Housing affordability sensationalism–enough already!

Posted by: Elise Stern, Created date: February 19, 2012

Wendy Waters – AllAboutC?i?ties?.ca

It has come to this. Every time some bank or other orga­ni­za­tion releases a new study about hous­ing afford­abil­ity in var­i­ous cities I want to scream. Usu­ally, the press release and all media sto­ries have somesen­sa­tional head­line like “Van­cou­ver 2nd most unaf­ford­able city in the world.” As if. Those of you liv­ing in San Fran­cisco, New York or Lon­don feel free to post in the comments.

What vir­tu­ally all of these stud­ies do is look at median or aver­age prices of detached bun­ga­lows (mod­er­ate houses on their own lots) com­pared to the median or aver­age income. This met­ric worked okay in the 20th cen­tury in most cities when bun­ga­lows on mod­est lots were the first homes of young fam­i­lies.  It is becom­ing increas­ingly mean­ing­less in the 21st cen­tury. Here’s why.

1. Aver­age and median home prices are being dri­ven up by the larger, mature demo­graphic (think those over 50) who have equity and are now trad­ing homes. Some are buy­ing a nicer loca­tion, some are down­siz­ing to a pent­house condo. Every­one has their own rea­son. Regard­less, they are not tak­ing out a $1 mil­lion mort­gage on their $80,000 salary.

Aver­age prices are also being dri­ven up in some cities, like Van­cou­ver, by an increase in “Lux­ury Mar­ket” sales.  Over 700 homes priced at over $3 Mil­lion sold in Van­cou­ver in 2011, nearly dou­bling the pre­vi­ous record of 375.

This lux­ury prod­uct is not about homes for younger fam­i­lies. There­fore, we should stop includ­ing it in analy­sis of hous­ing mar­ket afford­abil­ity for young fam­i­lies. Bob Ren­nie argued this in a talk last year. With help from Urban Futures, he noted that if you removed the top 20% of sales from analy­sis, pric­ing and afford­abil­ity had not changed much in Metro Van­cou­ver in recent years.  Sub­ur­ban devel­op­ers tell me pric­ing has been quite flat for some time.

2. With num­ber one said, we can still see that demand today is strong and grow­ing in walk­a­ble, mature cities and neigh­bour­hoods; the detached houses are often in high­est demand (even when more mod­est price strata-homes exist).  Because you can’t make more detached homes on lots in these mature areas, demand exceeds sup­ply for this type of prod­uct.  This dri­ves up the aver­age and median price of even fixer-uper, non-luxury prod­uct; increas­ingly only those trad­ing an exist­ing home or com­ing in with cash can pur­chase them.  Fam­i­lies are buy­ing in these neigh­bour­hoods, but they are typ­i­cally not <a href=“http://www.jeffreyteam.com/toronto–con­dos–for-sale/firsttimebuyer.htm”target=”_blank”title=”first time buy­ers” >first-time buyers; they have above aver­age incomes and often equity from a condo or sub­ur­ban home.

3. Points one and two above illus­trate that detached bun­ga­lows are no longer typ­i­cal first-time buyer prod­uct. When indi­vid­u­als, cou­ples or fam­i­lies buy their first home in larger Cana­dian cities (and many cities around the world), increas­ingly it is more likely to be a town­house or a condo. Accord­ing to Real­net, In theGreater Toronto Area, 62% of homes sold in 2011 were high rise con­dos. And from watch­ing House Hunters on HGTV this is also hap­pen­ing in many US cities as well.

There­fore a state­ment like “Van­cou­ver 2nd most unaf­ford­able city” is not that help­ful if we are con­cerned about the “afford­abil­ity” of buy­ing a decent home for young fam­i­lies. Mea­sur­ing some­thing that is not first time buyer prod­uct against the incomes of first time buy­ers is com­par­ing apples to Yugos.

If we are truly inter­ested in under­stand­ing the abil­ity of indi­vid­u­als with aver­age incomes to buy a home in the higher priced metro areas, then at min­i­mum look at condo homes (row­houses and con­dos) instead of detached homes. Ide­ally you also remove the prod­uct cov­eted by the multi-millionaire club from the analy­sis.  Sud­denly the income needed to get into the mar­ket looks more famil­iar to most of us — $50,000 for Metro Van­cou­ver, $38,000 in Greater Toronto accord­ing to this study.

Flashy head­lines about real estate being unaf­ford­able get the pub­lisher of the reports and news­pa­per arti­cles atten­tion – this is why they pub­lish them.  Also it’s much eas­ier to cal­cu­late median price and median income, and harder to do real hous­ing mar­ket analysis.

What wor­ries me is that politi­cians, pol­icy mak­ers and lobby groups are using this mis-information.  I fear for the results.  So banks and oth­ers, please move your think­ing into the 21st century!

Most popular

The End of Shoveling? Housing affordability sensationalism–enough already! Canada’s mortgage rules tightening Calm During The Storm: Winterizing Your Home Low-Rise Home Types Drive June Price Growth

Latest post

Toronto is the World's "HOTTEST" market for luxury… Condo Demand Underestimated-Prices Edging Up Market Strength to Continue-No Interest Rate Hikes… City Condos are Hot!! Sales and prices rise! Hot summer market continues....

Newsletter Signup

Your Name

Your Email