A new study published today by the Frontier Institute for Public Policy finds that Vancouver has the most unaffordable urban housing market not just in Canada, but in all of Australia, Ireland, New Zealand, the United Kingdom and the United States.
This conclusion is based on a very simple, yet effective measure of housing affordability: the ratio of median housing prices to the median household income in each municipality (housing market). This price-to-income ratio measures how many years the median family (the one in the middle of the income distribution, where half of all families earn more and half earn less) would need to work to earn as much as the median house costs. Typically, a housing market is considered affordable if 3 (or fewer) years of household income is sufficient to purchase a home in the area.
In Vancouver, however, the median housing price – $540,900 – is equivalent to 9 years and 4 months of the median household income of $58,200 (both are measured in the third quarter of 2009). Wow, just wow.
The rest of BC’s urban areas aren’t doing much better: 4 of the 5 least affordable housing markets in Canada were in BC. In order of lowest affordability, these are Vancouver, Victoria, Abbotsford and Kelowna. The next least affordable housing in Canada is in Toronto.
If you’re curious, the 5 affordable urban housing markets in Canada are Thunder Bay, Windsor, Moncton, Saguenay and Saint John, NB.
What can we do about the rising unaffordability of housing in BC?
First off, we need our policy-makers to recognize that housing affordability is a serious problem and begin to monitor it regularly so they can measure their progress in addressing it (targets and timelines, anyone?). Here’s where I agree with the assessment of the folks at the FIPP that in Canada
housing affordability has received little or no political attention, even in the bubble markets where booms escalated housing prices to unprecedented heights.
It’s time for this to change.
What kind of policy reforms should we be looking at? The folks at the Frontier Institute for Public Policy recommend a market approach of relaxing zoning regulations and getting rid of agricultural land reserves, which they argue will reduce the price of land and thus the price of housing. Increase supply to lower prices – a standard textbook economics solution, but in this case it’s not going to work.
No matter how far you take it, eventually there are hard limits to low-density sprawl. We’ve got only so much land to fill with single family homes before we run out. Paving over agricultural land may postpone the problem for a few more years, but it’s not a long term solution. Moreover, as we prepare to face climate change and peak oil, encouraging urban sprawl may well do more harm than good. And if our world is about to get a lot smaller, paving over agricultural land would soon prove to be short-sighted.
It seems to me that we’ve left the invisible hand work its magic in the housing market long enough by now to know what it is good and bad at. It does an excellent job of providing luxurious condos with ocean views to the highest bidder (and we don’t lack millionaires in BC), but it fails miserably at providing affordable housing to the hundreds of working families. And I’m not just talking about the poor or near poor here – whose situation is dire – but about families with two earners with decent middle class jobs who are finding it more and more difficult to afford a home in the city. It’s time for governments at all levels to intervene in the market and ensure that a share of the new homes build are priced so that they are affordable for middle income families.
And since affordability is not just about housing prices, but about household incomes as well, I’d like to see some action on the income front. A couple of decades of making our labour market more “flexible” have resulted in stagnating earnings at the middle, and falling real (inflation-adjusted) earnings for families in the lower end of the income ladder. We need to address the rising income inequality and increase the economic security of the poor and modest income households. This can be done both through strengthening labour law and through re-distribution via the tax system.