Rating the Unaffordable: The Economist and Mercer

An article by Carl Bialik in The Wall Street Journal questions the value of city livability ratings, such as lists produced by The Economist and Mercer. This issue has been raised on this site by Owen McShane.

(1) The Wall Street Journal notes a lack of transparency in ratings. In the case of The Economist and Mercer, this starts with the very definition of "city." They don't say. In the case of New York, for example, is the city Manhattan?, the city of New York or the New York metropolitan area. The difference? Manhattan has fewer than 2,000,000 residents, the city about 8,000,000 and the metropolitan area about 20,000,000. That makes a difference. The same problem exists, to differing degrees in the other "cities," whatever they are.

(2) The first principle of livability is affordability. If you cannot afford to live in a city it cannot, by definition, be affordable.

The Economist ranks Vancouver, Melbourne, Sydney, Perth, Adelaide and Auckland among its top 10 livable cities. In fact, in our 6th Annual International Housing Affordability Survey, these metropolitan areas rank among the 25 least affordable out of 272 metropolitan areas in six nations (the United States, the United Kingdom, Canada, Australia, Ireland and New Zealand). The Economist's champion, Vancouver, is most unaffordable, with Sydney second most unaffordable. Mercer's top 10 list also includes Vancouver, Auckland and Sydney.

By contrast, the three fastest growing metropolitan areas with more than 5,000,000 population in the developed world, (Atlanta, Dallas-Fort Worth and Houston) have housing that is one-half to one-third as expensive relative to incomes (using the Median Multiple: the median house price divided by the median household income) as all of the "cities" noted above in the two lists.

Purpose of the Lists: The purpose of these lists, for all their difficulties, is often missed. The Economist and Mercer do not rate livability for average people, but rather for international executives. Thus, the lists are best understood as rating cities for people with a lot of money and a big expense account. The lists may be useful if one is contemplating a move from Manhattan's Upper East Side to London's Mayfair.

Unfortunately, The Economist and Mercer lists are often treated by the press as if they rate the quality of life for average citizens, which they most surely do not.

The average Vancouverite does not live on English Bay, nor does the average Sydneysider have a view of the Harbour Bridge. Because of escalating house prices, they are far more likely to live in rental units, with the hope of home ownership having made impossibly expensive by rationing, through restrictive land use policies, of an intensity that not even OPEC would dare adopt.