Metro Vancouver is now ranked the second least affordable area to buy a home in an annual study of international real estate markets.
The annual Demographia survey of 325 cities rated Metro Vancouver second worst for affordability, bumping Sydney, Australia into third place. Only Hong Kong ranks worse.
“The most unaffordable markets, Hong Kong and Vancouver, became even more unaffordable,” according to the findings, which looked at major cities in the U.S., Canada, the U.K., Australia, New Zealand and Hong Kong.
The study calculates a “median multiple” to measure housing affordability for each metro area (including far-flung suburbs) by dividing the median home price by the median household income.
Metro Vancouver’s multiple at 10.6 means it would take more than a decade of a typical family’s entire annual income of $63,800 to cover the $678,500 cost of a home.
That’s more than double the 5.0 multiple at which Demographia considers housing to be “severely unaffordable” and far above the 3.0 cutoff to be counted affordable.
The next worst Canadian cities are Abbotsford at 7.0, Victoria at 6.8, Kelowna at 6.6, Toronto at 5.5 and Montreal at 5.1.
Several U.S. cities, including New York and San Francisco, were also classified severely unaffordable, but at lower ratios between 5.0 and 7.0.
Vancouver’s ranking has worsened from 2006, when it was the survey’s 15th least affordable city with a median multiple of 6.6.
It’s the latest in a series of reports that have red-flagged rising prices in this region.
RBC Economics, which tracks affordability based on local residents’ ability to qualify for a mortgage on a typical home, warned in November Vancouver’s “extreme unaffordability appears to be driving local buyers away.”
Central 1 Credit Union economist Helmut Pastrick agrees Metro Vancouver is “very expensive… these kinds of price-to-income measures verify that.”
But he thinks the Demographia study may overstate Metro’s affordability problem, noting it seems to underestimate the region’s household income levels.
Pastrick also argues high-priced homes that fetch $2 million or more in the most desired parts of the region make the problem appear worse than it really is in more affordable areas, such as Surrey, Langley or the Tri Cities.
“I might quibble with our ranking,” he said. “We might not be number two, but number 10 or so.”
Still, Pastrick doesn’t expect Metro Vancouver will get cheap any time soon.
“We have very unique geographic constraints – mountains, water, the border – so the pressures on land prices are more intense here than elsewhere,” he said.
Those are bigger factors here, he said, than land use restrictions such as the Agricultural Land Reserve or Metro Vancouver’s Regional Growth Strategy, which seeks to concentrate development in areas better served by transit.
“The long-term upward trend in land prices will continue,” Pastrick predicts, adding the old expectation that most people can own a detached house will continue to fade.
More residents will own condos and increasingly buyers will choose smaller units, older units or ones further from the core in response to rising prices, he said.
“It may also mean renting,” Pastrick said. “In the future, I think there will be relatively more renters than we have now.”
New Westminster Mayor Wayne Wright, who chairs Metro’s housing committee, said the shortage of rental housing is also a serious concern.
“If you don’t have a workforce that can get to work and have a good day’s work given to you because they had to travel for four hours, you’re in a lot of trouble,” he said.
Local cities and other groups have formed the Rental Housing Supply Coalition to press senior governments to find ways to encourage developers to build more rental units.
Wright said aging rental apartment buildings are increasingly becoming unlivable and that is making it more urgent to solve the rental supply problem.