Hong Kong Housing Market is Globally the Most Unaffordable One in the Past 9 Years
Demographia (2019) has just reported the Housing Affordability Index, and Hong Kong’s Median Multiple reached 20.9 which broke the record of the survey. It implies that the median income household requires to spend 20.9 years’ income in order to buy a median priced housing unit in Hong Kong, not including mortgage interest expenditure.
Figure 3 shows the trend of the Median Multiple in the past few years, which you can easily find that the HK trend far outweighs all other sampled countries, and has been the most unaffordable city of housing in the world for the past consecutive 9 years. When most of the MM of other countries are below 10, the MM of Hong Kong has never been less than 10 since it was included in the survey. When MM exceeds 5.0, it is regarded as severely unaffordable, but the latest figure of HK is 20.9. The survey report also tells that the Median Household Income in HK was $343,000, but the Median Housing Price was $7,169,000.
While it may not be an apple-to-apple comparison if HK is compared with countries. Figure 4 therefore shows the MM of some of the toppest unaffordable cities.
When the MM of HK is 20.9, the second highest (Vancouver) is just about 12, and the third highest (Sydney) is just about 11. But they are said to be bubbles.
It is very rare to have a city which would bear unaffordable housing continuously for a long time. One of the major reasons is because of the social housing (Public Rental Housing and Home Ownership Scheme) accommodating almost 50% of households. Thus, if the accommodated households in social housing are the lowest 50% of income, then the median income of the potential family buyers for private housing should be the 3rd Quartile rather than the Median Household Income. Similarly, the reason why the MM for Singapore can be lower than 6 is probably because of the HDB social housing scheme which accommodates more than 80% of households. The price of HDB housing is set by the government to ensure that the housing units can be affordable by local families.
However, there are no better alternatives measuring housing affordability when different government intervenes housing markets differently. For example UBS (2018) also compare MMs of different cities, among others, to identify housing bubbles, and Hong Kong is also ranked the most risky in housing investment in the world. Yet, their estimate is a bit different (22-year vs 20.9) from Demographia as shown in Figure 3.
For example, referring to the Quarterly Household Survey Reports by CSD (2018), the Median Household Income of Private Permanent Housing was $468,000 in 2018Q3, when the Median for overall households was $343,200. If we re-calculate the MM by replacing the overall household income with the Private Permanent Housing Households’, then the MM drops from 20.9 to 15.3. In fact, the reported household incomes for social housing families were $222,000 (in PRH) and $352,800 (in HOS), both are lower than the private housing one. Yet, such a calculation method would render the MM non-comparable, unless all the MMs are calculated by excluding all social housing households.
One of the major reasons why housing in HK is the most unaffordable is because of the negative real interest rate, which attracts a lot of hot money into the city for investment (FDI of HK ranks the third in the world). We have discussed about the impacts of foreign direct investment on housing price at Yiu (2018) [in Chinese, will be translated and uploaded to Medium later]. The housing markets are thus vulnerable and fragile as hot money can easily and swiftly move in and out a city, and can cause housing price bubble or plummeting.
When a city’s housing markets become a global investment vehicle, and the monetary policy is set to attract foreign funds, then the housing price of the city is likely to be detached from and unrelated with the local household incomes. It may explain why all the most unaffordable housing markets are cities attracting a lot of foreign investments. For example, Melbourne and Syndey in Australia, Vancouver and Toronto in Canada, London and Singapore.
Census and Statistics Department (2018) Quarterly Household Survey 2018Q3. https://www.statistics.gov.hk/pub/B10500012018QQ03B0100.pdf
Demographia (2019) Housing Affordability Index, http://www.demographia.com/dhi.pdf
UBS (2018) Global Real Estate Bubble Index, 27 Sep. https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/life-goals/2018/global-real-estate-bubble-index-2018.html
Yiu (2018a) 全球樓價受資本流動影響。https://sosreader.com/n/@ecyY/5b90b1a0fd8978000150d97a
Yiu (2018b) 香港樓價與資本流動的關係。https://sosreader.com/n/@ecyY/5b90b1a0fd8978000150d97a