Income data sheds light on housing affordability


Saturday, October 20th, 2018

Some cities with high housing costs boast high incomes to match ? but not Vancouver

PETER KENTER
The Vancouver Sun

The Vancouver housing market has made home ownership unaffordable for many people, as the gap between wages and house prices widens. Skyrocketing housing prices contribute in large part to the disparity, but the region’s relatively low median household income could also be a significant factor.

Andy Yan, director of The City Program at Simon Fraser University, sifted through census data from a wide range of 117 North American cities to determine that the gap between median income and house prices, his Affordability Index, was the highest in Metro Vancouver. He calculated that the median home price here was $800,220, 11 times median household income of $72,662 in 2015.

Some cities with high housing costs boast high incomes to match. Vancouver doesn’t. Median housing prices are more expensive in both San Jose-Sunnyvale-Santa Clara and in San Francisco-OaklandHayward, but incomes are also significantly higher. Vancouver ranked 50th in median household income in 2015.

Using data from the 2016 Census, Vancouver’s median pre-tax household income fell well behind 14 other metropolitan regions in Canada alone, including Calgary ($99,583); Edmonton ($94,447); Regina ($84,447); Ottawa-Gatineau ($82,053); Toronto ($78,373); Kitchener-Cambridge-Waterloo ($77,229); and Hamilton ($75,464). It barely crested the Canadian household median income of $70,336.

As one of the principals of MountainMath, a Vancouver-based company specializing in data, analytics, modeling and visualization, Jens von Bergmann loves to go down the rabbit hole of statistics, including those surrounding the area’s housing market.

He notes that the statistics could mask other economic data. For example, median Vancouver household incomes skew somewhat lower for a reason.

“That’s because there are a lot of one-person households in Vancouver, compared to Toronto, for example,” he says. “But even if you adjusted for that, Vancouver would still come out terrible on housing affordability.”

Median incomes might also present a misleading figure. The top 50 per cent of income earners could continue to get richer — and continue to buy homes — while the bottom 50 per cent might continue to become poorer, leaving the median income figure exactly where it is. For top earners, housing prices might be considered affordable.

While efforts to cool off the housing markets have succeeded to some degree, they’ve also affected only a limited segment of the housing stock.

“My research shows that it’s primarily affected the prices of homes valued at more than $2 million,” says von Bergmann. “That doesn’t make lower-priced homes any more affordable.”

In recent years, Tom Plumb, president and CEO of Victoriabased Kinetic Construction Ltd., has been trying to convince workers to relocate, so that they can work on projects in the Lower Mainland and Vancouver Island. It’s a tough sell.

“It’s not just a construction problem,” he says. “It’s restaurant and retail and a host of industries. Tradespeople are probably the best paid members of the working class, and we’re trying to stay ahead of the market with wage scale, but still not getting any traction.”

Plumb says that the construction workers Kinetic hires reinforce the divide between homeowners and non-owners.

“The workers we engage are almost exclusively living in the area already,” he says. “I couldn’t go to Calgary or back East to find tradespeople to relocate. We could use more workers, but we have to make due with who we already have.”

The gap between wages and house prices hasn’t yet resulted in a significant number of insolvencies, says Lana Gilbertson, a licensed insolvency trustee for MNP LTD in Vancouver.

One likely explanation is that there are two groups, those already in the market, and those who will never get into the market. If homeowners are funding their debt by borrowing heavily on rising equity, the strategy could result in major financial distress should property values tank.

“I don’t believe that homeowners are any better at keeping up with expenses than the rest of us,” she says. “But we’re not seeing people who own a home coming to us about insolvency. That may be because homeowners in the Lower Mainland are using their growing equity to meet their other consumer debt obligations.”

For many people who have been through an insolvency proceeding and are trying to rebuild a credit rating, homeownership in the area is now out of reach.

“Credit ratings can be rebuilt, but they can’t come up with the large sum of cash required for a down payment,” Gilbertson says. “They also can’t demonstrate the income that would support the mortgages required to buy a home.”

Gilbertson notes that a collapse in housing prices, sharp increases in mortgage rates or an economic slowdown could change the financial picture for homeowners who might find themselves holding more debt than their equity will support.

“If any of that happens, we may begin to see homeowners in trouble or unable to keep up,” she says. “What goes up must often come down, and it can come down hard.”

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