Through the roof

By D.H., S.N. and P.J.W.

How much city-dwellers overpay for housing

EVERY urbanite grumbles about the price of housing. But some have more cause to complain than others. The price that people pay above what might be considered reasonable, relative to income, differs vastly. The data confirm what cosmocrats know: New York, London and Beijing are heart-palpitatingly expensive. Perth, Bangkok and Rome are more moderately priced.

The analysis comes from a new report by the McKinsey Global Institute, an internal think tank of the consultancy. It has calculated the global housing affordability gap—that is, the difference between what households with 80% or less of the local median income should pay (set at 30% of income) and what they are actually paying. The gap, which suggests excessive housing costs, amounts to a combined $650 billion per year, or 1% of global GDP. More than two-thirds of this sum stems from 100 large cities (see chart; roll over bubbles to see data, click on key to remove regions, crop portion to zoom in).

In some of the least affordable cities, such as Lagos and Mumbai, the affordability gap exceeds 10% of local GDP, meaning that people overstretch their salaries to pay for housing—and forgo other things, be it savings or basic needs. The lack of affordable housing, the report notes, leads to social problems including poorer health, lower school performance and higher unemployment.

McKinsey estimates that 330m households occupy unsafe and inadequate housing, or are financially stretched by housing costs. About 60% of substandard housing is concentrated in just ten countries, led by China (62m substandard homes), India (28m) and Nigeria (11m). And the total number may rise to 440m households by 2025, which would mean 1.6 billion individuals, or one in five people in the world.