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.)Hi Matthew, my name is Mark Soster and I would just like to congratulate you on your wonderful book Property 101. A few weeks ago I had a "financial awakening" and began devouring all the books I could find on the subject, however I keep coming back to yours. After 3 reissues from the library I think it easier now just to buy it. Wonderfully simple yet complex enough to require multiple reads and note taking. It has taken a lot of the fear away with regards to property investment but also tempered me with caution. Without it I would probably have stupidly invested anywhere but Auckland, telling myself it’s too expensive, I now appreciate why would you invest anywhere else? The numbers never lie, in a 20 year plan then Auckland is King for capital gain. As a fan of maths (the only perfect thing on earth?) I can see how each opportunity can be ruthlessly examined on a purely financial level. Anyway, thanks again, I will definitely be contacting your company with regards to coaching and expertise. - Mark Soster - October 2017
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