Noting that house prices have been growing three times faster than incomes in the last two decades, OECD found that “housing has been the main driver of rising middle-class expenditure.” Moreover, OECD noted that the largest housing cost increases are in home ownership, not rents.
Housing largely determines the cost of living. For example, in the United States, more than 85% of the higher cost of living in the most expensive US metropolitan areas is in housing. Fundamentally, housing affordability is not about house prices; it is about house prices in relation to household incomes. Housing affordability cannot be assessed without metrics that include both prices and incomes.
In recent years, the world’s urban population has exceeded the rural population for the first time. Yet to read some reports, one could get the impression that the typical urban resident lives in one of the largest cities, like Manila, Shanghai, London, or Seoul. In fact, the megacities have only 8.4 percent of the world’s population. Nearly twice that number live in urban areas with fewer than 100,000 residents (Figure 2). In the US, any settlement with a population of 2,500 is considered an urban area.