We continue our series of reports on growing real estate markets. In our opinion, these markets are of interest to both individuals – investors, and companies, including those working with securities in the real estate market.

In our new material, we will consider how housing affordability has changed in OECD member countries in 2014-2023. We based our study on the “price to income ratio”. This indicator shows how much harder or easier it has become for residents of a particular country to buy real estate in the past years. To calculate this ratio, OECD divide the house price index by the disposable income per head and can be considered as a measure of affordability.

The analysis shows that for most OECD countries, the “property price to income” indicator grew throughout 2014-2022, indicating that the affordability of real estate was declining.

Interestingly enough, in 2023-I.2024, a stable trend towards increasing housing affordability was formed: in 33 out of 36 countries monitored, “property price to income” decreased. For the first time in the last 10 years, residents' incomes grew faster than prices of property, which made residential real estate more affordable.

So, residential real estate became more affordable. Interestingly, affordability grew most significantly in Europe: Romania (19.1 percentage points), Germany (18.3 pp), France (14.4 pp), Austria (13.6 pp), and Sweden (13.2 pp).

For the OECD, affordability through 2014-2023 on average decreased by 17.8 pp (i.e. the cost of real estate increased by 17.8% more than the income of residents). In the Eurozone, housing affordability during this period decreased by 7.6 pp.

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In fact, the indicator shows how much the cost of real estate has grown faster than the income of the country's residents. The largest relative growth among OECD countries was in Portugal (+53.1 pp), Canada (+40.8 pp) and the United States (+31.4 pp).

Among European countries, Austria (+29.5pp) and the Netherlands (+29.0pp) also stand out.

Interestingly, after a rapid increase in real estate prices in 2020-2022, the growth of incomes of residents in 2023-I.2024 has finally begun to outpace the growth rate of real estate in many countries. In 27 countries that we studied, housing affordability increased in I.2024. Only in 9 countries did the “price to income ratio” index increase.

Portugal

According to CDP Center calculations based on Eurostat data, the increase in housing prices from 2014 to 2023 was 112%, during the same period, household income levels increased by 46%.

The OECD estimates that the ratio of property prices to household incomes increased by 53.1 pp, which indicates a sharp decline in the affordability of residential property in Portugal.

We believe that the price growth is significantly supported by demand from foreigners, primarily tourists (Lisbon, Porto). Tax Incentives for Expats and Golden Visa Programs significantly support the growth of prices.

The price growth is to some extent restrained by a significant increase in the construction of new housing - the area of new building permits issued annually has increased from 3.8 to 9.5 million square metres.

Canada

The Canadian housing market is growing at a high rate, outpacing the growth of incomes of residents of Canada. According to the OECD, the ratio of housing costs to resident incomes has increased by 40.8 pp, which means a sharp decline in housing affordability

The main growth factor is the growth in the number of Canadian residents due to migration, significantly outpacing the growth in new housing construction. The average annual population growth in Canada in 2014-2024 was 500 thousand new residents per year (1.3 - 1.5% per year).

Canada showed a relatively large growth rate (nominal growth HPI rate: 2020 - 6.4%, 2021 - 14.7%, 2022 - 11.3%). In 2023, there was some adjustment in the price level (-2%), which moved to moderate growth in the first half of 2024: +2.4%.

U.S.A.

The ratio of property prices to household incomes has increased by 31.4 pp over the past decade, meaning that housing affordability relative to household income has declined, according to OECD data.

From mid-2020 through 2022, property prices in the U.S. grew at record rates (nominal growth HPI rate: 2020 – 7.8%, 2021 – 16.6%, 2022 – 13.7%, 2023 – 4.9%).

The prices growth was fuelled by low mortgage rates, remote work enabling more people to buy homes outside urban centres, and a post-pandemic shift in priorities with more interest in suburban and rural properties.

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Countries where real estate affordability has increased

Of the 36 countries studied, housing affordability increased in 9 countries in 2014-2023 (the price to income ratio decreased). Interestingly, the leaders in increasing affordability are Bulgaria, Romania and Korea, where the growth of residents' incomes has increased more than the cost of real estate in these same countries.

Interestingly, in all countries except Poland and Bulgaria, the trend towards increasing availability continued in 1.2024.

Republic of Korea

According to OECD data, the ratio of property prices to household incomes has in Korea decreased by 17.9 pp over the past decade, meaning that housing affordability relative to household income has increased.

Housing prices increased by 14%, while household incomes grew by almost 48%, according to the OECD.

We believe that this is a fairly stable trend based on fundamental assumptions.

Bulgaria

According to OECD data, the ratio of property prices to household incomes has decreased by 20.2 pp over the past decade, meaning that housing affordability relative to household income has increased.

The growth of household incomes turned out to be quite close to the growth of housing prices. According to Eurostat and CDP calculations, Gross disposable income of households (PPP) in Bulgaria grew by 86.2%, HPI (index) grew by 91.9%.

The total area of new building permits has doubled, from 4.1 million square meters to 8.5 million square meters.

According to CDP Center expectations, the trend towards uniform development of new housing construction, growth in household incomes and growth in housing costs will continue.

Romania

According to OECD data, the ratio of property prices to household incomes has decreased by 40.9 pp over the past decade, meaning that housing affordability relative to household income has increased.

The growth of household incomes was almost twice as fast as the growth of housing prices. According to Eurostat and CDP calculations, Gross disposable income of households (PPP) in Romania grew by 109.7%, HPI (index) grew by 52.3%.

The total area of new building permits increased by 13.9%, from 11.2 million square meters to 12.7 million square meters.

According to CDP Center expectations, the trend of uniform development of new housing construction, growth of household incomes and growth of housing prices will continue.

In November, our new study on the residential real estate market in Canada will be released.‍

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DISCLAIMER: The material is for informational purposes only, you should not construe any information from this material as legal, tax, investment, financial or other advice.

Dear colleagues, when using the materials of the article, please refer to the source CDP Center.

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