I was recently asked whether there was an upper limit to the ratio between property price and household income, which in Auckland currently sits at about 10 to 1. In other words, the average property price is worth 10 times the average annual income.
Also known as the median multiple, this is an internationally recognised measure of housing affordability and is calculated by dividing house price by income. A median multiple of 3 or less is considered affordable, and at 10, Auckland is now the fourth least affordable city in the world. Will a limit eventually be reached due to the inability of people to pay, after which house prices would only rise at the rate of inflation (as would wages)?
This is a great question. However, affordability assumes people owning the houses are carrying debt and servicing interest. Many are not – they use cash and are just plain wealthy. High median multiple cities like London, New York and San Francisco tend to see declining owner-occupier rates. And liberal investors say 'that can't continue'. But they confuse social agenda with economics and capitalism. Harsh as it may sound, poor people do not have a right or entitlement to own a home and it's always been that way. (I don't make the rules; I just observe them. And note, I'm not saying they don't deserve to live in a decent home; I'm just talking about ownership.)Salesh - Was really good to see you yesterday and to see you getting up in front of the crowd talking about your huge successes – and….. I didn’t realise you were so young! You are and always have been such an inspiration to us and think it is great that you got up in front of a group of eager property investors to share about your property journey and to inspire us! You should do it more often. You are so knowledgeable about property investing and so experienced – you should share your success story! - Lisa Swanepoel - December 2017
Investing in residential property?
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