Knight Frank has released a new report focusing on the growing affordable housing gap in major cities around the world.
The property group said that the affordable housing gap has been increasing due to limitations on supply, historical restrictions and a growing urban population.
“This growing pressure on housing affordability is changing the development landscape – influencing the types of product on offer as well as the locations developers are focusing on and even the organisations becoming involved in the development process,” it said.
As part of the report, Knight Frank built a global affordability monitor to measure performance in three main areas:
- House price to income ratio – This measure is the most commonly cited affordability measure. For this Knight Frank looked at the ratio between average house price and average household income, after taxes.
- Rent as a proportion of income – As the population of tenants increases globally, Knight Frank assessed not only the affordability of buying a home but also how affordable it is to live in a city with respect to rented accommodation.
- Real house price growth compared to real income growth – Knight Frank included this measure to demonstrates clearly whether affordability has improved or worsened over recent years. It also have adjusted both house price and income growth for inflation, over the time period, to assess the real impact.
Across the 32 cities covered, there was an average five-year real house price growth of 24%, while average real income grew by only 8% over the same period.
While some cities bucked the trend – New York saw its income growth exceed real house price growth by 3% – others like Amsterdam, Vancouver and Auckland saw real house prices outstrip real income growth by 59%, 46%, 32% respectively.
Cape Town is seen as one of the more affordable cities on the list, as it has seen real house prices increase by 22.5% over the last five years and real household income change of -6.2%.
However it still one of the most expensive places to live in the world.
“While City-wide average affordability statistics are useful but they fail to highlight disparities in housing costs within sub-markets or across the income spectrum,” Knight Frank said.
“Therefore, even cities in the ‘most affordable’ quadrant still have room for improvement and may not be affordable to lower income groups.”