UBS Global Real Estate Bubble Index: Amsterdam at risk

According to the UBS Global Real Estate Bubble Index, in 2017, Amsterdam joined the list of cities at risk of a housing market bubble for the first time. A real estate bubble occurs when housing is substantially mispriced, and said pricing is sustained.

UBS Global Real Estate Bubble Index

In order to determine whether a city is at risk of a housing bubble, UBS takes the weighted average of five standardised city factors to create an index score. These factors are as follows:

• Price to income
• Price to rent
• Change in mortgage to GDP ratio
• Change in construction to GDP ratio
• Relative price of city to country

Based on the their scores, cities can fall into one of five categories. A score of less than -1,5 results in the real estate of a city being classed as “depressed”. If a city scores -1,5 to -0,5 the housing market fall into the “undervalued” category.

A “fair valued” classification is reached when a score of -0,5 to 0,5 is obtained. At 0,5 to 1,5, a city’s accommodation is overvalued, and any index score of above 1,5 puts a city at risk of a housing bubble.

The Amsterdam housing bubble

Amsterdam has joined seven other cities at risk of a housing bubble. These cities are, in order of bubble risk, Toronto, Stockholm, Munich, Vancouver, Sydney, London and Hong Kong. Amsterdam is the 8th and final city on the list with a score indicating the risk of a housing bubble. Last year, Amsterdam was only categorised as overvalued.

In Amsterdam, the fear of missing out has caused people to pay much too much for a house and according to UBS, real prices have risen by 30 percent since 2015, and more than 10 percent in the last year alone. A 10 percent increase in annual real estate prices means the doubling of house prices every seven years. 

The sharp decoupling of the housing market in the city from the weak countrywide housing market is also apparent in the Dutch capital. However, despite the rising housing prices, the downside risk is limited, as income and rental growth have followed the same trend as price growth since 2008.

Of the European cities assessed in the UBS Global Real Estate Bubble Index, Milan offers the best value in terms of housing. There, you would only have to work 5,7 years before you could afford a 60m2 flat.

Take a look at the UBS Global Real Estate Bubble Index for more figures.