Blog by Evon Mayer

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Affordability Survey for Vancouver

 

More to Affordability than Meets the Eye


It’s no secret that Vancouver has the highest home prices in the country. At the beginning of the year, the composite Multiple Listing Service® (MLS®) Benchmark Price was $603,000, 25 per cent higher than Toronto and 45 per cent higher than Victoria. I have little doubt that Vancouver will maintain its top five ranking in Demographia’s Inter­national Housing Affordability Survey

this year. However, before we lament Vancouver’s unenviable position on this frequently reported list, it might be useful to do some scratching just below the surface.

The ratio of home prices to household income is a commonly used measure to assess relative housing affordability between cities. Unfortunately, it is a very poor indicator in and of itself. It doesn’t account for variations in interest rates between countries. This can distort relative affordability as lower home prices can mask higher carrying costs. It also ignores the level of diversity of a city’s housing stock, where a median or average home price doesn’t tell us much about the cost of housing in the least expensive twentieth percentile.

Demographia suggests that housing is affordable up until the cost exceeds three times household income and is severely unaffordable when housing costs are in excess of five times household income. Under this rational, the median home price in Vancouver would have to fall below $200,000 to be affordable. Yet homes are selling at 9.5 times income in Vancouver because income and wealth are two different things. You may be surprised to learn that the average home in Shaugh­nessy is 24 times the income of a typical family living there. Perhaps most telling is the fact that the least affordable ranked cities also tend to be the most liveable, have strong economies and the best infrastructure. They also tend to be global trade and transportation gateways. These so-called unaffordable cities attract many migrants and have growing populations. Cities with the lowest ratio of home prices to household income don’t. The most affordable cities according to this criterion are places like Detroit and Flint Michigan.

BCREA Chief Economist

Cameron Muir