How Can Cities with Unaffordable Housing be Ranked Among the Most Livable Cities in the World?

Commentary, Housing Affordability, Owen McShane

The Economist magazine’s “Economic Intelligence Unit” (EIU) has published its most recent survey of the most livable cities in the world.

Vancouver, Canada, ranks number one, Vienna, Austria number two, Perth, Australia number five, Geneva number 8, Zurich, number 9, (both in Switzerland) and Auckland, New Zealand, number twelve.

The comments on the EIU web page are plentiful and outspoken, most of them from people living in the ‘top-ranked’ cities explaining why the survey has got things ‘so wrong’ – or ‘so absolutely right’. Many point out that Vancouver, like so many of the top-rated cities, has severely unaffordable housing.

Many also have high taxes, and some, like Auckland, have low wages by world standards. For most people, high wages, low taxes and affordable housing make a major contribution to livability.

Anyone familiar with Zurich and Geneva knows that one has to be very wealthy to live there. For most of us, such cities are quite ‘unlivable’.

However, the EIU is probably providing its customers with the right answers (or as right as such surveys can be) because their experts are ranking these cities according to their attractiveness to expatriate executives.

Executives posted from New York to Vancouver or Sydney are unlikely to be concerned with the cost of housing because their housing will be provided free of charge, or subsidized by accommodation allowances. These rankings are not established by interviewing a random sample of residents, but are generated by a team of experts trying to assess these cities through the eyes of transferred executives setting up homes in new countries.

This introduces another set of biases because even expert visitors have different priorities and preferences to long-term residents.

Visitors to cities use public transport – especially shuttles, taxis and trains – if only because they do not carry their cars in their suitcase. Again, the comments on the EIU web page demonstrate that the public transport that serves visitors well may not be so impressive to the long term residents.

Similarly, the Mercer Consulting’s Quality of Living survey ranks Auckland fourth, equal with Vancouver. Vienna, Zurich and Geneva are their top three, with Vancouver and Auckland fourth equal. Again, the Mercer ranking is designed “to help governments and major companies place employees on international assignments”. So housing affordability is not an issue. These are the best cities for ‘top’ people – and for government officials in particular.

So, when pondering the rankings of these cities, we should understand they have been ranked according to the preferences of a high income, highly mobile, urban elite. This probably reduces their utility as a guide to overall public policy.

Once we understand this perspective the rankings make much more sense. Whether this makes sense to people starting a career, or trying to raise a family on a middle or even upper middle class income, is dubious at best.

Of course some will no doubt hail such surveys because they emphasize such things as physical beauty or cultural offerings. Yet they have precious little to do with what matters most, notably affordability of decent housing. For most migrants to these cities, the prospects of upward mobility – something not discussed or even considered – are probably less optimal than in places like Houston, Atlanta, and even New York.

After all, for most people, the cost of housing is important in making location decisions, whether within their own countries or when considering migration to other lands.

The 5th Annual Demographia International Housing Affordability Survey (2009) surveyed the Metropolitan Housing Markets of Australia, Canada, the Republic of Ireland, New Zealand, the United Kingdom, and the United States, so does not include the housing markets the EIU ranked in Europe, and elsewhere in the world.

Even so, the list below shows that six of the ‘top twelve’ most livable cities prove to be ‘severely unaffordable’ as measured by Demographia’s Median Multiple Index. (Median house price divided by median household income.) A further two of the twelve, Toronto, ranked 4th, and Calgary, ranked fifth equal with Perth, are both ‘seriously unaffordable’.

Most of us would expect housing affordability to be a key ingredient of livability. The list below included the eight EIU ranked cities (from top ranking Vancouver to 12th ranking Auckland) which were also surveyed for housing affordability by Demographia.

1. Vancouver – 4th least affordable of all the severely unaffordable markets with a Median Multiple Index (MMI) of 8.4
3. Melbourne – Severely unaffordable; MMI of 7.1
4. Toronto – Seriously unaffordable; MMI of 4.8
5. Perth – Severely unaffordable; MMI of 6.4
5. Calgary – Seriously unaffordable; MMI of 4.8
9. Sydney – 5th least affordable of all severely unaffordable markets; MMI of 8.3
11. Adelaide – Severely unaffordable; MMI of 7.1
12. Auckland – Severely unaffordable; MMI of 6.4.

A survey that included housing affordability, per capita income, tax rates (central and local), and average drive-time to work, would almost certainly generate quite different rankings. Perhaps what has been missing is this acknowledgement that different factors motivate different kinds of people. The urban elite is very different from the middle class in its concerns. Pundits and planners would be well-served to note these differences before using such surveys as the basis for sound public policy.

Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.