Even as prices rise and inventory falls in America's housing markets, the U.S. still ranks very high in home affordability, says an annual survey of nine developed countries around the world. In fact, of the 11 major housing markets that it deemed "affordable" — out of 92 with populations of at least 1 million — all were in the U.S.
The U.S. was also determined to have "the most favorable major market housing affordability" in this year's Demographia International Housing Affordability Survey, which is based on 2016 third-quarter data comparing the U.S. to Australia, Canada, China, Ireland, Japan, New Zealand, Singapore and the United Kingdom.
The 13th annual survey rated Rochester, N.Y., as it "most affordable major housing market" in all those countries, based on the "median multiple" — a ratio of the median home price there to the median pretax income. In Rochester in Q4, the median price for a home was 2-1/2 times the median annual household income, for a "median multiple" of 2.5. That was well below the 3.0 ceiling for "affordability."
Joining Rochester at under 3.0 (see the accompanying chart) were Buffalo, N.Y.; Cincinnati; Cleveland; Pittsburgh; St. Louis; and Oklahoma City. Right at 3.0 were Indianapolis; Grand Rapids, Mich.; Detroit; and Kansas City, Mo.
A median multiple of 3.1 to 4.0 pushes a market into "moderately unaffordable" territory, while 4.1 to 5.0 is "seriously unaffordable" and 5.1 and over is "severely unaffordable."
"The 'median multiple' is not a perfect measure because it does not account for house sizes or build quality," admits Oliver Hartwich, executive director of the survey's sponsor, The New Zealand Initiative. But he goes on to add, in the think tank's report on its survey, that "it is the only index that allows a quick comparison of different housing markets, and it is the best approximation of housing affordability measures we have to date."
As for surveys that purport to list the "best" or "most livable" cities, the NZI's report slights them as "aimed at wealthy households, not middle-income households, and at corporate relocation experts advising executives who might move to different housing markets ... and it is thus not surprising that the 'Best Cities' routinely exclude evaluation of middle-income housing affordability."
'Moderately Unaffordable,' But Still Best
But even with all its affordable cities, major U.S. housing markets on the whole are at the high end of the "moderately unaffordable" range of the NZI's scale, with a score of 3.9. But that still was low enough to make its major markets the most affordable among the nine countries. Japan's were next at 4.1.
Those at the highest limit of the rankings, with severely unaffordable major markets, were China (i.e., Hong Kong), at a staggeringly steep 18.1, New Zealand, at a daunting 10.1, and Australia, at a comparatively modest 6.6.
When the smaller housing markets are included, for a total of 406 across the nine nations, the U.S. still ranks as moderately affordable — though at 3.6 on the scale it comes in at No. 2, behind Ireland's 3.4.
But the U.S. dominates the list of the 10 most affordable markets overall, with Racine, Wis., at No. 1, with a median multiple of 1.8. Next is Bay City, Mich., at 1.9.
At 2.0, are Decatur, Ill., and Elmira, N.Y., while several others are tied at 2.1.
Affordability Is The Exception
Despite those positive ratings, among all the U.S. housing markets only 83 are judged affordable, while 111 are moderately unaffordable, 56 are seriously unaffordable, and 36 are severely unaffordable.
The Bay Area community of Santa Cruz even tops its notoriously high-priced neighbor San Francisco and New York City as the most severely unaffordable at 11.6 — the highest score recorded in the U.S. since the survey began.
While scores in the America were "overwhelmingly below 3.0 until the 1970s and remained at that level in most housing markets until the early 2000s," says the NZI report, "decades of restrictive land use regulation, including court decisions and far stronger environmental regulation" made California's markets the exception, resulting in "huge housing affordability losses" for that state.
Other U.S. markets adopting such restrictions, like New York, Miami and Boston, "have also had severe losses in housing affordability" it concludes, while "liberally regulated Dallas-Fort Worth, Houston and Atlanta experienced little in house price increases during the housing bubble and remain the most affordable."
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