This study aims to examine drivers of housing affordability at the global level, focusing on the effects of financialisation and inequality.
A panel data of 37 countries covering various regions around the world, was compiled for the period 2010–2022. The data are fitted into dynamic panel data models. Affordability was measured by the median house price to median income ratio published by Numbeo, a cost-of-living database.
They key findings are as follows. First, more inequality reduced affordability. This result is robust across all models. Second, financialisation tended to reduce affordability, but this result is not particularly robust as the statistical significance was present in only 50% of the models. Third, the relatively weaker effect of financialisation on affordability could be explained by the presence of threshold effects. Particularly, financialisation worsened affordability in countries having above average financialisation, whereas the effects of financialisation on affordability were positive in countries that are less financialised. Without capturing threshold effects, these two opposing forces tended to cancel each other out leading to a relatively weak financialisation effect in aggregate. Finally, the evidence of threshold effects for inequality is less conclusive.
Restrictions of channels through which financialisation operates and addressing worsening inequality are necessary to ensure house prices do not rise too rapidly.
The debates on housing affordability mostly occur in the context of broad literature reviews and country-specific analyses using city-level data. However, panel/cross-country analyses of this issue are a rarer find. This study attempts to remedy this gap in the literature.
