Ireland property market tracked by the survey).
And to put these markets in a global context, this chart shows Belfast, London, Dublin and Limerick compared with New York, Sydney and Hong Kong.
Of course, these are all very different markets, and one might expect property prices relative to income to vary significantly across the world. However, it is a stark illustration of how crippling housing expenses are in many countries. Also, given price rises in countries with a significant exposure to the boom in China over the last decade (e.g. Australia), a slowdown or recession in China could see the property boom leading to a crash. See Ireland, both North and South, in the years following 2007 to see how this can prove problematic.
Demographia define any income multiple of less than 3 as “affordable”. Limerick and Cork are one of a handful of markets in the survey that this criteria. Whilst a property crash in places such as Hong Kong and Australia have the potential to cause plenty of problems for the wider world economy, there is an even bigger issue here.
If property prices remain so stratospherically high across much of the developed world, children will become a luxury that few will be able to afford, and the pace at which the population is ageing will quicken ever faster. Whose tax revenues will pay for Generation X’s health and care spending as they approach their dotage?