For richer or poorer?
Nels Anderson and his wife, Tila, have good jobs and hefty savings but can’t buy a Vancouver home
A frothy real estate market has left affluent British Columbians who can’t afford to buy feeling poor–and homeowners of modest means feeling flush. With research partner Environics Analytics, we explore how this divide has affected personal finances from Vancouver to Kelowna to Comox, finding unexpected pockets of wealth along the way
Rachel Harriman and her husband have seven times their annual household income—which is in the healthy $100,000-plus bracket—socked away, thanks to the sale of a condo several years ago along with savings from their earnings. Justin Jacobsen, who makes a “comfortable six-figure salary” as an investment analyst, and his wife have also banked a huge wad of money. Nels Anderson and his wife have amassed about two years’ worth of household income in savings.
These three Vancouver couples in their 30s are, by normal standards, more than well off. They, along with many other millennials in Metro Vancouver, have saved much more than their peers in any other major Canadian city, according to WealthScapes 2016, the latest annual report on the assets, income, spending and liabilities of Canadians published by BCBusiness research partner Environics Analytics. The 30-somethings in B.C. have savings and investments that are 50 per cent higher than the rest of their cohort in Canada. Those in Vancouver have 20 per cent more than millennials elsewhere in the province.
But they feel poor, for the same reason they have money in the bank or investment accounts. Even with their relatively good incomes, they can’t get into the property market—or at least not into any house, townhouse or condo that is roomy enough and close enough to where they work in Vancouver. That makes them cash rich and equity poor, in a city where real estate hysteria prevails. And all three couples, who have started families and are struggling with the different demands that makes, are enraged and frustrated about it.
“On every front, it’s all impossible,” says Anderson, who runs a video game development business. “We have zero debt, four university degrees between us and no security in anything at all.”
Anderson and his wife, Tila, pay $2,500 a month for a two-bedroom condo in the West End just big enough for them and their two-year-old, with a cramped office on the enclosed balcony. If that rental were ever to be yanked out from under them, their house of cards—complicated childcare arrangements, quick commutes to work—would collapse. But buying anything would mean more than doubling what they pay for housing, a piece of math that seems untenable.
“Obviously, there are people who are truly floundering in lived poverty out there,” says Anderson, trying to put his situation into perspective. He’s right. Many British Columbians are truly poor, without any of the three pillars of household wealth: company pensions, investments and real estate. Half of all single B.C. seniors get by on less than $25,000 a year, according to the Canadian Centre for Policy Alternatives. About 450,000 people in the province are still considered to live below the poverty line, even though 40 per cent of that group is working. But there’s also hardship among his cohort, Anderson contends. “For everyone in the middle, there’s nothing for us,” he says. “For young people, the deck is stacked against us.”
Digital designer Harriman and her husband, Eduardo Rabago, who works in software design, live in an 850-square-foot West End two-bedroom with their toddler for a modest $1,700. The only thing that seems to be available to them, if they don’t want to spend way over 30 per cent of their income on shelter, is “a house in East Van where someone died,” Harriman says.
Jacobsen is equally stymied. He and his wife, Golriz Fattahi, pay $3,000 a month for a floor of an older house near Vancouver City Hall, a roomy place they need for themselves and their two-year-old. They face having to pay double that amount if they want to buy even a small coach house in their area. One they looked at recently was selling for $1.5 million.
“It’s kind of stressful,” says Jacobsen, who at this point can’t stomach the idea of investing in such an out-of-whack real estate market. It’s made him especially resentful about the speculation and capital flight from overseas distorting Vancouver’s housing fundamentals, dynamics that make his everyday life uncertain. “You’re dealing with a landlord who you don’t know what his intention is,” he says. “My son has friends in the neighbourhood, and it would be hard to move.”
BEWARE THE WEALTH EFFECT
That’s one group of Vancouverites.
Then there are the others, the people who don’t look or act or have a lifestyle that says “rich.” And yet, by some standards, they are.
Judy and Peter Sauer worked at unspectacular jobs their whole lives. Peter, now 72, did property management and maintenance. He doesn’t have a company pension, just CPP and old age security. Judy, 62, worked in client services for insurance companies for 40 years. She has a company pension, but not a huge one, and a small stream of money from family oil rights.
But they bought their first house, in Coquitlam, for $47,000 in 1980. Buying and selling several more times—including one downsizing to a townhouse when Judy lost her job temporarily—they acquired their last Coquitlam house for $216,000 in 1997. This spring, they sold it for their asking price of $1.16 million and moved to a condo in New Westminster that cost only $448,000. That gives them a plump cushion to support their retirement.
The Sauers are part of a phenomenon that makes B.C. residents look, on Environics Analytics spreadsheets anyway, like the wealthiest group in Canada among a prosperous nation with ample real estate, pension and investment holdings. In fact, the company’s latest WealthScapes report dubbed Vancouver the nation’s “first city of millionaires.”
“Overall, I think Canadians are extremely well off,” says Peter Miron, Environics Analytics’ Toronto-based vice-president for economic data. “We have a strong economy; we haven’t experienced the big correction.”
B.C. is the most noticeable example of Canada’s economic extremes, Miron says. Whole subsets of people in this province should feel prosperous but don’t, courtesy of the real estate market. Other whole groups, who would be no more than moderately well off in any other time and place, are now cashing in a big pile of chips.
The Environics Analytics stats show that Canadians are relatively prosperous, but not always in the same way, depending on how the numbers are teased apart.
People in B.C., and especially the Lower Mainland, look like the wealthiest in the country at first glance. Households in the Vancouver region had average total assets of $1.25 million in 2016, according to Environics Analytics, which estimated last year’s values based on statistics from 2015. That put the Vancouver region ahead of Toronto at $1.15 million, Calgary at $1.1 million and Ottawa at $900,000. And debt isn’t a big factor. Even when the list is recalibrated to put cities in order of average household net worth, Vancouver still led in the 2016 report, with Toronto and Victoria following closely. (Calgary dropped behind, after the fallout from plummeting oil prices.)
But once real estate is stripped out, the picture isn’t so rosy. Households in the Vancouver region have the lowest average income ($101,000 in Environics Analytics’ 2016 report) among the six largest cities in Canada except for Montreal. Employer pension plan values here, at an average of $110,000 per household in 2015 data, are also the lowest. And liquid assets in the region, at around $352,000, are a few hundred dollars higher than Toronto’s and considerably lower than Calgary’s ($427,000), in spite of the likelihood that there are some real estate profits tucked into those investments.
A closer look at the different kinds of wealth in B.C.’s major urban centres shows the same pattern. There are unexpected patches of prosperity tucked among the Lower Mainland suburbs and Island or Interior cities. The residents of certain Metro Vancouver cities, along with a few posh suburbs around Victoria, appear to be the wealthiest: West Vancouver, North Vancouver and Oak Bay lead, with Vancouver and Richmond not too far behind. West and North Vancouver—the region’s executive suburbs—maintain their ranking, no matter how the lists are sorted. But households in Delta, Port Moody, White Rock and Langley have as much or more in assets as those in Vancouver and Richmond.
When it comes to areas with the largest values in employer-supported pensions, the ranking changes again. On top: Central Saanich, a small but well-to-do community near Victoria where provincial civil servants like to retire; Comox, in mid–Vancouver Island; and Colwood, another Victoria suburb.
It adds up to a funhouse picture of household wealth in B.C., where income, real estate equity, pension security and total assets are sometimes wildly out of alignment. People may have high incomes and high savings, but nothing in real estate or pensions. Or they have modest incomes, but healthy pensions and reasonable slush piles of investment money. The result is groups of people who feel poor but aren’t really or feel rich who aren’t really, or those who feel both rich and not rich at the same time.
It’s a phenomenon that produces psychological stresses for the rich-but-seem-poor crowd and dangerous invitations to overspend for the modest-but-suddenly-rich cohort.
The group that feels shut out of the real estate market will feel resentful and cheated for a long time, says David Hardisty, an assistant professor at UBC’s Sauder School of Business. “A lot depends on what you grew up with and what you expect. If you grew up where everyone bought a single-family house, that’s your reference point,” explains Hardisty, who studies consumer behaviour (especially the way we fool ourselves about how we spend money). “In Vancouver, you’re below your reference point, and so you’ll feel you’re not very well off.”
That’s hard on the human psyche. “We hate being in the negative; we hate being behind,” Hardisty says. That doesn’t go away, he adds. Although people adapt quickly to improved finances, soon forgetting where they were before, those who feel like they’ve lost out don’t adjust.
The sense of being impoverished, even if your household is pulling in $150,000 a year, also acts as a brake on other spending. “If you feel like you’re below your reference point, you will be more careful in saving up,” Hardisty notes.
That’s certainly true for Nels and Tila Anderson as they navigate carefully among all their household expenses. “I can’t remember the last time we went on vacation,” says Nels, who does some of the childcare for their two-year-old as they try to keep those potentially sky-high costs to a minimum. Their furnishings are so modest that “you could liquidate our entire household for $10,000,” he calculates.
The psychological effects for those who have suddenly found themselves wealthy through real estate or investments, however, are at the opposite end of the spectrum.
The rich-on-paper group is vulnerable to what economists call the wealth effect. It’s when you start spending more money on daily living just because you feel rich, even if you haven’t cashed in your sudden investment profits or your real estate holdings.
That trend has cropped up in U.S. studies since the 1960s of how people changed their spending behaviour. After the dotcom stock-market spike in the early 2000s, for example, people started spending more as their paper wealth grew. Canadians appear to be more restrained, but they’re not invulnerable to the wealth-effect dynamic.
“I have seen people recently, not in a big way, but some come close to paying off their mortgage, and then they’ve used their home-equity line of credit to buy a cottage,” says Graham Bodel, co-founder of investment management firm Chalten Fee-Only Advisors Ltd. in Vancouver. “It is a danger point.”
WEALTHY AND WISE
The same trend has taken hold outside the Lower Mainland hothouse.
“I certainly have to have a lot of conversations about tamping expectations,” says Patrick Hayton, a financial planner who works in the Courtenay-Comox area. “The biggest mistake people make is overestimating the income that a portfolio will produce.”
So Hayton spends plenty of time giving warnings, even though his clients are in a region with a generous layer of wealth supporting the population.
Although real estate prices are nothing like those in Vancouver or Victoria, and residents’ investment holdings are in the so-so range, Comox ranks as the second city in B.C., after central Saanich, for the value of employer-supported pensions. With a military base, a decent local economy that produces a certain number of jobs with good pensions, and a high appeal for Lower Mainland retirees looking for a small but interesting and well-serviced community, people there are doing better than most on one of the three pillars of household wealth.
Helen and Kelly Watkinson are among them, retirees who cashed out of Vancouver, bringing with them substantial pensions and the profit from selling their Burnaby house last August for $1.5 million. They’re both 61 and put in a solid four decades in the workforce, methodically accruing pensions and assets. She started at 20 as a psychiatric nurse, while he was a mechanical designer for a health technology company.
Neither expected to become rich. Both were savers, opting to go without a stove in the first house they bought in their 20s until they felt they could afford to move up from a hot plate and microwave.
Helen says they learned a lesson in the early 2000s when they, along with others, made what looked like a small fortune during the dotcom bubble. Some of her husband’s friends went out and splurged on the strength of their theoretical wealth. One bought a Porsche Boxster. Then everything collapsed.
“We’ve been through this before, so we’re careful,” Helen says. But they have spent $1 million on their new home just north of Comox, in Seal Bay, building a new house and cottage, and installing a hot tub from which Helen can watch the deer walk by.
Their property is where the Watkinsons chose to splash out a little. Back in New Westminster, the Sauers also splurged with their real estate winnings—but only a tiny bit. Avid recreational-vehicle travellers for the past 30 years, they upgraded to a slightly less old and slightly larger ride this spring.
Kelly and Helen Watkinson built a place in Comox after selling their Burnaby house
BUYING A NEW BOAT– AND DROWNING IN DEBT?
Those are two examples of how differently the residents of various communities choose to spend their mad money.
While people in Comox and Courtenay spent only about $2,000 on average in 2015 on recreational equipment and vehicles, the gung-ho residents of Fort St. John dropped $4,700 in those categories. Perhaps that isn’t too surprising, since Fort St. John households had the fourth-highest incomes in B.C.—but their spending on boats and RVs outdid even the three cities higher on the income list, West Vancouver, Oak Bay and North Vancouver.
Another city that ranks high for recreational-equipment spending is Kelowna, even though income levels are considerably lower than in oilpatch Fort St. John. Is it because people there don’t have so much mortgage debt, so they have more play money?
Mike Stang doesn’t think so. A 39-year-old who divides his time between his businesses in Alberta and his life beside Okanagan Lake in Kelowna, he says it’s more about what residents see as a priority.
“Per capita, recreation is just more valued here,” observes Stang, who has recently been doing prepurchase research on 35-foot cruisers at Malibu Marine Kelowna Ltd. “It’s almost a sin to have a lake like this and not utilize it.”
At Malibu Marine, owner Ron Pfob says he believes the attraction to boats is part of an image people have of how they should be living: “It’s a lifestyle thing.”
Spending on luxuries like boats raises the question of debt, something that news stories constantly warn Canadians are awash in. This March, Statistics Canada pegged average credit-market debt at $167 for every $100 of disposable household income, adjusted for social transfers.
But Environics Analytics’ Miron, whose company’s analysis also looks at household liabilities, says those numbers can be misleading. He emphasizes that 80 cents of every dollar owed in the country is for mortgages, 15 cents is for secured lines of credit, and only five cents is due to consumer spending on credit cards. “Fundamentally, all the debt is pinned back up against real estate,” Miron says. “That’s good debt. One day, hopefully, they’ll be able to cash out.” (Sure, as long as Canada doesn’t experience a giant pop in its bubbly housing market.)
Of course, that’s only true for those who can get into the real estate market, which doesn’t include the many frustrated millennials in the Lower Mainland. For them, there’s the cold comfort of not having to pay $15,000 for roof repairs or $20,000 for drain-tile jobs. And the fact that their investments are earning steady returns year after year.
But it’s still tough for them to adjust.
Graham Bodel says he has to remind people to look closely at their financial picture before jumping into irrational decisions about buying real estate. “If you’re going to tie your happiness to something that is completely impossible, it’s time to step back,” he cautions.
Justin Jacobsen is resigned to eventually pulling his money out of his investments and sinking it into a single-family house or townhouse, even though the returns will be less. “It would be a very aggressive risk,” the investment analyst says. “I’d really have to liquidate a huge amount of my financial holdings.” But even Jacobsen admits that some choices are not just about money: “It’s a huge emotional decision.”