The Age (Melbourne) headlined a story "CBA Accused of Choosing its Facts." CBA is the Commonwealth Bank of Australia, while UBS is the Swiss investment house. Commonwealth produced a report comparing housing affordability in Australian metropolitan areas to international metropolitan areas (Australian Housing and Mortgages: CBA Mortgage Book Secure). According to The Age:
Investment forums and housing blogs were alive with talk yesterday that an 18-page presentation used by the bank had replaced unfavourable housing affordability figures with data showing housing costs were not out of step with other cities in the world.
One slide compared Australian housing affordability to several cities, citing figures from a combination of the US urban planning research house Demographia and the investment bank UBS.
The slide showed housing in Sydney and Melbourne was more affordable than cities such as San Francisco, New York and Vancouver. But it used UBS data exclusively for the Australian cities, and Demographia data for the overseas cities.
The data were not comparable. Commonwealth relied upon Median Multiple data (median house price divided by median household income) from the 6th Annual Demographia Housing Affordability Survey for international metropolitan areas. However, Commonwealth used a median/average multiple (median house price divided by average household income) calculated by UBS, the Swiss investment house, for Australian metropolitan areas. These are very different indicators.
There would have been nothing wrong with having used the median/average multiple, had it been shown for all metropolitan areas, Australian and international. However, comparing the median/average multiple to the Median Multiple is invalid. Average household incomes are routinely higher than median household incomes and the use of an average income figure inappropriately biases Australian housing affordability relative to international metropolitan areas.
For example, the UBS median/average multiple for Sydney is reported by Commonwealth to be 6.2. Commonwealth finds Sydney to be more affordable than San Francisco's, which it indicates at 7.0. However, the San Francisco figure is the Median Multiple and the comparable figure for Sydney is 9.1, making Sydney less affordable than San Francisco
In fact, had the UBS median/average multiple been used for all metropolitan areas, including the international metropolitan areas, it is likely that the gap between Australian metropolitan areas and international metropolitan areas would be of similar magnitude to that shown in the Demographia International Housing Affordability Survey.
From time to time, various interests have suggested alternate measures of housing affordability for Australia and then compared or suggested comparison to our Median Multiple data. Of course, that is invalid.
The Age article by Eric Johnston was carried in other Fairfax Media outlets such asThe Sydney Morning Herald and the Brisbane Times, and the subject has been covered by financial blogs.
Note: Author Wendell Cox of Demographia.com and Hugh Pavletich of PerformanceUrbanPlanning.com are co-authors of the Demographia International Housing Affordability Survey.
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