Price to Income ratioOne important way to measure affordable housing is Price to Income ratio - the number of years of average income necessary to buy a median value home. This value differs in each country: while in US the typical median home cost 2.6 times as much as the median annual income, in Australia a value below 4 is considered affordable.
Estonian Price to Income ratio
|Estonian Price to Income ratio|
Although this seems reasonable, Estonia has one particularity: half of GDP and population is located in the capital region. This can be seen in the average gross wages per region where the income of Valga (lowest income) county employees accounts for 74% of the Harju (highest income) county.
Tallinn Price to Income ratioTo calculate an estimated Tallinn Price to Income ratio, assuming the same 50m² flat and using average gross wages and average price per square meter for 2010, 2011 and 2012 in Tallinn:
|Tallinn Price to Income ratio|
The Price to Income ratio implies that housing is expensive in Estonia, particularly in Tallinn, and is getting more expensive every year, as Estonian dwelling prices increased 20% since 2010.
Big PictureBefore we rush to conclusions we should consider the European Housing statistics, that overcrowding and affordability is a pressing issue in Europe, and that Estonia had the largest decrease in overcrowding rate over the past years. It may be that Estonia is just paying the price of a much needed housing growth?
For a deeper analysis, see "Before and after the boom: changes in the Estonian housing market" Doctoral thesis by Angelika Kallakmaa-Kapsta defended on April 4, 2013 at the Tallinn University of Technology:
This study investigates housing market developments from three main aspects – marketSo, what do you think: Would you still buy a house in Estonia? Did you find any mistake in the calculations? Share it in the comments!
analysis, housing affordability, and quality of housing. (...) If a person with an average monthly income cannot afford to pay for an average home (which in the Estonian case is a flat) there is an affordability problem.