Housing (Un)Affordability in Vancouver

Housing (Un)Affordability in Vancouver

This video by MLA Canada, a top notch real estate marketing company, is really quite good. It points out that there is a housing supply shortage (we should have enough homes to bring the vacancy rate to 5% in the rental market) and the challenges faced by developers trying to build more homes to fill the obvious demand. It also points out that Chicago should be our point-of-comparison when looking a "normal" global cities. My only criticism is their miscalculation of how much it would take for the Metro Vancouver market to normalize.

They say that the ratio of home prices-to-incomes β€œcan normalize if house prices remain consistent and the workforce demands higher wages to sustain livability in the city.”

At Mortgage Sandbox, we've run the numbers and Metro Vancouver's median household income would have to rise from $77,900 to over $200,000 for housing to be affordable. How likely is that? Vancouverites would need to get 10% raises annually for 10 consecutive years for the median income to reach $200,000!

Let's dig deeper into the numbers.

Households in Metro Vancouver make good money.

Vancouver's median household income of 77,900 is a little higher than Toronto ($77,000) and much higher than Montreal ($62,000), but obviously lower than Edmonton and Calgary who get a bonus from the oil industry. As a reference point, keep in mind that 81% of Metro Vancouver households make less than $150,000 in a year. 

Most can't afford a home price of $1 million

Not a huge surprise. We looked at how much house people can qualify to buy assuming they have a 20% down payment saved up and it turns out that only 8% of households can afford a $1 million home. In other words, the vast majority of people who own homes could not hope afford to buy their own home.

In other words, the vast majority of people who own homes could not hope afford to buy their own home. Think of people who go through a divorce or move here from another city, they have no chance of getting a home.

What is available for sale within people's budgets?

As you can see, home prices are completely disconnected from local incomes. 81% of homes are only within reach of 17% of the population. 65% of the population really can't afford anything at all. Focusing on median incomes and median home prices has allowed industry players and government to lose sight of the bigger picture!

What about rents?

Everyone knows that rents are high but are they unaffordable? Below you can see what is affordable to people in each income range.

63% of Metro Vancouver citizens own a home so we can assume most of the rental stock is targeted at the 34% of households earning under $50,000. This is a problem because we looked at vacancies on PadMapper and only 10% of rentals are affordable to households earning less than $50,000!

Summary

Hopefully incomes will rise, but it is more likely that the housing market will go through a "soft-landing" or harder correction to normalize the situation. Having said that, despite the government's best attempts to pour cold water on the markets, a normalization may be years away. If you would like a home so you can stop paying a landlord, feel more secure, and raise a family, then go ahead and buy your dream home. However, please don't bank on home values continuing to rise like they have in the past.


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Key factors at play in the Vancouver housing market

Key factors at play in the Vancouver housing market

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