The cost of living is made up of lots of life’s essentials. It includes the food we eat, transport and the energy we use to heat and power our homes. But it’s our homes themselves that all too often account for an increasingly large proportion of the cost of living.

In those cities where housing costs have increased the most, it is also likely there will be a shortage of housing – particularly when it comes to the availability of affordable homes for middle- and lower-income people.

For people working in ancillary occupations as well as in many public sector roles such as nursing or the emergency services, living in the cities where they work is a struggle. It’s a struggle that has led many to move to the outer suburbs or even to nearby satellite towns. But in some cases, people have resorted to more creative housing solutions.

Image: UBS Group

With a population of around 4.8 million people, New Zealand has seen a rapid increase in the sales of alternative housing.

Portable cabins, of the kind you might see as temporary offices on construction sites, are being bought as houses for people who can’t get on the home-ownership ladder. A two-bedroomed unit, measuring 10.4m x 3m, and containing a kitchen and ensuite bathroom is priced at around $43,500. Cheaper units priced at around $13,000 offer more basic accommodation.

Although New Zealand has an average population density of 18 people per square kilometre, in some urban areas it’s a different story – 18,000 people per square kilometre in central Auckland, for example. Shipping containers, tents and even cars have all become makeshift homes as the country struggles to expand its housing stock.

Prime Minister Jacinda Ardern’s Labour government launched a major policy initiative to build 100,000 new affordable homes in 10 years. However, the KiwiBuild scheme looks certain to miss many of its early targets; the original aim of 1,000 homes built by July 2019 was slashed to 300, and as of 12 February 2019, only 62 had actually been completed.

The New Zealand situation illustrates how even in a country with a low average population density and a shortage of housing in high-population centres can have destabilizing effects. Elsewhere this has tended to manifest in house price hotspots rather than an increase in people living in micro-properties.

Hong Kong is the world’s most expensive place to buy property. Being an island, there are clear constraints on building more homes. According to Bloomberg’s number crunchers, a typical family home in central Hong Kong, with around 93m2 floorspace, incurs an average monthly mortgage repayment of nearly $8,000.

San Francisco and New York are also among the most expensive places to live. The monthly rent on a three-bed, downtown apartment is likely to set you back by at least $6,300 and $5,700 respectively. Sacrificing that all-important location could bring those costs down to around $4,200 (SF) and $3,300 (NYC) per month.

But according to UBS Group, house prices are now so inflated in some parts of the world that they represent a potential bubble, where things are over-priced and there’s likely to be a sudden correction. Hong Kong tops that list, too, according to UBS.

The six cities most likely to be in the throes of a house price bubble are: Hong Kong, Munich, Toronto, Vancouver, London and Amsterdam. While house prices in many of the world’s major cities have increased by 35% on average over the last five years, Munich, San Francisco and Vancouver have seen price growth of twice that rate.