Vancouver’s home prices rated ‘most unaffordable’

[CN Tower]

http://www.vancouversun.com/business/Vancouver+severely+unaffordable+study/2482683/story.html

"In Toronto, the median multiple moved up to 5.2 from 4.8, “which put it into the “severely unaffordable†category for the first time."

In other hot over the presses news, smoking is bad for you, Canada is discovered to be a cold country and puppies are cute.




Vancouver’s home prices rated ‘most unaffordable’


By Brian Morton, Vancouver SunJanuary 25, 2010 6:22 PMComments (41)

VANCOUVER — Vancouver is the least affordable housing market in nearly 300 metropolitan markets worldwide, according to a study released Monday.

“Vancouver is the most unaffordable of the 28 housing markets measured in Canada and the most unaffordable of the 272 metropolitan markets ranked in Ireland, the U.K., New Zealand, Australia, the U.S. and Canada,†the Frontier Centre for Public Policy concluded in its sixth annual Demographia International Housing Affordability Survey.

“[In] Vancouver the median sale value was $540,900 and the median household income was $58,200, giving a Median Multiple of 9.3 — defined as ‘severely unaffordable.’â€

Frontier senior policy analyst and Canadian representative David Seymour said in an interview that the Vancouver results weren’t unexpected.

“It wasn’t a great surprise. [Vancouver] was at the top of the list last year as well, or on the bottom of the list, depending on your perspective.â€

Report authors Wendell Cox and Hugh Pavletich, who based their findings on 2009 third-quarter data, said that to be affordable, housing prices have to be equivalent to approximately three years’ income.

In 2009, Canada as a whole became slightly less affordable. The Median Multiple of Canadian metropolitan markets was 3.7, up from 3.5 in 2008.

The survey uses what’s called the median multiple method of measuring housing affordability. This takes the median residential house sale value and divides it by the median annual gross household income.

Of Vancouver’s median multiple results of 9.3, the authors said: “The recent increases to almost 10 years’ income are ... unprecedented in modern history.â€

According to the report, the affordability rating categories are as follows: severely unaffordable 5.1 and over; seriously unaffordable 4.1 to 5.0; moderately unaffordable 3.1 to 4.0; and affordable 3.0 or less.

Other large Canadian cities fared better than Vancouver, although affordability remains a problem there as well.

In Toronto, the median multiple moved up to 5.2 from 4.8, “which put it into the “severely unaffordable†category for the first time.

Calgary and Edmonton were “fractionally more affordable for the first time,†while Montreal at 4.9 is approaching ‘severely unaffordable’ for the first time.

In B.C., Victoria, Abbotsford and Kelowna were also in the ranks of the severely unaffordable.

According to the report, the survey shows that “jurisdictions which adopt prescriptive planning policies, often called smart growth, have less affordable housing.â€

“Prescriptive land use regulation policies [principally compact development and urban consolidation] have virtually destroyed housing affordability in many markets,†Cox and Pavletich said.

Seymour said one reason Vancouver leads the list in unaffordability is that it’s largely hemmed in by the mountains and the ocean. “Vancouver has a shortage of land.â€

He added that the Fraser Valley still has plenty of land to develop but that prices are kept high because there’s “a great level of restriction [on development].†“There is clear evidence that the level of land-use regulation is a dominant factor in the level of housing affordability.â€

Tsur Somerville, director of the Centre for Urban Economics and Real Estate at the University of B.C.’s Sauder School of Business, said the Frontier study contains little that’s new. “It says Vancouver is unaffordable, but we knew that already.â€

He said the survey compares median home prices, but doesn’t differentiate between types of housing. In London, England, for example, a typical home is a small row home, while in Vancouver that’s not the case.

“It doesn’t compare apples to apples. It compares apples to oranges. Also, the U.K. and Ireland had a huge drop [in prices] during the recession. In comparison, we recovered more quickly. And large urban centres with limited land and a growing population are expensive.â€

bmorton@vancouversun.com

• Metropolitan Market Median Multiple (2009 / 2008 / change):

Calgary 4.6/ 4.8/ -0.2

Edmonton 4.1/ 4.2/ -0.1

Hamilton 4.2/ 4/ 0.2

Kelowna 5.9/ 6.8/ -0.9

Montreal 4.9/ 4.6/ 0.3

Ottawa-Gatineau 3.8/ 3.4/ 0.4

Quebec 3.6/ 3.4/ 0.2

Regina 3.5/ 3.5/ 0

Saint John, N.B. 2.8/ 2.7/ 0.1

Saskatoon 4.4/ 4.6/ -0.2

St. John’s 3.1/ 2.8/ 0.3

Toronto 5.2/ 4.8/ 0.4

Vancouver 9.3/ 8.4/ 0.9

Victoria 7.9/ 7.4/ 0.5

Windsor 2.2/ 2.3/ -0.1

Winnipeg 3.3/ 3/ 0.3

National Median Multiple 3.7 / 3.5 / 0.2

Source: Frontier Centre for Public Policy
© Copyright (c) Canwest News Service

 

[urbandreamer]

Post Olympic Crash, eh?

 

[Eug]

Saskatoon is 4.4?

 

[UrbanVigor]

The only way I see the multiples moving down is by way of median income increasing over time. In other words, catching up.

I have no clue whether we're in a housing bubble that's about to burst or not. As far as I know, the only way it could bust is if interest rates increased sharply after many have purchased homes on currently cheap money. But I think we can expect interest rates to increase gradually. Presumably incomes will increase gradually too. So even if many purchased too much home, they will still get by. Just getting by isn't necessarily ideal, but it avoids foreclosure.

With the prediction of housing prices stabilizing beginning in 2010 and slow but steady economic recovery, might we find that affordability increases (affordability multiples decrease) over the next 5-10 years without a decrease in housing prices (rather steady increases as opposed to recent history)?

 

[daveto]

The only way I see the multiples moving down is by way of median income increasing over time. In other words, catching up.

I have no clue whether we're in a housing bubble that's about to burst or not. As far as I know, the only way it could bust is if interest rates increased sharply after many have purchased homes on currently cheap money. But I think we can expect interest rates to increase gradually. Presumably incomes will increase gradually too. So even if many purchased too much home, they will still get by. Just getting by isn't necessarily ideal, but it avoids foreclosure.

With the prediction of housing prices stabilizing beginning in 2010 and slow but steady economic recovery, might we find that affordability increases (affordability multiples decrease) over the next 5-10 years without a decrease in housing prices (rather steady increases as opposed to recent history)?

UV, your analysis presumes that the markets react rationally. Leaving aside the question of whether Canada's prices are overpcies, consider what happened in the US. Not only did prices inflate irrationally, but the bubble subsequently burst without higher interest rates. As such, there is no reason to presume that higher rates are a prerequisite for decrease housing prices in Canada.

Also, I'm not sure I understand the math underlying your second paragraph. If housing prices increase only at the rate of inflation, than the only was the income-to-price ratio decreases is if inflation adjusted incomes increase. For example, to move Toronto's 5.2 ratio to 4, we would need to see incomes increase 30% (!!). Considering that inflation adjusted incomes have been virtually flat for the past 30 years, I think even the greatest optimist would agreee it is unlikely we'll see a 30%real increase in incomes over the next 10 years.

 

[Red Mosquito]

Dont believe anything written by Wendell Cox.

 

[junctionist]

Saskatoon is 4.4?

It's also surprising that Hamilton is apparently more expensive than Edmonton.

 

[UrbanVigor]

UV, your analysis presumes that the markets react rationally. Leaving aside the question of whether Canada's prices are overpcies, consider what happened in the US. Not only did prices inflate irrationally, but the bubble subsequently burst without higher interest rates. As such, there is no reason to presume that higher rates are a prerequisite for decrease housing prices in Canada.

I don't think housing prices will decrease in Canada. I think we'll see steady increases in housing prices at a more steady pace compared to what we've seen in recent history all while interest rates steadily increase as well. There are different things that have been at play in the US compared to Canada and we need to be careful comparing them. They are two different environments.

Also, I'm not sure I understand the math underlying your second paragraph. If housing prices increase only at the rate of inflation, than the only was the income-to-price ratio decreases is if inflation adjusted incomes increase. For example, to move Toronto's 5.2 ratio to 4, we would need to see incomes increase 30% (!!). Considering that inflation adjusted incomes have been virtually flat for the past 30 years, I think even the greatest optimist would agreee it is unlikely we'll see a 30%real increase in incomes over the next 10 years.

Like I said, the only way the affordability multiple could move down is if income increased and since it's possible there won't be some big correction like in the US, but rather more stable and steady increases then that's the only way. Not assuming that incomes will in fact outpace housing prices. What could very well be is that major Canadian cities will always be expensive. There are cities in the world that are always considered very expensive to live in. Toronto and Vancouver may very well have joined the ranks of New York and London for good.

 

[daveto]

Like I said, the only way the affordability multiple could move down is if income increased and since it's possible there won't be some big correction like in the US, but rather more stable and steady increases then that's the only way. Not assuming that incomes will in fact outpace housing prices.

What could very well be is that major Canadian cities will always be expensive. There are cities in the world that are always considered very expensive to live in. Toronto and Vancouver may very well have joined the ranks of New York and London for good.

Well now I'm very confused. If incomes don't outpace housing prices, then how can the multiple of income-to-housing prices move down?

With respect to Toronto and Vanvouver joining the ranks of New York and London...well, I will withhold comment. But I'll point out that Vancouver's multiple at 9.3 is 30% higher than New York or London.

 

[UrbanVigor]

Well now I'm very confused. If incomes don't outpace housing prices, then how can the multiple of income-to-housing prices move down?

Dave, you're thinking too much. Simply read my first post. That is the only way I see the multiple going down if housing prices aren't going to go down. I'm not saying it's going to or not. This thread is for general discussion and food for thought on the matter.

With respect to Toronto and Vanvouver joining the ranks of New York and London...well, I will withhold comment. But I'll point out that Vancouver's multiple at 9.3 is 30% higher than New York or London.

You'd have to withhold comment on whether T.O. and Vancouver are considered expensive to live in as New York and London are until time passes and we see that Toronto and Vancouver become consistently known for being one of the most expensive cities in the world to live. Since Vancouver is already significantly higher then it's likely that a few years down the road that will be the case.

 

[CN Tower]

You'd have to withhold comment on whether T.O. and Vancouver are considered expensive to live in as New York and London are until time passes and we see that Toronto and Vancouver become consistently known for being one of the most expensive cities in the world to live. Since Vancouver is already significantly higher then it's likely that a few years down the road that will be the case.

Please, are you a realtor? Spend just a few hours in midtown manhattan on an average afternoon and you will laugh at yourself for even beginning to compare Toronto to New York City. NY is centuries old and it shows. It's density will never be matched by any Canadian or America city in our lifetimes and probably not our children's. The amount of activity in that town makes Toronto look like Thunder Bay. People live there because it is presents limitless opportunities for reward. How many Toronto bankers took home $20,000,000 bonuses in 2009 compared to New York? Did Jay-Z pick up a penthouse on Bloor? Oh right, we have hometown Russian billionaires who supposedly buy units in their own condos for $20,000,000 to make headlines. No chance! There is no comparing the international appeal or the money making possibilities. Not now even after the credit crisis. Plenty of money in Toronto and lots of great things but it's on a different level. That doesn't make it better or worse than New York, just different and echelons cheaper.

Vancouver is like the Joker from The Dark Knight. A entity that is illogical and perverse. It can stay that way for another 10 months or another 10 years, no one knows. But there is no sound basis for it other than speculation and safe haven.

 

[Eug]

I too think Vancouver is irrationally overpriced, but I wouldn't underestimate Vancouver's draw either. It seems like everyone and their dog wants to live there. It really is very, very popular for people who actually want to live in their purchased homes, not just condo investors.

 

[UrbanVigor]

Please, are you a realtor? Spend just a few hours in midtown manhattan on an average afternoon and you will laugh at yourself for even beginning to compare Toronto to New York City. NY is centuries old and it shows. It's density will never be matched by any Canadian or America city in our lifetimes and probably not our children's. The amount of activity in that town makes Toronto look like Thunder Bay. People live there because it is presents limitless opportunities for reward. How many Toronto bankers took home $20,000,000 bonuses in 2009 compared to New York? Did Jay-Z pick up a penthouse on Bloor? Oh right, we have hometown Russian billionaires who supposedly buy units in their own condos for $20,000,000 to make headlines. No chance! There is no comparing the international appeal or the money making possibilities. Not now even after the credit crisis. Plenty of money in Toronto and lots of great things but it's on a different level. That doesn't make it better or worse than New York, just different and echelons cheaper.

Wow... you typed a lot and it had nothing to do with the topic. Not once did I compare Toronto to New York. We're talking about housing affordability ratios here. It's strictly math. New York has always had a reputation for being expensive to live in. Toronto and Vancouver have not. Now Vancouver is less affordable than New York. Should that be the case over time then Vancouver will have that enduring reputation of being expensive to live in whether Jay-Z picks up a penthouse north of the border or not.

Just talking about affordability on a worldwide basis. Not rubbing cities up against each other and declaring which has more going for it.

As for any sound basis why Vancouver's become so unaffordable, read the article in the link of the original post.

 

[urbandreamer]

^Vancouver is very affordable if you live outside of the downtown core, or even in a West End apartment building!

Take out the newer condos, and Vancouver really is quite a 3rd rate city! (I still love the setting though.)

You can rent a nice 1 bedroom apartment within a 10 minute drive of downtown for under $1000/month. (Main and Broadway area for example. Or Granville and Broadway.)

 

[daveto]

Not once did I compare Toronto to New York.

Toronto and Vancouver may very well have joined the ranks of New York and London for good.

UV, clear writing is difficult in any context. Especially in an internet forum. But I think we all have to accept responsibility if our comments are ambiguously worded, and are misunderstood by the readers.

Consider further the following two comments,

The only way I see the multiples moving down is by way of median income increasing over time. In other words, catching up.

That is the only way I see the multiple going down if housing prices aren't going to go down. I'm not saying it's going to or not.

When you say "I see" it suggests this is something which you personally believe, and is different from the simple logical mathematics of the situation. I realize now that you were not expressing an opinion, but simply stating the facts of the math. I regret misunderstanding your intent, but I think your post was ambiguously written.