This week I found myself both applauding and being roundly irritated by an interactive map about Vancouver single-family home affordability, which received a lot of media attention (including our story).
Don’t get me wrong. I congratulate the hard work of anybody who creates a complicated interactive map that is interesting enough to capture people’s attention – a tricky and painstaking task. I also appreciate when someone takes the trouble to publicly point out that swathes of Vancouver’s West and East Sides are largely zoned for single-family residential, at a time when pervasive densification of these areas is desperately needed to meet housing demand.
Indeed, the creator of the map in question, data analyst and blogger Jens von Bergmann, is entirely on board in terms of the need for densification. He told Metro, “Excluding me and so many other Vancouverites from the vast majority of residential land is something that I think needs to change.” Von Bergmann compiled and published the map, which filters which single-family neighbourhoods a person can buy a house in, depending on their entered household income, in an attempt to prove his point.
However, for anyone with an iota of real estate market knowledge or even common sense, this is where his argument falls down. As I’ve explained before, and no doubt will again, you cannot compare local house prices with local incomes and get an accurate measure of what is affordable for local people. It simply doesn’t work.
The fundamental flaw in this approach – and the map – is that people buying single-family homes on the West Side and East Side of Vancouver are not using just their own household incomes to do so. Because, let’s face it, none of these buyers are first-timers with only 20% down (the assumption that this map and other affordability reports make).
No, for the most part, these local buyers are trading single-family homes for single-family homes. Or, they are moving up from a pricey condo or townhouse, often using equity built up over many years, to buy a detached house. Two of my best friends just did exactly that, selling their $1.1 million downtown condo (bought for $500K years ago) to get a $1.5 million East Side house. This is quite typical. Very, very few of the people paying these prices (even excluding any non-local buyers) are carrying an 80% mortgage on their East or West Side single-family house, bought at today’s prices.
I plugged my own (below-average) household income into the interactive map, and it told me I could buy a single-family house in precisely zero Vancouver neighbourhoods. Well, sure, by that measure. But where’s the field in which I plug in how much equity I have built up through 15 years of paying off mortgage principal and seeing my own home prices soar? My household income hasn’t increased, but I can guarantee you that putting 60% down would open up at least a few East Side neighbourhoods to me.
Consider this: the benchmark sale price of a Greater Vancouver home (all property types) is just over $1 million, but the average new mortgage in the region taken out in 2016 was $438,716 (and that doesn’t even take into account the approximately 50% of homeowners who have paid off their mortgages and have free and clear ownership). This discrepancy begins to reveal the vast amounts of private wealth and equity that local people are putting down on their homes, mostly fuelled by their own home sales. And remember, it is not average sale prices that are paid off by local incomes – only mortgages are paid off by local incomes.
So next time, how about an interactive map of average mortgages in the area compared with local incomes? Or even keep it as average detached house prices, but include an additional field to enter how much down payment you have? It would create a much more accurate representation of what people can truly afford.
Sure, these homes are really, really expensive, there’s no doubt about that, and I’m not saying otherwise. It’s just that there’s a very good reason that lots of local people on average local incomes are still managing to afford these homes.
And, for those of you who don’t have equity or private wealth behind you to get into these areas, here’s a tip: don’t expect your starter home to be a detached house in a desirable Vancouver neighbourhood.
It’s called a property ladder for a reason.