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The housing affordability crunch
Author/s
Deniz Igan
Abstract
The pandemic and subsequent return of inflation set off the world’s worst housing affordability crisis in more than a decade. It spilled across some of the largest advanced economies and contributed to widespread anger and resentment about economic conditions.
Affordability fell in the United States, the United Kingdom, Australia, Canada, Germany, Portugal, and Switzerland. On average across countries, housing is less affordable today than during the house price bubble that preceded the global financial crisis of 2007–08, according to a newly developed dataset.
Housing affordability is a crucial yet subtle concept, especially when it comes to making comparisons among countries with very different housing markets and financing structures. My research colleagues Nina Biljanovska and Chenxu Fu and I sought to fill this gap by developing a new cross-country dataset using a mortgage-based indicator of housing affordability.
Our housing affordability index calculates the ratio of actual household income to the level of income required to qualify for a typical mortgage. This offers a more nuanced view of affordability and complements other metrics.