Down Payment Takes Half a Century in Vancouver: Report

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As a recently released Organization for International Cooperation and Development (OECD) noted, house prices have been generally rising far in excess of incomes in a number of nations (Under Pressure: The Squeezed Middle Class). OECD finds that these rapidly rising house prices have been a principal contributorto rising cost of living that has already resulted in economic reversals for the middle-class.

This dynamic is echoed in a new report (Where Could a Median-Income Household Afford Real Estate in Canada?) by Penelope Graham of Zoocasa.com, a Toronto based real estate brokerage firm. Graham introduces two measures of housing affordability, both of which meet the test of housing affordability metrics --- that they compare house prices and incomes. The first metric is the amount of the down payment that would be required for the median-income household to purchase the benchmark priced house, under typical terms price (benchmark prices are estimated by Canadian real estate organizations, as an alternative to average or median prices). This is calculated by subtracting the maximum mortgage amount the median-income household could from the market benchmark. The second metric is how many years it would take to save enough for the downpayment (assuming rigorous 20 percent annual savings) to qualify.

The Lower Mainland

According to Graham, the two least affordable markets in Canada are in British Columbia’s Lower Mainland, Greater Vancouver and the Fraser Valley.

Greater Vancouver: In Greater Vancouver, the median-income household would need a 76% down on a $993,000 benchmark sales price It would take 52 years of savings to accumulate the required $751,000 down payment. Coincidentally, Greater Vancouver experienced a more than doubling of median house prices relative to median incomes (the median multiple), from 2004 to 2018, according to the Demographia International Housing Affordability Survey. In the most recent such Survey, Vancouver had the second worst housing affordability; only Hong Kong was less affordable (Figures 1 and 2).

 

The reality is even worse. The benchmark price used includes town houses (row houses) and apartment condominiums, as well as the detached housing that a Sotheby’s survey showed was preferred by 78% of young Vancouver families (Figure 3). Detached houses are much more expensive. Their more than $1,400,000 price would force the down payment to more than $1,150,000. This could mean on the order of 80 years to save for the downpayment.

Fraser Valley: The Fraser Valley is a vast suburban and exurban area that extends to 90 kilometers (55 miles) from downtown Vancouver, along the Trans-Canada highway to Mission, Abbotsford and other communities. In the Fraser Valley, housing is only slightly less unaffordable. The median-income household would need a down payment equal to 70% of the $823,000 benchmark sales price. It would take 42 years of savings to accumulate the required $576,000 down payment.

Victoria: British Columbia’s capital is suffering from Vancouver’s spillover effects. Just a bit more than one and one-half hours from metropolitan Vancouver by ferry, Victoria is a delightful place to live---if you can afford it. The median-income household would need a down payment equal to 61% of the $693,000 benchmark sales price. It would take 30 years of savings to accumulate the required $422,000 down payment. This reflects the somewhat lower house prices in Victoria, which are still outrageously high.

Greater Toronto: The real tragedy of Canadian housing affordability crisis lies in Greater Toronto. As late as 2000, housing was affordable in Toronto. Then came the Ontario government’s “Places to Grow” urban containment program, and like elsewhere (including Vancouver), house prices raced ahead of incomes.. Graham reports that the median-income household would need a down payment equal to 63% of the $802,000 benchmark sales price. It would take 32 years of savings to accumulate the required $502,000 down payment. Greater Like Vancouver, Toronto experienced a more than doubling of median house prices relative to median incomes (the median multiple), from 2004 to 2018, according to the Demographia International Housing Affordability Survey.

As in Vancouver, the benchmark price used in Greater Toronto includes all forms of owned housing including the detached housing that a Sotheby’s survey showed was preferred by 83% of young Toronto families. Detached houses cost about 20% more in Greater Toronto than the average.

Nearby Golden Horseshoe Markets : The Golden Horseshoe, with Greater Toronto as the core, is the preeminent economic engine of Canada, producing a quarter of Canada’s gross domestic product. By comparison, the New York metropolitan area accounts for less than one-tenth of the US GDP, while Los Angeles produces six percent). The Greater Golden Horseshoe stretches from Niagara Falls, Ontario (across the river from Niagara Falls, New York), to Oshawa and Peterborough to the east and to Guelph and Kitchener-Waterloo to the west.

Toronto’s deteriorating housing affordability is now spreading throughout the Golden Horseshoe, as households flee to obtain housing they prefer and can afford. This can be seen in Hamilton, where the median-income household would require a 49% down payment and Kitchener-Waterloo, Canada’s Silicon Valley, where 37% would be required. It would take 20 years to save that much in Hamilton and 13 years in Kitchener-Waterloo. In London, just outside the Greater Golden Horseshoe, the median income household would need 32% of the purchase price for the down payment, equal to 10 years of aggressive savings.

Greater Montréal: Among the 15 areas surveyed, only one other urban area would require a down payment above 25% on the purchase price, Greater Montréal,. There, a $99,000 down payment would be required, which would take eight years to save.

Unconventional But Compelling

The Zoocasa housing affordability metrics are somewhat unconventional, but compelling. It is hard to imagine a more graphic way of describing the plight of middle-income houses, who need up to a half century’s savings to qualify for a standard mortgage for a middle-income house. Most people do not even work that long

Much of Canada faces such financial challenges. Our Frontier Public Policy Centre research report (Canada’s Middle-Income Housing Affordability Crisis) documented the financial reversals that have occurred in the housing market since 2000. The markets summarized above are so important in Canada, that the median income household across the nation would need a 55% down payment and 25 years of savings to get into a typical house on typical terms. That is almost as challenging as Victoria, the least affordable market outside Greater Toronto and the Lower Mainland. In this environment, Canada’s middle-class is already at risk, and younger households could live less well than their parents, like their counterparts elsewhere (such as in California, Seattle, Portland and Denver, as well as across Australia and the United Kingdom).

Photograph: Vancouver (by author)

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed by Mayor Tom Bradley to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. Speaker of the House of Representatives appointed him to the Amtrak Reform Council. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.