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Access to housing in the main cities of the world
November 30, 2023What is the salary effort to access housing in central cities of the world. What position would Buenos Aires occupy? UBS Ranking
For years, the Swiss Bank UBS has been preparing the Real Global UBS Estate Bubble Index, the objective of which is to measure the risk of a real estate bubble based on certain patterns. To do this, it analyzes some typical signs that warn of this, among them and fundamentally, the salary effort measured in the amount of income necessary to access the purchase of a home and rental income, in addition to other variables of the real economy such as excessive liquidity or the levels of mortgage credit rates that encourage or do not encourage the purchase of housing by taking on long-term debt.
But these data are not only illustrative of the bubble risk, but also allow us to recognize and compare the specific situation of a market in relation to another of the ranked ones. The Swiss Bank does not include Buenos Aires in the ranking, but based on the transparency of its Real Estate Report methodology, it annually incorporates price and salary data that allows Buenos Aires to be included in the list and compare its results with the other 25 cities in the ranking. world
House price in relation to income
To measure the relationship between income and home values, UBS analyzes the number of years that a service sector worker must spend to buy a 60 m2 apartment near the city center.In this September 2023 edition published by UBS, like the last three years, Hong Kong was the city where the salary effort for purchasing a home is the highest at 22 years, but 2 years less than in 2022.
Meanwhile, at the opposite pole where the income ratio is more favorable in relation to housing prices, are Miami, Madrid and San Francisco, where 5 full years of salary are necessary to buy a standard 60 m2 unit.
How would you rank Buenos Aires if it were included in the ranking?
At a value of US$ 1,744 per m2 corresponding to the average price per m2 actually paid recorded by the REMAX/UCEMA Index/REPORTE INMOBILIARIO during last August for 3-room units, a 60 m2 apartment would reach US$ 104,560. Crossing this data with the average remuneration of registered workers in the private sector for the same month of last August, it appears that the salary effort would be located at 19 years of income.Buenos Aires would thus occupy second place in the Ranking of the most expensive cities in relation to the average income of its inhabitants, even despite the drop in housing prices experienced in recent years, revealing the even greater drop suffered by the real salary.
Number of years that an apartment must be rented to pay its purchase value
Using the sales value of the same 60 m2 unit and crossing this data with the average rental profitability in each city, UBS calculated the number of years of salary necessary to amortize the home purchase.In the same way, using the average rental value of a used apartment of 60 m2 in Buenos Aires and comparing with the sale value, the number of years of rental necessary to amortize the purchase would be 23 years, 11 less than the 34 years that demanded according to last year's average rent, which reflects the strong increase in rental prices experienced last year. resulting lower than necessary in 6 other cities and higher than required in the remaining 19 cities that make up the ranking of the Swiss banking entity, including Paris, London, New York and Madrid.
The main reason for the UBS ranking is to act as a radar to manage risk in mortgage loans, and observe to what extent the requirements and rates of these loans are causing an increase in housing prices that in turn require each increasingly greater salary effort and/or administer incentive policies that allow maintaining or even increasing the number of operations in the market.
A greater number of years of income to purchase a unit will require lower interest rates and longer financing terms, among other measures, if the population with average access is to be able to purchase a home.
In this sense, the second position of Buenos Aires in this ranking is a faithful reflection of the obstacle to be faced and that explains the real impossibility of implementing mortgage credit lines for the purchase of homes in a context of inflation and macro imbalance such as the one that is dragging on. and that forces us to resort only to rent as a way out.
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