Vancouver's problem isn't high housing costs, it's stagnant incomes

Jim Sutherland argues that we’ve been led to believe a lie

Housing affordability has been a Vancouver preoccupation for three decades, and not without reason. High housing costs take a toll on the well-being of residents, on the texture of the city, and not least on the economy, by distorting labour markets and diverting capital from more productive investments. Following last November’s municipal elections, in which the cost of housing and associated ills bubbled to the forefront, the topic appears set to blossom as a major civic debate and may even precipitate action. Before that happens, there are a few misconceptions that should be cleared up.

First, housing in Vancouver has been expensive compared to most of the rest of the country since the 1970s, and median prices have increased in subsequent decades at a rate only slightly faster than in most other cities. In January 1975, the Royal Lepage Housing Survey showed a detached bungalow costing $56,000 in North Vancouver, $45,000 in Calgary West and $58,000 in the Toronto suburb of Richmond Hill; today’s equivalents are $900,000, $768,000 and $720,000. Proportionately, we’ve gained a little on Toronto but stayed even with Calgary. Given Vancouver’s rapid growth, space constraints and global interactions, that could be considered a plaudit for our early, if still hesitant, embrace of densification.

What’s changed more drastically are relative incomes. Back in 1976, when the national median household income was $55,200 (2011 dollars), Vancouver’s was among the country’s highest at $63,700; by 2011 it had fallen back to the national average at $57,200, a relative drop of about 15 per cent. It’s the lower incomes, as much as the higher prices, that explain why a dwelling purchased in Vancouver at the median price currently costs about 10 years of median income—often cited as the affordability ratio—compared to the four-to-eight range of most Canadian cities.

Second, despite what so many media people and politicians have said, an affordability ratio around 10 does not make Vancouver “the second least affordable city in the world.” Not even close. In fact, in the context of “the world,” it’s about average.

So where does such a ridiculously erroneous, terribly misleading and, let’s just say this, laughably naive idea come from? From a think tank called Demographia, whose database considers cities in only nine countries. The U.S.-based organization describes itself as “‘pro-choice’ with respect to urban development” but time and again comes out against planning policies aimed at increasing rail service and density. It contends that a major reason why a city like Kansas City is cheap and one like San Diego more expensive is that the former suffers less from regulatory excess.

In any case, Vancouver’s true place in the global affordability order is better ascertained from a source such as Numbeo.com (see “The Affordability Ratio,” right). The database there is crowd-sourced by contributors from around the world, and a few of the numbers are definitely wonky, but where there’s overlap, most are in fact pretty similar to Demographia’s. Vancouver’s affordability ratio, for example, comes in at 9.93 versus 10.3 with Demographia. The difference is that Numbeo’s world includes more than 500 cities in about 150 countries. On its list Vancouver ranks as the 215th least affordable city.

Finally, there is the matter of rents, where the CMHC’s twice-yearly survey shows Vancouver rents to be virtually identical to those in Calgary, Ottawa and Toronto—cities where buying is considerably cheaper. That’s bad for investors—and helps to explain the dearth of purpose-built rentals (though that’s changing)—but it’s good for residents, who have a powerful weapon in the battle against high real estate prices: rent instead.

Now, may the chin wagging begin.