The purchase price of a mid-range flat in relation to the budget available to those with an average annual income in the skilled services sector is a good indicator of the risk of a bubble in the global real estate market. In fact, a chapter of the UBS Global Real Estate Bubble Index is dedicated to the Price – Income ratio with an in-depth analysis of surveyed cities worldwide.

Over the past 10 years, the low-interest rates decreed by the central banks’ monetary choices have caused house prices to rise by an average of 60 percent compared to inflation, while real incomes and rents have only increased by around 12 percent during the same period. 

From their lowest point in 2021, mortgage rates have now more than doubled on average almost everywhere, which means that housing in the city is much less affordable than a year ago. If we want to quantify this in relation to flat space, it means that a skilled worker in the service sector can afford about one third less living space than before the pandemic. 

Add to this inflation and asset losses due to the turmoil in the financial markets, which are reducing the purchasing power of households, curbing the demand for additional living space and the demand for investment, as in many cities the costs of loans exceed buy-to-let returns.

Going into more detail in the UBS Global Real Estate Bubble Index, the city where these trends are most evident is Hong Kong, where even those earning twice the average income would struggle to buy a 60 square meter flat. Similar trends can also be seen in Paris, Tokyo, London, and Tel Aviv, where the price/income ratio multiples far exceed 10. 

In Miami, Madrid, Dubai, San Francisco, and Boston, on the other hand, housing is relatively affordable, which limits the risk of a price correction and reduces long-term appreciation.

On the other hand, with a relatively high income, buying a 60-square-meter flat is relatively feasible for residents of Los Angeles, Milan, Geneva, or Zurich.