12 February 2005




During August 2004, the writer discussed with Mr Wendell Cox, Principal of Wendell Cox Consultancy, St Louis, USA, the possibility of getting an easily understood Survey underway, measuring the housing affordability of key cities in the United States, Canada, Australia and New Zealand. Fortunately Mr Cox responded enthusiastically and before very long the writer became the researcher, with the Wendell Cox Consultancy taking the lead and doing by far, most of the work.

We both felt it necessary to clearly illustrate annual median household income and median house prices and express the degree of affordability / unaffordability by way of a "median multiple" - that is, the number of years of median household income it would take to purchase the median priced house, in each city.

I am extremely grateful to Mr Cox, a visiting Professor to the Conservatoire National des Arts et Metiers University, Paris, France, for taking the initiative in driving this project forward. It is of course a "work in progress"

The Huge Variations in Affordability

Whilst the writer had some inkling prior to the work commencing, that Australia and New Zealand's housing affordability performance may have been somewhat poorer than many urban areas in the United States, I was not prepared for the huge variations that eventuated. By international standards, our populations in this part of the world ( Australia and New Zealand ) are very small at 24 million people in total and our land areas are vast.

Yet most of the cities within the south and central parts of the United States have remained remarkably affordable, with median multiples of 3 or below, even though many of these cities are experiencing significant growth.

Lets compare Houston, USA and Sydney, Australia. Expressed in local currencies, the median household incomes for both cities were, during 2004 ( in local currencies ) $50,400 and $57,100, with median house prices of $138,350 and $505,000 respectively. So it would take 8.8 years of median household income for a Sydneyite to purchase a median priced home, but just 2.7 years of median household income for an Houstonian.

Expressed another way, if the Sydneyite on the median household income, was to get the same deal as her counterpart in Houston, she should only be required to pay 2.7 times her household income of $57,100 - that is $154,170 ( $57,100 x 2.7 ), some $350,830 ( $505,000 - $154,170 ) less than she is currently forced to pay.

The reality of course, is that the Sydneyite would not be able to meet this artificially inflated financial commitment, whilst the Houstonian would be able to purchase a reasonable standard of housing and have enough income left over to live adequately.

Yet Houston is a larger city with around 5 million people - and growing by about 140,000 people a year, whereas Sydney, with 4 million, has minimal population growth.

Even the writers' home city of Christchurch, NZ, with a tiny population of slightly more than 300,000 and minimal growth, is substantially less affordable than Houston. Christchurch rates as "Severely Unaffordable".

In fact - within the Rankings Categories of Affordable ( less than 3 - median income as a multiple to median house price ) Unaffordable ( 3 - 4 ) Seriously Unaffordable ( 4 - 5 ) Severely Unaffordable ( above 5 ) - not one of the Australian and New Zealand cities ( other than Darwin ) made it in to the first two categories.

Although further research is required, it appears that during the 1970's the median multiples for all the cities within Australia and New Zealand were in the order of 3, with the exception of Sydney and Auckland, both being around the 4 mark. In other words, it was easier for the writers generation to access reasonable housing during the 1970's, than it is for young people today in Australia and New Zealand. Yet generally our incomes have increased substantially over this time.


Over the past 30 to 40 years, in both Australia and New Zealand, land use regulators have increasingly strangled the land supply, creating artificial scarcities and driving land prices in to the stratosphere.

Yet in inflation adjusted terms, residential construction costs ( particularly in Australia ) have remained remarkably subdued. And of course, the new house today is a major improvement on its 1970's counterpart. McKinseys, the international consulting firm, rates the Australian residential construction sector, as one of the best performers in the world.


It is important to recognise that the problem is "political" and "structural" in nature - not "economic".

Irresponsibly throwing taxpayers hard earned dollars at the problem, only worsens it, as more money with constrained land supply only drives prices higher - as the Australian first home buyer grants of originally $14,000 and later $7,000 clearly illustrated. After all, as outlined above in the Sydney / Houston comparison, the person attempting to purchase the median priced home in Sydney has a $350,830 problem.

Even if the Federal or Central Government gave $350,830 of taxpayers money to the Sydney couple , ( to make up for the regulatory mess created by the State Government ) attempting to purchase the median priced home in that city - prices would rapidly inflate further, as more financial fuel is added to the fire.

As the issue is political, the solution rests on the shoulders of responsible citizens, firstly recognising that there is a problem, and secondly, being prepared to constructively do something about it.

In this regard, the Australian Housing Industry Association ( HIA ) has already set the responsible example, by being a key player in the Housing Affordability Summit held in Canberra mid 2004, where many other key industry and social agencies participated. We need to see this happening at local level as well.

Words - 1042

Contact Ph 00 64 3 343 9944

Hugh J. Pavletich is a commercial property developer of 25 years experience, a former President of the South Island Division of the Property Council and a Fellow of the Urban Development Institute in Australia. He can be contacted at hugh.pavletich@xtra.co.nz


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