Is Australia Really Less Affordable, or Is It Just Bad Math?

Apples to Oranges: Global Housing Metrics Misrepresent Australian Affordability

26 June, 2024: New FrontYa research has cast doubt on the extent to which Australia is an outlier in housing affordability among developed countries.

The 2024 Demographia International Housing Affordability Report, which assessed middle-income housing affordability in major markets across eight nations, including Australia, utilised a “median multiple” method - comparing median house prices with gross median household incomes.

A deeper analysis by FrontYa reveals a critical distinction in the data on Australian property markets. The Demographia Report portrays Australian cities as impossibly unaffordable, with Sydney ranked as the second least affordable city, and Melbourne as the seventh.

What data is being questioned?

The crux lies in ensuring data used is “like-for-like”. Robbie Baskin, Co-Founder and Chief Investment Officer at FrontYa, noted discrepancies in the calculation of the “Price to Income” metric. While other countries' data combined prices of houses and units under a single median price, Australian data distinctly separated these two, considering only houses. This distinction led to a skewed perception of unaffordability, as units, which form a significant portion of dwellings, typically have lower values than houses.

What is the correct data?

FrontYa conducted a “like-for-like” comparison, including both houses and units in the Australian data. This adjustment dramatically altered the rankings, with Sydney's affordability metric dropping from 13.8 to 9.1, moving it from the second to the tenth least affordable city. Melbourne moved from seventh to fourteenth.

Revised affordability rankings showing the adjusted positions of Sydney and Melbourne

This revelation highlights the importance of scrutinising comparable data in global reports, especially when they influence public policy and market perception. It also points to the need for uniform definitions of city boundaries and housing types across different countries for even more accurate comparisons.

The data used in FrontYa's analysis, although not directly published by Demographia, was replicated using sources such as REIA and ABS (AUS), CREA and Statistics Canada (CAN), Zillow and US Census (USA), CoreLogic and Stats NZ (NZL), and ONS (UK). FrontYa then replaced REIA data with PropTrack to accurately capture both Houses and Units together. These figures, along with adjustments for wage growth and estimates based on mean to median ratios, provided a more nuanced view of housing affordability across these global cities.

For a detailed understanding and further insights into the methodologies, data sources and findings, you can read FrontYa's Research Report.

FrontYa is launching its Home Equity Investment Trust (HEIT), which provides investors with exposure to 2x the Australian residential property market growth. Click below to read more.