Another report on Vancouver housing affordability and how it compares with incomes is causing a flurry of indignation this week, and adding fuel to the fire of #DontHave1Million and similar campaigns run by cohorts of entitled whiners.
And yet again, it is a report that has failed to do the math correctly, simplifying its methodology to such an extent that its results become meaningless. Not that this is stopping most of the local media from publishing the results and adding to the hype.
This week it comes from the trusted source of Vancity Credit Union, which published Help Wanted: salaries, affordability and labour exodus in Metro Vancouver on May 21. And if Vancity says something, it must be true, right?
The report tells us that rising Metro Vancouver real-estate prices are likely to trigger future labour shortages as salaries fall further behind the cost of living and drive essential workers to relocate elsewhere.
It reports that between 2001 and 2014, Metro Vancouver housing costs increased 63 per cent, while salaries only rose 36.2 per cent, or 2.2 per cent a year. Vancouver housing is projected to rise by 4.87 per cent a year, but salaries will continue their low growth of between 0.6 and 3.2 per cent, depending on occupation, it says.
I believe everything in the above paragraph. The problem is that, just because real estate prices are increasing faster than salaries, it doesn’t necessarily mean that real estate is increasingly unaffordable.
“Of course it does!” you cry. Wrong.
(Some of you will have read my previous editorial on three reasons why Vancouver is not as unaffordable as most reports say – so to those who have, I apologize for any repetition. But it bears repeating.)
1) Mortgage interests rates are at historic lows. In 2001 (since Vancity has chosen that year as a base), typical five-year fixed rates were around 7.79 per cent – today they are at 2.79 per cent.
In 2001, a $200,000 mortgage would have cost you $1,500 a month to service at 7.79 per cent. Today, a mortgage on the same property, now priced 63 per cent higher so the mortgage is $326,000, will cost you $1,508 a month to service at 2.79 per cent. Eight dollars more.
Plus you’ve enjoyed at 36.2 per cent income rise in that time, so your housing costs are actually cheaper for you today, relative to your income, than in 2001.
2) Increasing household equity, gained from those aforementioned house price rises, allows people to put bigger down payments on homes than ever before. More than 70 per cent of home buyers are repeat buyers, so they have enjoyed the benefits of those price rises, and that has made up for slower salary growth. So even if mortgage interest rates go up, most buyers are still perfectly able to afford their mortgages. And of course, you’ve got to include in these calculations the independently wealthy cash buyers who have little or no mortgage at all.
3) Income vs mortgage comparisons are skewed. “By 2025, the household income required to maintain the average mortgage will be $125,692,” Vancity says.
It doesn't venture a guess as to what the average mortgage will be in 2025. But it does say that the average house price in Vancouver is currently $713,125 (which is itself skewed upwards by the flaws of averages – the benchmark price of $673,000 is a more reliable figure). It suggests that a mortgage on a $713,125 home, with a 20 per cent down payment, costs $3,280 a month to service. Sure, if you’re a schmuck who’s paying 4.89 per cent.
Oh, and it fails to mention that, although this may be the “average” house price, the average mortgage in the Lower Mainland is much closer to $300,000-$350,000, according to mortgage brokers. Why? Because of point no 2. Which brings us much closer to the typical mortgage servicing costs laid out in point 1.
Finally, the report adds, “By 2020, 82 of 88 in-demand jobs will be unable to afford a single-family home in Metro Vancouver.”
Well, all I can say to that is: boo-hoo, let me wipe away my tears. I for one, as an averagely paid editor living in Vancouver, don’t ever expect to own a single-family home – and I know that if I really wanted one, I could go and live in Nelson. Coming from London, UK, where nobody expects even to be able to rent centrally, let alone buy, this doesn’t bother me at all. Until such a time as the dream of a large property lures me away, I’ve invested in a West End condo that allows me to live centrally in this most livable of cities.
But what about families who don't fit into condos? There are many hundreds of three-bed-plus homes across the Lower Mainland currently listed for less than $400,000 – search REW.ca and see. They just might not be in Vancouver proper. You want space, you gotta suck up the commute. It’s the same in every other major city in the world.
I believe that real estate prices will continue to go up and, even if mortgage interest rates rise, people will still be able to live in Greater Vancouver - they might just have to move a bit further out of town if they want space. In the meantime, if anyone is entitled enough to feel they deserve to be able to afford a single-family home in a central part of this incredibly desirable city, otherwise they’re outta here, I say see you later – all the more real estate for the rest of us.
P.S. I won't go into Vancity's list of recommendations to solve the problem, except to say, mandating employers provide workforce housing? Really? (See Related stories below for some better suggestions.)
