It is no secret that residential real estate in Vancouver is more expensive than in any other city in Canada, but homes became even less affordable in the first three months of 2015, according to RBC’s quarterly affordability index.
The bank’s affordability index for Vancouver bungalows rose 2.8 percentage points to 85.6 in Q1. This means homeowners in this city need to spend, on average, 85.6% of their pre-tax household income to service the costs of owning a one-storey detached home at market values.
This was the highest increase for homes of this type in three years. It is also a full 28.3 percentage points higher than the measure of Toronto, Canada’s second-least affordable city, which had a measure of 57.3.
“Vancouver has recently experienced the fastest rate of appreciation among Canada's largest cities, which suggests that affordability may well deteriorate further going forward,” said RBC senior vice-president and chief economist Craig Wright.
The index for two-storey homes also increased, climbing 0.9 percentage points to 86.9.
Not all home types became less affordable, however. The index for condos dipped 0.5 percentage points to 39.6%.
"Our measure for condos bucked the deteriorating trend in Vancouver - the segment was better supplied thanks to increased multi-unit construction over the past couple of years, keeping prices generally contained," Wright said.
Helmut Pastrick, chief economist for Central 1 Credit Union, cautioned against misinterpreting the index and explained that it is intended to tract trends in affordability, as opposed to actual affordability.
"Mortgage lenders and insurers use a maximum gross debt service (GDS) ratio of 32% of income when issuing a mortgage loan," Pastrick told Business in Vancouver via email. "A maximum total debt service (TDS) ratio of 42% is widely used.
"No homeowner would be faced with a 85% GDS unless there was a large income drop, in which case the asset would likely be sold. Also consider that at 85% of income, there would be only 15% left to spend on food, clothes, and other necessities."
Affordability across the entire province was poor in the first quarter. Two-storey homes in British Columbia had an affordability index of 72.8, bungalows were 69.3 and condos 32.9.
"Our housing affordability measures for British Columbia remain above long-term averages, substantially so for bungalows and two-storey homes – the higher the measure the less affordable the segment," Wright said. "That being said, poor affordability levels primarily reflected the extreme situation in Vancouver.
“Home ownership is comparatively more affordable across other markets in the province."
The national average measure for bungalows was 42.7, unchanged from the previous quarter. The measures for this housing type in other major cities in Canada were:
- Toronto: 57.3 (up 0.6 percentage points);
- Montreal: 37.2 (down 0.2 percentage points);
- Ottawa: 35.4 (down 0.6 percentage points);
- Calgary: 32.8 (down 1.0 percentage points); and
- Edmonton: 32.8 (down 0.8 percentage points).
