The prohi­bi­ti­ve cost of li­ving in Me­tro Van­cou­ver

The ex­tra­or­di­nary run-up in real es­ta­te pri­ces li­ke the one ex­pe­rien­ced in the Lo­wer Main­land rai­ses the odds of a pain­ful mar­ket co­rrec­tion

La Jornada (Canada) - - ENGLISH SECTION -

Ge­ne­ra­tion Xers don’t cook. They ne­ver ac­qui­red the skills. Most of this group (born bet­ween 1965 and 1976) grew up when food was es­sen­tially an af­tert­hought.

How can peo­ple af­ford to li­ve in Van­cou­ver? That ques­tion ca­me to mind as I strug­gled to catch up with the la­test to­rrent of me­dia sto­ries on the Lo­wer Main­land’s see­mingly inex­haus­ti­ble hou­sing boom.

Me­tro Van­cou­ver has long been the most ex­pen­si­ve pla­ce in the country to pur­cha­se (or rent) a ho­me. In­deed, re­la­ti­ve to the in­co­mes of area re­si­dents, it ranks among the pri­ciest mar­kets in the world.

Twi­ce a year, the Ro­yal Bank of Ca­na­da (RBC) es­ti­ma­tes the pro­por­tion of me­dian pre-tax hou­sehold in­co­me nee­ded to ser­vi­ce a mort­ga­ge and co­ver pro­perty tax and uti­lity char­ges on a stan­dard de­ta­ched ho­me and a stan­dard con­do­mi­ni­um. The term ‘stan­dard’ im­plies a re­si­den­ce of mo­dest spa­ce and qua­lity.

The RBC analysts as­su­me that ho­meow­ners con­tri­bu­te a 25 per cent down pay­ment and ta­ke out a 25-year mort­ga­ge at a fi­xed fi­ve-year ra­te.

Using this met­ho­do­logy, the cost of pur­cha­sing and ope­ra­ting a sin­gle-family ho­me now amounts to 112 per cent of me­dian pre-tax in­co­me for the ty­pi­cal Me­tro Van­cou­ver hou­sehold. For a stan­dard con­do­mi­ni­um, the cost is much lo­wer - around 44 per cent of me­dian in­co­me (alt­hough this ex­clu­des main­te­nan­ce fees).

The Grea­ter Van­cou­ver mar­ket is the least af­for­da­ble in

Ca­na­da, across all ca­te­go­ries of hou­sing. For a stan­dard de­ta­ched re­si­den­ce, ho­me ow­ners­hip costs ab­sorb 72 per cent of me­dian hou­sehold in­co­me in Grea­ter To­ron­to, 43 per cent in Mon­treal, 40 per cent in Cal­gary and 38 per cent in Ot­ta­wa. For a stan­dard con­do­mi­ni­um, ow­ners­hip costs in Me­tro Van­cou­ver al­so ex­ceed tho­se in ot­her ci­ties, al­beit not by as much.

How do peo­ple in the Lo­wer Main­land ma­na­ge amid sky-high hou­sing pri­ces?

The­re are se­ve­ral fac­tors to keep in mind.

First, in re­cent years up to 10 per cent of Me­tro Van­cou­ver ho­me­bu­yers ha­ve been fo­reig­ners who don’t work in Ca­na­da or rely on the lo­cal eco­nomy to ge­ne­ra­te in­co­me. Such fo­reign pur­cha­sers ha­ve pla­yed a no­ta­ble ro­le in dri­ving Van­cou­ver-area hou­sing pri­ces hig­her, alt­hough by how much is un­clear. The B.C. go­vern­ment’s 15 per cent tax on fo­reign pro­perty pur­cha­ses in Me­tro Van­cou­ver ap­pears to ha­ve dam­pe­ned fo­reign de­mand but not by enough to trig­ger a sig­ni­fi­cant mar­ket ad­just­ment.

Se­cond, com­pa­red to ot­her me­tro areas in Ca­na­da (and the U.S.), Lo­wer Main­land ho­meow­ners get less for their mo­ney. They ac­cept sma­ller spa­ces, fe­wer ame­ni­ties and lon­ger com­mu­tes. An ever-ri­sing share of area re­si­dents oc­cupy con­do­mi­ni­ums of less than 900 squa­re feet, and they are far more af­for­da­ble than sin­gle family ho­mes. Even couples with two chil­dren in Grea­ter Van­cou­ver of­ten end up in sma­llish con­do­mi­ni­ums - so­met­hing that’s less com­mon in most ot­her North Ame­ri­can ci­ties. Third, a lar­ge ma­jo­rity of Lo­wer Main­land ho­meow­ners ac­qui­red their pro­per­ties 10 or more years ago, when pri­ces we­re dra­ma­ti­cally lo­wer. Today’s eye-wa­te­ri­ng ho­me pri­ces don’t po­se a pro­blem for them - in­deed, soa­ring pro­perty va­lues ha­ve dra­ma­ti­cally in­crea­sed net worth for many ho­meow­ners in the re­gion. Fi­nally, lo­cal go­vern­ments, the de­ve­lop­ment in­dustry and ho­meow­ners ha­ve in­no­va­ted to ma­ke ow­ners­hip fea­si­ble. Floor spa­ce has sh­runk in ne­wer de­ve­lop­ments and den­si­fi­ca­tion is well un­der way across the re­gion. Many sin­gle-family ho­meow­ners main­tain se­con­dary sui­tes that ser­ve as in­dis­pen­sa­ble mort­ga­ge hel­pers. More pa­rents ha­ve been stum­ping up lar­ge do­llops of cash to enable their adult chil­dren to get in­to the mar­ket. In so­me ca­ses, un­re­la­ted in­di­vi­duals or couples com­bi­ne re­sour­ces to pur­cha­se a de­ta­ched ho­me in which both re­si­de.

Ne­vert­he­less, the reality is that hun­dreds of thou­sands of Lo­wer Main­land fa­mi­lies are sadd­led with re­cord debt bur­dens owing to the high cost of ho­me ow­ners­hip. An eco­no­mic shock - a sud­den jump in unem­ploy­ment or a spi­ke in in­ter­est ra­tes - would de­li­ver a blow to many of the­se hea­vily-in­deb­ted hou­seholds. A sharp hou­sing mar­ket co­rrec­tion would al­so hurt Me­tro Van­cou­ver ho­meow­ners and could tip the re­gion’s eco­nomy in­to re­ces­sion. So­me eco­no­mists es­ti­ma­te that a 20 per cent drop in pro­perty va­lues would sha­ve at least $100 bi­llion from net worth in Me­tro Van­cou­ver.

The his­tory of hou­sing booms around the world sug­gests that an ex­tra­or­di­nary, mul­ti-year run-up in real es­ta­te pri­ces, li­ke the one ex­pe­rien­ced in the Lo­wer Main­land, rai­ses the odds of a sub­se­quent pain­ful mar­ket co­rrec­tion. Alt­hough the­re is little cu­rrent evi­den­ce poin­ting this way in Me­tro Van­cou­ver, the pros­pect of a sig­ni­fi­cant mar­ket down­turn can’t be ru­led out. And should one oc­cur, many analysts will li­kely see it as over­due. -TROYMEDIA

Jock Fin­lay­son is exe­cu­ti­ve vi­ce-pre­si­dent of the Bu­si­ness Coun­cil of Bri­tish Co­lum­bia.­jor­na­

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