Claims that Australian cities are the most expensive in the world are less about facts and more about a master-class in media manipulation.
Here’s a case study in manipulating the media like a boss.
I’m talking about the Demographia survey of housing affordability. You probably heard about it, even if you don’t remember the name. This is a study that, year after years, says that some of Australia’s property markets are the most expensive in the world.
And it was grabbing headlines like a machine about a month ago.
The key take-home was that Sydney was the third most expensive city in the world, behind only Vancouver and Hong Kong.
Oh the humanity!
What a disaster. Sydney was third, Melbourne was 6th. What’s become of our cheap and easy lifestyle? Who do we blame? Is it banks? Is it immigrants? Is it investors?
The media gorged themselves on righteous indignation.
But did anyone actually look into this ‘third most expensive city in the world’ tag? It doesn’t look like it.
So I strapped on a dear-stalker hat and did a little detective work.
It starts with the top ten list. This was the one doing the rounds, and the media was only too happy to reproduce it without question:
Demographia’s Top 10 most unaffordable city markets:
- Hong Kong
- San Francisco
- San Jose
- San Diego
- Los Angeles
Now what do you notice about this list? If you’re like me, you’re struck by what a narrow band of countries we’re talking about – Australia, NZ, the US, the UK and Hong Kong.
So what, expensive housing is only an Anglo thing? What is this, the Commonwealth games of expensiveness?
Where’s China for example? Shanghai is notoriously expensive. No Munich? No Paris?
Well, turns out there’s a reason for that. When I tracked down the report, it turns out this isn’t a global survey. The only countries in the survey are:
Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States.
So it’s a bit of a stretch to have a look at just ten (!) specially selected countries and then talk about such and such city being the most expensive and unaffordable city in the WORLD!
It’s not a global contest, no more than world-series baseball is.
I mean how can you just leave out the entire European continent?
But that doesn’t stop the media. Sydney is third most expensive city in known universe.
But have a look at the countries from our tiny sample that don’t make the top ten. Ireland isn’t represented and neither is Japan.
Well, Ireland has just gone through a total property bust, driven by dodgy bank practices and massive over-supply. Japan has been in recession for like 20 years.
So our cities are more expensive than theirs. So what? It’d be completely surprising if that wasn’t the case.
I went down to my local kindergarten the other day and participated in their sports carnival. Based on the results of the Under-5’s, I declare myself to be the fastest man in the world.
The results get even more bizarre when you flip the results and have a look at what cities they think are the most affordable.
What’s the 11th cheapest, most affordable city in Australia?
Port Hedland, with a median housing price of $818,000 is one of the cheapest markets in Australia.
How is a market where million dollar properties are the norm, ‘affordable’.
Funny results like this riddle the Demographia survey because the methodology they use is very basic.
They simply compare median reported incomes with median reported prices. Port Hedland does well because median reported incomes – at $163,700 – are high.
I’ve written before about the dangers of using such a basic measure, particularly if you’re going to use it to talk about ‘unaffordability’ of ‘bubbliness’.
Income is not the only determinant of house prices. We’ve seen increases in the income/price multiple over the last twenty years because there have been massive structural shifts at play.
The biggest of those is a trend decline in interest rates. Interest rates have fallen to record lows since peaking in the mid-90s. Each year they fall further, and open the way for people to take on larger and larger debts.
Add to that the end of inflation, financial sector liberalisation, and a host of supply-side blocks in our major cities, and suddenly the ‘affordability’ question gets very complicated.
But all power to Demographia. They’ve pulled off a massive media coup with very little.
(If you’ve got a spare 2 minutes, take a look at their website. Straight from 1992! Who are these guys?)
Taking publicly available data from a small survey of countries, they’ve generated front-page headlines in every major city across the English-speaking world.
Seriously, they should win some kind of PR award for this.
And what’s their agenda? Will they look like a mix of developers and academics pushing for an end to urban growth boundaries in our big cities.
That’d obviously be a win-fall for developers, but I think it is pretty obvious that our planning laws aren’t working, and supply side blocks are a big reasons why prices have risen as much as they have in recent years.
So I’ve got some time for that.
But as for claims that Sydney is the third most expensive city in the world? We need to take that with a massive grain of salt.
And our media should learn to do the same.