Written by Jim Adair
Housing affordability isn’t a major problem in most Canadian communities, but in Vancouver and Toronto, the average detached home now costs more than $1 million. Home ownership is still possible in these cities, but families and governments must work together to make it a reality.
A report by Vancity says if current trends continue, the average home price in Vancouver will cost more than $2.1 million by 2030, which would require more than 100 per cent of average household income to maintain. The report says the average Metro Vancouver property currently requires 49 per cent of a household’s monthly income, well above the 32 per cent debt load recommended by Canada Mortgage and Housing Corp.
In Toronto, where the average detached home price passed the $1-million mark for the first time earlier this year, Central 1 Credit Union is forecasting prices will rise by five per cent annually until 2017.
In most of Canada, housing affordability trends “since 2010 remain essentially flat thanks to a well-entrenched pattern of periods of modest deterioration succeeding periods of improvement,” says RBC Economics, which reports (http://www.rbc.com/newsroom/reports/rbc-housing-affordability.html) on housing affordability measures four times a year. It says that “generally speaking, affordability is not exerting undue stress on homebuyer demand across most of Canada.
However, “Toronto is one of two markets where affordability is unambiguously poorer than longer-term norms. The other market of course is Vancouver, which continues to show the most stretched affordability measures in Canada by far.”
The 11th Annual Demographia International Housing Affordability Survey ranked Vancouver the second-most unaffordable city in the world, after Hong Kong, in its list of 86 major markets with more than one million residents.
The high cost and low availability of detached homes in Vancouver and Toronto is one of the reasons why condominium apartments have become so popular in both cities. Much has been written about the millennial generation’s desire to live downtown, close to amenities, work and public transit. But studies have also shown that most young people hope they will eventually own a detached home like their parents did.
“If the dream of owning a home is too difficult to achieve in Vancouver, common sense might indicate that millennials look to the suburbs,” says the Vancity report. “If millennials wish to own a detached home, the cities of Maple Ridge, New Westminster, Pitt Meadows, Port Coquitlam and Langley would be key target areas.” It says the average debt-service ratio in these cities is about 31 to 32 per cent. “However, if current trends continue, even this will not last.”
An Urban Futures report says, “While newspapers grumble, co-workers groan and families grouse about the challenges faced by younger generations in becoming homeowners in an increasingly expensive housing market, ownership rates for the market-entry slice of Canada’s households actually increased between 2006 and 2011. In fact, if we look back to earlier Census counts we see that these younger groups have seen increasing ownership rates over longer periods of time.”
The report notes that in Vancouver, the ownership rate for all low-rise homes declined slightly between 2006 and 2011, reflecting the shift to condos.
“The pattern of significantly higher apartment ownership rates for all age groups in Greater Vancouver when compared to Canada as a whole reflects an historical shift in housing culture and form toward more compact living and dwellings, a trend that is now also beginning to characterize the rest of Canada’s housing market,” it says.
“From one perspective, a slowing in the growth of youth home ownership rates supports the notion that it is getting harder for the newest generation of homeowners to enter the market. From another perspective, however, growth in youth homeownership rates between 2006 and 2011, while slower than in previous periods, could also be interpreted as being comparatively strong when considered against overall ownership rates that were at best static both locally and nationally,” says the Urban Futures report.
The Vancity report recommends that families work together and “embrace new forms of multi-family living and owning arrangements” such as housing co-ops, co-housing and co-ownership. They could also consider “intergenerational community living”.
It calls on the three levels of government to provide land-use policies, zoning and tax credits that will allow for more affordable housing and more rental housing. Vancity suggests that financial institutions should stabilize mortgage rates at levels that restrict speculative purchasing. Mortgage approval rules could be altered to allow supplementary income, such as rental income from secondary suites, to be considered as part of the approval process.
There has also been a lot of talk about the impact that foreign investors are having on the Vancouver and Toronto markets, and their role in driving up prices. David Mulroney, Canada’s former ambassador to China, says Vancouver should adopt new policies for foreign buyers, noting that other countries have additional taxes and limitations for foreigners who purchase real estate.