Global city rankings fail to factor in housing costs

Everyone’s idea of what constitutes a liveable city is different. One person’s idea of domiciled bliss might be amid the cattle and dust on a vast acreage near remote Longreach, while others’ ideal lifestyle may be living nocturnally in an inner city Sydney apartment.

But every year (except for last year when COVID took hold), the Economist Intelligence Unit (EIU) puts aside personal lifestyle tastes and weighs up a range of factors in collating its annual ranking of the world’s most liveable cities.

In The Global Liveability Index 2021, six of the top ten cities in the 2021 survey are in New Zealand or Australia, where tight border controls have allowed residents to live relatively normal lives. It was seven from 11 if you make room for Sydney sitting one spot outside the top ten.

The pandemic has caused huge volatility in the latest liveability index, which ranks 140 cities across five areas: stability, healthcare, education, culture and environment, and infrastructure.

Adelaide took the crown within Australia, sitting at number three, followed by Perth at six, Melbourne at eight and Brisbane rounding out the top ten. 

Ten of the most livable cities in the world

Source: The Economist Intelligence Unit

But the IEU list is notably focused on providing direction for corporations with staff living and moving around the world.

Companies pay a premium (usually a percentage of a salary) to employees who move to cities where living conditions are particularly difficult, such as excessive physical hardship or a notably unhealthy environment.

But for the average Australian, the lists have a fundamental flaw. 

There is no allowance for housing costs. While the ability to attend sporting fixtures and concerts is a worthy criterion for liveability, it’s of little to consequence to a family locked in a cycle of rent stress or unable to afford a home at all.

Industry organisation the Australian Property Institute and tech firm The Search People this month surveyed almost 600 property valuers across Australia to gauge their attitudes to the property market and found that 43 per cent of valuers said property was now essentially out of reach for the “average” Australian.

The situation is not expected to improve any time soon. 

More than 60 per cent of those surveyed in Sydney, Melbourne and Perth said they expected prices to rise. In Brisbane, it was even starker with 70 per cent believing a price jump would occur with around 12 per cent of those saying prices in the Queensland capital could go up by more than 10 per cent.

As with the EIU report, Adelaide can lay claim to top spot (shared with Perth) when it comes to affordability but even here more than 55 per cent of valuers have said the only way is up for house prices.

Some alternative lists

Perhaps surprisingly, the Australian cities that fared best in the EIU rankings also compared favourably to the larger cities lower down the list when it came to a range of housing and finance statistics.

According to CoreLogic’s Hedonic Home Value Index, the average gross rental yield for capital city dwellings in April was 3.2 per cent, while the combined regional dwelling yield was 4.7 per cent – bringing the national gross yield to 3.5 per cent. 

For investors, Australia’s best cities might more tangibly be regarded as those having the best gross rental yields across the capitals, namely: 

Darwin (6.1 per cent), Hobart (4.5 per cent), Perth (4.4 per cent), Adelaide (4.3 per cent), Canberra (4.3 per cent), Brisbane (4.2 per cent), Melbourne (2.9 per cent) and Sydney (2.7 per cent).

Of course, the flipside to this liveability measure is for renters, many of whom in Australia are under enormous strain.

Figures from Digital Finance Analytics revealed rental stress was 35.04 per cent (or 1.783 million households) in April. 

Here, the rankings coincidentally aligned closely with those of the EIU list, with Adelaide and Perth less stressed than Sydney and Melbourne. 

NSW had the highest number of renters in stress (48.80 per cent), followed by Victoria (36.82 per cent), the ACT (34.33 per cent), Queensland (32.14 per cent), WA (28.17 per cent), Tasmania (18.67 per cent), SA (18.21 per cent) and the NT (16.67 per cent).

While more than two thirds of renters were in stress, more than a quarter of investors were also stressed (i.e., income from rent is not sufficient to recover the costs of owning and letting their properties). 

NSW (36.18 per cent) had the highest number of stressed investors, followed by the ACT (35.38 per cent), Victoria (24.13 per cent), Queensland (24.07 per cent), WA (23.49 per cent), SA (15.89 per cent), Tasmania (15.32 per cent) and the NT (14.05 per cent).

Canstar has calculated how much an Australian needs to earn to afford a modest home in each capital and concluded that buying a home then maintaining a loan in more than half of our cities would plunge home buyers on average salaries into mortgage stress.

Again, it was the higher ranked EIU cities of Adelaide and Perth that fared better than the lower ranked larger east coast capitals.

Weekly income required to avoid mortgage stress

Source: www.canstar.com.au - 5/05/2021. Median prices from Corelogic (April 2021). Income based on ABS average weekly earnings, ordinary time earnings (Nov 2020; released Feb 2021). Income to avoid mortgage stress assumes annual mortgage repayments make up 29% of before-tax income. Mortgage stress is considered to be 30% or more of pre-tax income going towards servicing the mortgage. Repayment calculations assume principal and interest repayments on a loan with 3.25% interest rate (based on owner occupier P&I loans available for $500,000 & 80% LVR, excluding intro-rate and first home buyer-only loans) and 30 year loan term.

New research conducted by CoreLogic comparing national dwelling values and average incomes demonstrated that low income workers are only able to afford 17.6 per cent of available housing stock in Australia – or just 2.9 per cent in Sydney and 4.2 per cent in Melbourne.

On the flip side, CoreLogic’s study showed that top earners can afford a whopping 85.1 per cent of Australian homes including 93 per cent of all units and 82 per cent of houses.

Lists and data on housing expenses, stresses and benefits help put rankings such as the EIU’s in perspective. 

Across the Tasman, Auckland and Wellington were the top and fourth ranked cities in the world but some analyses have put Auckland as one of the least affordable cities in the world, with implications for the poverty rate, healthcare outcomes and social mobility. 

Both Auckland and Wellington are struggling to adjust to the problems posed by population growth, including a shortage of housing.

All of these factors undoubtedly affect so-called liveability. While it's clearly better to be at the top of these lists than wallowing with the likes of Damascus, Lagos and Port Moresby in the bottom three, there’s still some grains of salt to be thrown into the recipe of any city rankings lists.