Hong Kong has been ranked the world‘s least-affordable housing market for a ninth straight year.
Not only did it retain the notorious title, homes in the city got further out of reach for most residents, according to Demographia, an urban planning policy consultancy. The city‘s median property price climbed to 20.9 times median household income in 2018, up from 19.4 times a year earlier.
Vancouver was ranked the second-most unaffordable market, leapfrogging Sydney – where the housing boom has gone into reverse. Melbourne came in fourth, followed by San Jose and Los Angeles. London was the worst European city, coming in equal 10th with Toronto.
The Demographia study covered 309 metropolitan markets across eight countries, including Australia, Canada, the UK and the US, as of the third quarter of 2018. Twenty-nine major housing markets were classed as “severely unaffordable.”
Things may get easier for homebuyers, however as property markets from Hong Kong to London join a global downturn. Hong Kong housing values have endured their longest losing streak since 2008, prices in outer London neighbourhoods have fallen for the first time since 2011 and Sydney home owners are grappling with the worst real estate slump since the 1980s. In Manhattan, the median condo price dipped below $1m for the first time in three years.
In the years since the financial crisis, global cities like London, Hong Kong and New York appeared to defy housing-market cycles, thanks to a concentration of financial jobs and the self-fulfilling belief that they offered investors a safe haven. Now every release of data seems to turn those assumptions on their head.
Luxury residential prices are growing at the slowest rate since 2012, according to a Knight Frank index of prime properties in 43 cities. Where some see an orderly retreat, others see cause for concern. A November working paper by the International Monetary Fund (IMF), warned that the tendency of housing prices in global cities to move in sync means that local shocks could upend markets around the world.
There are a few global cities that affect “the sentiment about risk perception,” said Albert Saiz, a professor of urban economics and real estate at the Massachusetts Institute of Technology (MIT). “If New York and London are catching a cold, the primacy is large enough that they might have an impact on the overall market.”
International investors in search of higher-yielding investments have poured cash into the biggest, most-expensive housing markets, pushing prices ever upward. Governments became concerned the gains were unsustainable, and reacted with measures aimed at curbing the flows of international money.
UK lawmakers will publish details later this month of a tax on foreign real estate buyers in London. That plan follows moves to increase charges on second homes and properties owned by corporate entities. The government also eliminated tax breaks for rental homes bought with mortgages. Home prices in the most expensive parts of London are down 19pc from their peak in 2014, according to data from Savills Plc, but the move to curtail investor purchases is still on.
Similar dynamics are playing out around the world. The number of home sales in Vancouver dropped 32pc in 2018 from the previous year, following a series of new taxes, stricter mortgage rules and rising interest rates. Median prices in Auckland registered their first annual drop since 2008 after the New Zealand government passed legislation to restrict foreign buying that it said was partly to blame for escalating housing costs. Home prices have dropped 11pc in Sydney from their 2017 peak after government restrictions on foreign purchases and tighter credit.
“Government actions to reduce foreign purchases and/or stretched borrower affordability have already caused home prices to stall or fall in cities such as Sydney, Melbourne, Toronto, Vancouver and Stockholm,” Fitch Ratings said in a report issued on January 15 last on global home-price growth.
In Hong Kong, a looming vacancy tax, intended to dissuade investors from hoarding empty apartments, played a part in driving prices down almost 9pc from their August peak.
Citigroup Inc. said it expects prices to reach their nadir in March – and there‘s ample evidence to suggest homebuilders remain concerned. China Overseas Land & Investment Ltd recently unveiled aggressive discounts at its new residential units released in Hong Kong‘s Tai Po area in an effort to fend off competition amid rising supply.
Policies aimed at reining in prices aren‘t the only factors weighing on growth. Local dynamics, like Britain‘s planned exit from the European Union, last year‘s US tax bill, or tighter capital controls in China are no longer local – they ripple around the world.
In the US, developers that focussed on affluent buyers came out of the Great Recession with comparatively strong credit, said Daryl Fairweather, chief economist at Redfin Corp. The result has been a glut of million-dollar condos accumulating in major markets, while scarce supply drove prices higher on more-modest homes. Now US markets are softening as buyers blink at high prices and rising interest rates and volatile equity markets exacerbate affordability concerns.
“For a long time, you could talk about big, important issues like Brexit or tax policy change in the US – each one of them seemed to hit a major market but didn’t really cross over,” said Dan Conn, chief executive officer of Christie‘s International Real Estate. “What happened this year is that the trade battles started to make this, instead of a regional conversation, much more of a global conversation. People are talking about global impacts.”