Buying a home is one of the biggest financial and personal decisions most people will make in their lives. And “affordability” is only one of the factors you should look at. In a previous article, we discussed the issue of deciding whether you can afford to buy a home in Japan and whether you should rent or buy.

Today we look at home affordability in Japan versus other countries.

Affordability Based on Income Multiple for Japan

One way to look at home affordability is based on “income multiple”. This measure is often used to calculate home affordability based on average income as compared to average home prices. It is not a ratio used by lenders evaluating a loan application! However, it gives a broad idea of how affordable a home is for someone earning the average income.

The income multiple is the ratio of the average price of a home to the average annual income. The lower the multiple, the more affordable it is for the average income-earner to buy a home.

Tokyo Kantei, a Tokyo-based real estate market research firm, calculated Japan’s nationwide 2019 income multiple for a newly constructed apartment as 8.19. This means the average price of a newly apartment in Japan was on average 8.19 times the average national income. The 2019 national income multiple for Japan increased 0.1 points compared to 2018. This was based on assuming that average annual salary in 2019 was ¥4,580,000 (about $43,800) and the average price of a new 70-sqm apartment was ¥37,520,000 (about $359,000).

A Median Multiple Above 4.1 Means Housing is “Seriously Unaffordable”

The Median Multiple has been recommended by the World Bank and the United Nations to compare affordability in urban housing markets across countries.

It is calculated by dividing the median house price in a given market by gross annual median household income.

Note that this methodology differs from Tokyo Kantei’s, which uses average prices and incomes, but it is still instructive to compare the two multiples to get a general idea of just how affordable or unaffordable houses are in Japan.

According to the Demographia International Housing Affordability Survey,

— A Median Multiple of 5.1 and over indicates a market that is “severely unaffordable”

— A Median Multiple of 4.1 to 5.0 indicates a market that is “seriously unaffordable”

— A Median Multiple of 3.1 to 4.0 indicates a market that is “moderately unaffordable”

— A Median Multiple of 3.0 and under indicate a market that is “affordable”

Based on these indices, on a nationwide basis, it is “seriously unaffordable (8.19) for the average income earner to buy a home in Japan.

Home affordability in other countries based on Median Multiple

How does home affordability in Japan compare to other countries?

In the “16th Annual Demographia International Housing Affordability Survey: 2020 Rating Middle-Income Housing Affordability” which was based on data from the 3rd quarter of 2019, middle-income housing affordable was studied in eight countries: Australia, Canada, China (Hong Kong), Ireland, New Zealand, Singapore, the United Kingdom, and the United States.

The authors looked at the Median Multiple for 92 major markets across these eight countries. The findings are summarized in this table:

The study concluded that:

• The most affordable major housing markets in 2019 were in the United States, with the median market having a “moderately unaffordable” Median Multiple of 3.9
• Canada was next most affordable with a median market of 4.4
• Tied for third were Singapore and the United Kingdom at 4.6
• Ireland had a median multiple of 4.7
• The median markets of Australia (6.9), New Zealand (8.6) and China (20.8) were “severely unaffordable”

Looking at affordable individual markets within countries:

• The ten “affordable” markets were all located in the United States. These affordable major housing markets include Rochester, with a Median Multiple of 2.5, followed by Oklahoma City and Cleveland (2.7), Buffalo, Cincinnati, Pittsburgh and St. Louis (2.8), Indianapolis and Hartford (2.9) and Tulsa (3.0).

Least affordable individual markets:

• Hong Kong was the least affordable, with a Median Multiple of 20.8, modestly improved from 20.9 last year. Vancouver was the second least affordable major housing market, with a Median Multiple of 11.9. Sydney ranked third least affordable, at 11.0, followed by Melbourne, at 9.5 and Los Angeles, at 9.0. Toronto and Auckland were tied for sixth least affordable, at a Median Multiple of 8.6. San Jose had a Median Multiple of 8.5 and San Francisco 8.4. London (Greater London Authority) has a Median Multiple of 8.2 and was the 10th least affordable major market.

The Tokyo Kantei report did not calculate the income multiple for individual markets, and it is not exactly valid to compare Japan’s national income multiple of 8.19 to individual markets in other countries.

However, the Tokyo Kantei report does calculate the multiple by prefecture.

Income Multiple in Japan by prefecture

In 2019, the five least affordable prefectures to buy a newly constructed apartment were (income multiple in parentheses).

1. Tokyo (13.26)
2. Kyoto (10.82)
3. Kanagawa (10.78)
4. Fukushima (10.66)
5. Osaka (9.07)

Please see the charts below for the breakdown by prefecture:

---

Sources: Tokyo Kantei, 2019 Income multiple report for newly constructed condominiums report (PDF in Japanese), 16th Annual Demographia International Housing Affordability Survey (2019: 3rd Quarter) (PDF in English)

Lead photo: Village in Japan via iStock