“Land prices are high … higher than anything would warrant … [Workers] cannot afford to pay at the rate demanded for these tiny outside lots. The same thing was said here 20 years ago… repeated 10 years ago and five years ago, and our children and our children’s children will hear the same tale … decades hence.”
This much is true in 2012: housing in Vancouver isn’t cheap. But if this 1911 quote by R.J. McDougal is any indication of the reality of Vancouver real estate prices a century ago, Vancouver housing has never been cheap. The media continue to hammer this point home, with Vancouver labelled as the most, second-most or third-most unaffordable housing market in the world depending on who you ask or how you decide to measure affordability. And therein lies the real problem: a giant leap is made by equating expensive real estate with a lack of affordability without considering the range of drivers to changing property values and our ability to pay for them. While ac ademic to some, it is a vital distinction to make when discussing issues of housing affordability, which households face real and acute affordability challenges and what can (and should) be done about it. To that end, here is what we know (and don’t know) about affordability-related issues in Vancouver.
Fact 1: Vancouver house prices are higher than almost anywhere else in Canada. And why wouldn’t they be? There is a wide range of reasons for this, including the double-impact of our local topography, with mountains and ocean constraining our ability to increase housing supply while simultaneously making this one of the most desirable places to live in Canada. Add in the agricultural land reserve, local policies that restrict certain types of residential development, and the fact that Lower Mainland is Canada’s Pacific Gateway at a time of rapidly increasing trade with Asia, and you have a recipe for expensive real estate.
Fact 2: While homes in Vancouver are expensive, we have at best a weak understanding of the factors that drive residential real estate prices. It is common to consider regional housing prices relative to incomes, with the increasing divergence between these variables providing clear evidence, to some, that there is a housing “bubble” in Vancouver. B.C.-wide benchmark house prices have risen by almost 150% over the past decade, while weekly wages rose by only 30%. At first glance this would appear to be an untenable relationship for the whole province. But the problem with this overly simplistic correlational analysis is that it ignores all of the other factors that shape local house prices. This is particularly relevant in the Vancouver region, where two-thirds of home buyers last year were previous owners. With most homeowners having enjoyed substantial equity gains over the past decade while also paying off some of their mortgage principal and benefiting from falling mortgage rates, the “equity effect” can’t be ignored. By our estimates, mortgage-free homeowners in this region between the ages of 55 and 74 are sitting on around $88 billion in mortgage free-equity in their primary residences. The potential impact this has on prices as the baby boomers and empty-nesters buy new homes for themselves, help buy first homes for their kids or invest in properties to add to the rental stock would appear to be huge.
Fact 3: We need to gather more and better information on our local housing market, what influences it and what we mean when we talk about “housing affordability.” Further to the latter point, this includes focusing discussions on those most in need rather than on the early career couple wanting to live on the west side of Vancouver.
The Vancouver mayor’s housing affordability task force, which is investigating issues of affordability for low- to middle-income households, might be a step in the right direction toward addressing the affordability challenges that some of us face. However, while anecdotal evidence abounds, we have bad, little or no empirical evidence on the role directly played by equity gains, intergenerational transfers or foreign investors, either in shaping this region’s house prices or in affecting our purchasing power.
Gaining a better understanding of how these factors, as real as they are, are affecting our housing market would seem to be a logical first step toward addressing affordability concerns. All of this said, it won’t change the fact that housing in Vancouver is expensive, but at least we will have a better understanding of why.
Ryan Berlin ([email protected]) is the research leader in housing market and economic analysis at Urban Futures.
