Vancouver’s housing is the least affordable in Canada; our market most vulnerable to sharp decline

The latest RBC report on Canada’s housing market confirms what any would-be buyer knows: Vancouver’s housing market is the least affordable in Canada.

The bank calculates prices are so high here that the average family would require more than 70 percent of its income dedicated to housing costs to afford a home.

With a standard 1,000 square foot Vancouver townhouse selling for $495,000, a family would need income of $101,000 to get a mortgage. A standard condominium at 900 square feet will take $80,000 in annual income, in a city where the median family income is between $60,000 and $70,000.

No wonder the Vancouver Economic Development Commission argues that creating affordable housing — modest market, not subsidized — is a key strategy to maintain economic strength, given the need to retain young professionals and workers, with growing families, in our city workforce.

That’s why affordability was a key plank in Vision Vancouver’s election platform and why we’ve put so much effort into STIR, a short-term incentive program to generate rental housing. While not subsidized, the market rental units at least are available without a mortgage.

Prices are at record highs, raising the risk of market collapse. This would wipe out the equity of beleaguered home owners, but not their debt. It’s the wrong way to get to affordability.

Here’s the RBC note on Vancouver.

In various rankings of housing markets in Canada, the Vancouver area often comes out on top.  These rankings include the highest valued residential properties, fastest rising prices during last year’s rebound and highest home- ownership costs relative to household income.

Vancouver is also making the top of another list – the most at risk.

In the second quarter, already extremely poor affordability deteriorated once more.  RBC Housing Affordability Measures climbed 1.7 to 2.9 percentage points to levels that are rapidly closing in on all-time highs.

Generally, we have dismissed the case of housing market bubbles in Canada, but the situation in Vancouver is probably the closest to one in the country.  Poor affordability likely contributed to the steep drop in housing resales since the start of this year in the area (although other factors have probably dominated).

While the Vancouver market is clearly vulnerable to a price correction, this does not imply that a collapse is imminent because supply (both in the existing and new home sides of the market) is well contained at this point.