Vancouver ‘Affordability’ – “The worst levels on record.”

“Nothing, of course, could persuade condo king Bob Rennie that the Vancouver housing market is in a bubble (or, worse yet, a bubble that’s starting to let the air out).” …
“The Vancouver area continues to be the least affordable market in Canada by a considerable margin. RBC’s measures deteriorated further for all types of housing in the area, standing close to the worst levels on record.”

– from ‘RBC: Homeownership costs are now 91 per cent of Vancouverites’ income’, Maclean’s, 27 Aug 2012

30 responses to “Vancouver ‘Affordability’ – “The worst levels on record.”

  1. I’d like to point out a few things here, not all “bearish”:
    1) Vancouver has a large component of detached dwellings with basement suites so can handle lower “affordability”
    2) Average prices are notoriously noisy and I would not use even 6 months of data as indicative of much, at least compared to other measures we have at our disposal.
    3) Vancouver is wage stratified; while we may scoff at the formula1 opinion that detached is for a higher income bracket, there is something to that, at least we should not brush it off so brazenly without considering that underutilized land will carry a hefty premium and if one wants to maintain this use of space, it comes at a cost.
    4) Real rates are low and that is suppressing things. I`m no macro dude by any stretch but I know enough to know that real rates have strange ways of manifesting themselves that are sometimes counterintuitive. RBC concentrating on mortgage payments may miss real rate movements.

    Not to say I’m not bearish on housing, but in my view the RBC survey should take second seat to more thoughtful analysis.

    • All fair points, thanks, jesse.
      Yes, there are complicating factors..
      Nobody seriously thinks that any ‘average income’ household is actually buying an ‘average’ benchmark detached bungalow and thus spending 91% of their income on shelter: The affordability measure is simply an indicator (in Vancouver’s case, of how unaffordable RE has become).
      Having said that, the detached single family bungalow remains a valid standard home type to which many households understandably aspire: Vancouver has not transmuted into Manhattan or Hong Kong. It’s wrong to imply that somehow people should give up on bungalow living: we are, after all still confluent with the rest of BC, and all of Canada, the second largest country on the globe.
      Also: aren’t all cities ‘wage stratified’?

      • I don’t have the numbers but I believe Vancouver has the largest disparity in wages in the country, though I think Toronto has a high level as well. My point there is that if one wants an older vintage bungalow in a certain neighbourhood, looking at spot incomes isn’t the right measure.

      • In other words, only doctors, dentists, and the Chinese can afford SFH’s in Vancouver. Sounds pretty much unaffordable to me. Who cares if there’s a large income disparity in Vancouver – the average income level is stil the average. Furthermore, if the distribution of incomes is right skewed (which is highly likely) then it means Vancouver is even less affordable to most people than what is indicated using mortgage payments as a % of average pre-tax income. The same point applies if the actual probability distribution of SFH prices is left skewed – ie. relatively fewer SFH’s at lower prices – just look at the massive inventory of homes priced at $2 million and above! Vancouver is actually less affordable than what is indicated using the average statistics!

      • Airedales,
        I’m Chinese and can not afford in Vancity. The wealthy money not only comes from China, but middle east etc.

      • Also rich lululemon and junior mining in-the-money options.

    • granite countertop

      The prevalence of basement suites points to poor zoning: The market spontaneously creating multi-family dwellings on SFH lots. Now, the prices are mainly due to the bubble but there is a legitimate land crunch in Vancouver. So I agree that a bungalow is a luxury, not a good yardstick for affordability. Locals should aspire to well-maintained affordable medium-density housing. Unfortunately, that’s not the kind of housing being built.

      • >The market spontaneously creating multi-family dwellings on SFH lots.

        Ding, ding, ding! You win the correct comment of the day award.

        This is a good chunk of Point Grey, Kits and Dunbar. Nothing like taking in those UBC kids because there’s no where else for them to go (at exploitative rents that is.)

    • Re 3) – shouldn’t we see something other than price/rents in the 450s, though?

    • Re: wage stratification; the metro van housing data book often have great series that’s more in depth than the available tables on statscan, although they have sort of changed presentation in the past few years.

      In something like 2006 they showed that 18% made greater than 100K, whereas in other Canadian cities 15% earned > 100K. These days the book’s data shows 39% of people make over 70K, but they’re not setting out the 100K incomes in quite the same way.

      Anyway, definitely stratification. But in terms of absolute numbers it’s not making my jaw drop… although, of course, prices are set at the margin.

  2. Something picked up from the stream, for the symbolic archives

    everything...

    • Interesting assertion from the VHF’s “Vancouver Special Tour 2012”:
      “The highest volume of landfill today is coming from demolished buildings.”
      http://www.vancouverheritagefoundation.org/projects/vancouver_special.html

      In contrast, the CoV asserts:
      “Currently, about 76% of the waste created through the construction of new buildings or the demolition of old ones is recycled or in the case of wood, used for energy.”
      https://vancouver.ca/files/cov/Greenest-city-action-plan.pdf

      • Thanks for this info Jeff.

        Based on what I’ve witnessed and heard about, I’d be really surprised if “76%” of the waste from demolished older structures is being recycled.
        Nearly every week (not kidding) where I live, I see beautiful old wooden floors for example simply being bulldozed into splinters.

      • Hi epte, nice to see you around again.

        I agree, the 76% figure seems suspicious. No explanation of how they arrive at that figure.

        Notice that they combine the waste from construction and demolition into one figure. Well, it would not be surprising if much of the construction waste can be recycled, because there is not much of it, and it is easier to sort.

    • TeeHee! I’ll bet ‘ol BR has – in his salad daze – hosted a PositivePlethora ‘O OpenHouses with better attendance than the illustrated ‘ParTay’. Shoulda booked 12GirlsBand, I reckon… or at the very least, TheThreeAmigos…

  3. The numbers don’t lie – Sorry but Toronto, Calgary and Ottawa are not that bad. Vancouver is way overpriced. Nobody smart is going to be spending that much of their income on housing. People need to have some sort of a lifestyle and also good paying jobs.

  4. In the course of time, Vancouver will be case of many fraudulent broker loans like every other major city bubble. When the numbers don’t make sense, instinct works best.

  5. Sorry have to test this embed thingy.

    Start video at 5min.

  6. Pingback: House Prices and Young Folk | Voice Of The Wet Coast

  7. Something about Rennie’s last pumping of the market really bugs me.
    He’s telling us that all this boomer equity exists and will somehow support the market by boomers cashing out, downsizing and giving the money to their kids.
    Are we to assume that they all have saving as well, and they won’t need to cash out all this equity to finance their retirement? Many recent articles indicate retirees are counting this equity for retirement. Perhaps a more likely scenario is that they can give a little, save a little and downsize.
    How many kids must these boomers split the money with? Let’s say they can generously give 100-200K to each child as a downpayment. Will they buy in vancouver? or will they be moving to the suburbs to get family appropriate housing? Me thinks a lot of this money leaves the local RE market. So this still doesn’t tell us who’s going to buy the places to keep this cycle going? Are we still counting on HAM to save us?
    On one hand he’s telling us the with an average income we can somehow afford an “average priced” unit. Then on the other hand he’s talking about many buyers with substantial downpayment for future gains (speculation).
    He wants to skim off the top, yet he doesn’t tell us whether he’s including the 200K leasehold units in the westend as part of the average. I don’t know where he’s getting his numbers, but someone making 56k SHOULD NOT be signing up solo for a 360k mortgage, (assuming that a 500 sq ft unit is fit for one person).
    If we are to apply some logic to the boomer phenomenon; they were all born in a specific time, are retiring at the same time and will most likely want to “cash out” at the same time. Would he have us believe that they will trickle out the exit as their retirement fund appears to be vanishing? Forget about old age homes or that kind of consideration, they will just give it to their kids.
    Yup, they’re just going to put it ALL back into real estate…

    • Cash out to who? The bulk of renters who wanted to own would have done so already, while the rest are waiting for prices to decline.

    • All the valid points. Also do not forget that lots of equity these boomers supposedly have in their homes is already taken out trough the HELOCs or CHIPs – may be they do not even have a lot to give away to their kids at all.

    • Can’t agree more with Bearacha and the rest of you guys. Wonder if most of the stakeholders in the Greater Vancouver area are actually aware or keeping tab of the situation due to recent developments in immigration policies. Logic dictates but there must be some real near to mid-long term impact on price levels especially of higher end SFD homes – if the blame on inflated real estate due to the rich Asian or Middle Eastern immigrants is anything to go by. Reportedly 300k accepted SKILLED applicants have been immidiately thrown out, and likely a bigger unknown number in the INVESTOR category (effectively just park CAD 800k for 5 years with the government) have all been stopped in their tracks to get residency. This is not counting the current concerns for dampened growth outlook in the global economies for these guys back home, and higher mortgage payments with shorter loan tenures going forward, doesn’t matter if the latter is more important only for the condo or starter home market in Vancouver. Surely time will tell but again who are those majority who could afford the big stock of million dollar SFD homes if not those rich investors and immigrants? Having lived and worked on both sides of the world, what is obvious is that those price levels are NOT sustainable given the kind of local salaries versus disposable income and/or savings. The devil is in the details but going by the list of inventory that seems to be sitting forever with no takers – even the fantastic ones for location and looks – the logical conclusion is that it does not look like the good old days of multiple offers and million dollar shacks getting snapped up overnight would be returning very soon!

  8. Just in… BC FinanceMinister & DeputyPremier Kevin Falcon resigns with immediate effect citing the inadequacy of his ministerial salary to appropriately house his growing family….

    “I am looking forward to participating in this exciting event, unburdened by the demands of the office.” – Kevin Falcon

    [NoteToEd: I believe the DeputyPremier was referring to the impending arrival of a second child… And not, as some Wags have suggested, the imminent demise of the KrustyKlark administration.]

  9. 4SlicesofCheese

    http://www.theglobeandmail.com/commentary/editorials/canadian-banks-dont-need-too-big-to-fail-reserves/article4507085/

    Canadian banks don’t need too-big-to-fail reserves

    “Canadian banks argue that higher reserve requirements would stifle growth and are unnecessary, given their demonstrated strength through the last crisis.”

    For the record I think the banks will be just fine in the coming years, we have the CMHC to thank for that. It is the people that will suffer in the end.

    • If the banks think that, they better watch Canadian Watchdog’s video above (thanks, btw, best 50 minutes I have spent last few months) where the #4 ingredient on mortgage fraud was the presence of a “Trivial ALLL”. In the end, the US banks were bailed out too (just like CMHC will do for ours) but that doesn’t negate the lending frauds likely going on right now keeping the bubble afloat.

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