Michael Dalder/Reuters
Munich is at bubble risk.
- At least six cities around the world are at risk of having housing bubbles, according to UBS' 2018 Global Real Estate Bubble Index.
- There are affordability crises in many more cities because housing costs have risen faster than incomes.
- Policymakers will need to step in, but the appropriate response could be challenging to nail down.
Housing costs are rising in almost every major city in the world.
At least six are at risk of being in a bubble, defined as a persistent rise in prices to the point where properties are well above their fundamental value.
"Most households can no longer afford to buy property in the top financial centers without a substantial inheritance," UBS said in its 2018 Global Real Estate Bubble Index.
"Rents continue to consume a significant share of income."
Policymakers will be required to intervene in affordability crises, by granting subsidies to first-time homebuyers, for example.
But other policies could be more detrimental, UBS said. If governments impose heavy property taxes in expensive cities, they could chase away foreign investors. They could also cause prices to plummet too quickly, hurting existing homeowners who want to sell.
Bubbles are often hard to identify until they burst, but UBS has handpicked six cities that are at "bubble risk." Only two of the major cities they examined - Boston and Singapore - were considered "fairly valued."
Here's the list of cities on bubble watch in ascending order: