I certainly agree that there is an Affordability Crisis in Vancouver’s crazy real estate market. But let’s be clear on what affordability means. It’s a measure of incomes to mortgage payments. There are three main variables that affect affordability:
- House Prices
- Mortgage rates (which drive monthly payment amounts for a given price)
The focus of the conversations, media attention, and government debate is always focused on the first point, prices.
Vancouver is consistently in the top three least affordable cities in the world. It’s right up there with cities like Hong Kong, Sydney, London, and San Francisco. I think it’s important to keep in mind though that these affordability lists compare the ratio of prices to incomes. Being at or near the top of this list doesn’t mean we actually have the most expensive real estate in the world. Our prices are actually about 60% less than those in London, Hong Kong, and New York. Our affordability is worse because our average incomes are so much lower than in those cities.
|City||Prime Residential Prices|
|Data source: http://business.financialpost.com/personal-finance/mortgages-real-estate/toronto-and-vancouver-home-prices-pass-rome-and-close-in-on-paris|
|Hong Kong||+ 259%|
|New York||+ 239%|
The income gap is the problem I would rather we focus our attention on and ask our government to address. Instead of trying to figure out how to force our prices lower, something that the market will take care of in the long run on its own, let’s figure our what we can do to improve affordability by increasing average incomes. What can we do to attract more corporate headquarters to Vancouver? Boost our technology sector? Enhance our status as a gateway city to the Pacific Rim? Become a hub for FinTech innovation?
So far the ideas I’ve heard talked about to improve affordability in Vancouver are: restricting or taxing foreign ownership, imposing a luxury tax over a certain dollar value, and taxing “unoccupied” units. While I do believe our government needs to collect actual data on foreign ownership and its impacts, I don’t believe any of these proposed measures will have a meaningful impact on housing affordability for local residents. I don’t believe that trying to regulate what is perceived as a market failure will be effective in the long run. When prices start to correct on their own due to market forces, do you then unwind these regulatory measures? That will get very messy. Instead, lets ask our government to focus on initiatives to raise incomes.
Boosting the economic opportunities and incomes in Vancouver is our best shot at improving housing affordability in a sustainable way that will secure the long term future of the city – beyond just a Band-Aid regulatory solution.