1. Economics
July 27, 2016

Housing costs are strangling the economy – but not in the places you think

By Jack May

Living in a city can be an expensive business. In London, the average rent is now over half the average income; in Hong Kong, it’s almost two-thirds. Even cities in more developing countries like Brazil, or, say, France, incur huge costs, with average rents swallowing around a third of average incomes.

Basic economics suggests this will inevitably have an impact on the broader economy. The more money you spend on rent, after all, the less you have available to spend on new clothes, going on holiday, buying birthday presents, or, you know, eating.

If you’re running a business (#startup #entrepreneur #newyearnewbusiness), this affects you, too. If your staff can’t afford housing in the city where you’re based, then they can’t actually work for you. In other words, higher housing costs push up the salary bill, and act as straitjacket on job creation.
The infographic above, produced by our friends Statista, a German online data portal, shows what housing costs are doing to the economies of selected cities around the world. It uses figures from a Global Cities Business Alliance (GCBA) report, which calculated how many potential new jobs could be created in 14 cities around the world if only housing were more affordable.

Beijing comes out on top, as, according to the GCBA figures, housing costs there are higher than the average income. (Yes, actually higher.) That suggests there’d be gargantuan economic benefits if housing were more affordable, so nearly half a million jobs would be hypothetically up for grabs.

Mexico City comes a close second: although housing costs aren’t that steep as a gross figure, when considered alongside to the low average income of the city’s residents, they come out looking pretty unappealing. Prices are lower in Sao Paulo – but housing costs there are growing at such a rate that there would be a high pay-off if they didn’t.

In their study, GCBA were speculating about what might be possible if the increase in housing costs in all of these cities had been just 10 per cent between 2010 and 2015. That’s clearly a significant enough reduction from what actually happened in these 14 cities over that period to make a difference.

But i’s still a huge increase. To put it into context, general inflation in the US (which obviously covers New York, San Francisco, Chicago, and Boston), averaged 1.5 per cent during that period. Levels in China average out at 2.8 per cent, whilst Mexico manages 3.7 per cent.

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Put simply, even an increase of 10 per cent still amounts to a significant increase in living costs. If housing costs rose, say, in line with inflation, the number of jobs on offer might be even bigger. The best way to do that?

Yep, you guessed it. Build more bloody houses.

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