As if Metro Manila needed anything to make it less attractive, a recent study by UK-based mortgage company Online Mortgage Advisor has found that in terms of housing costs, the city is one of the least affordable places to live in Asia and among the most expensive on the planet. While this is probably good news for the real estate business here, the implications for everyone else are rather grim.
The study involved 352 cities worldwide and compared the annual average salary to the average residential property price per square meter, and the average annual rental for a one-bedroom apartment.
Using those yardsticks, Online Mortgage Advisor found that Manila ranks as the second most expensive city in Asia for residential property buyers, with the average annual salary only being enough to afford 1.5 square meters; the worst was Tehran, Iran, where a typical worker can only afford 1 sqm. Manila also ranked second worst in terms of the change in affordability from five years ago; in 2016, an average annual salary could purchase 4.2 sqm. Again, it was a city in Iran, this time Mashhad, that outdid Manila in terms of worsening affordability; the purchasing power in that city declined from 4.6 sqm in 2016 to 1.8 sqm in 2020.
For renters, Manila is the third most expensive city in Asia; Tehran and Mashhad are one and two, respectively, which kind of makes one wonder just exactly what the hell is going on in Iran. The average annual rental for a one-bedroom apartment in Manila now costs 154 percent of the average annual salary; in 2016, it was 90 percent. Globally, Manila ranks as the fourth most expensive for renters; Lagos, Nigeria, where it now costs 439 percent of the average annual salary to afford a year's rent for an apartment, tops the list.
If we apply the "50-30-20" rule of personal finance (i.e., 50 percent for housing and living expenses, 30 percent for discretionary spending, and 20 percent for other long-term debt or savings and investment) and assume that housing alone is worth 40 percent of annual income, then an "average" worker in Metro Manila would have to work for 40 years to be able to pay for a modest (say, 24 sqm) one-bedroom dwelling. An average worker renting the same housing will have to work for 46 months - almost four years - to afford one year's worth of rent.
Obviously, this is not a sustainable situation, and it has two broad implications for the economy. First, from a social perspective, steadily increasing housing costs are a key driver of economic inequality. The more one spends on basic needs, the less one contributes to and consequently benefits from the broader economy. Second, housing costs are a source of persistent inflationary pressure, and one that is virtually impossible to control except through drastic measures - for instance, different modes of "rent control" - that policymakers are rightfully wary of implementing because experience has shown they have minimal positive impact.
Although the recent study may have provided a clearer quantification of the problem, it is not really a revelation. Analysts and policymakers have long been aware that there is an enormous economic gap due to housing costs, which is why "decentralization" away from Metro Manila has been a popular political buzzword for years.