It’s the puzzle that residents of Toronto and Vancouver have been frantically trying to solve for well over a decade: What has brought Greater Toronto and Vancouver some of the most unaffordable housing costs in the world?
Specifically, why did Metro Vancouver in 2021 struggle with the third-highest median housing prices in North America?
While at the same time, the region has the 104th lowest median household incomes out of 504 cities on the continent, equivalent to Kansas City and Regina?
Last month, scholars at the University of California, Berkeley invited a Canadian expert to offer his analysis of the riddle that is crushing the dreams of an entire generation.
“What really surprised them in California was the sharp decoupling there is in Metro Vancouver between incomes and housing prices,” said Andy Yan, an associate professor of professional practice at Simon Fraser University who also heads its City Program.
It’s relevant that Yan was invited to speak to about 75 urban design specialists in the San Francisco Bay area, since it also has prices in the same range (adjusted to Canadian dollars) as super-expensive Metro Vancouver.
But there is a big difference. Unlike Metro Vancouver, the San Francisco region also has the fourth-highest median household incomes in North America.
Indeed, median wages in the California city come in at the equivalent of about $145,000 Cdn., 61 per cent higher than $90,000 in Vancouver.
In other words, while things are rough for would-be homeowners in the San Francisco area, they are horrible for those squeezed out of the Metro Vancouver market.
Why is that? In his California presentation, Yan talked, quite sensibly, about the three big factors that normally determine housing costs: supply, demand and finance.
While those on different sides of the housing debate often pretend it’s just one factor, in fact all three play out at the same time. The housing market is like a living organism, always adapting, always evolving, sometimes in cruel ways.
Here’s my simple guide to how these three factors weave together:
This is the component that developers and their allies push hardest, since it serves their interest to lobby for the most efficient, inexpensive way to build more housing “supply”.
The goal of constructing more houses is also most often publicized by politicians, since it gives voters the impression they are doing something to solve the affordability crisis.
That is the route the B.C. government is aggressively pursuing this fall as it rams through two legislative bills designed to dramatically reshape almost all residential neighbourhoods — by allowing up to six units on a single-family lot and forcing high-rise buildings of between eight and 20 storeys within 800 metres of a rapid transit station and within 400 metres of a bus exchange.
Community groups and civic politicians know that their once hard-fought democratic right to be consulted about big changes to their communities are going to be severely reduced. That tends to delight the supply advocates who describe themselves as YIMBYs (yes, in my backyard) in their opposition to NIMBYs (not in my backyard).
But on its own, more supply won’t come close to solving affordability. As Yan and many others rightly ask: Who will the new housing supply be for? For wealthy investors seeking palaces and $4-million luxury view condos? Or for local workers desperate for three-bedroom homes in which to raise a young family? The latter rarely get built in Metro Vancouver.
Even while supply-siders often mock housing analysts who talk about the way demand also impacts housing prices, it has become more accepted in the past year or so for Canadians to focus on this second force in the three-part housing equation.
The urban planners and others who gathered to hear Yan in California were surprised by how different Canada was from the U.S. in regard to population growth through immigration, foreign students and other guest workers.
The proportion of foreign-born residents in cosmopolitan Metro Vancouver is 47 per cent and in Toronto it’s 51 per cent, Yan showed. Those ratios, of roughly one in two residents being either immigrants or non-permanent residents, are the highest of any major North American city.
They contrast with how just 31 per cent of the diverse population surrounding San Francisco, including Berkeley, is born offshore. The ratio in New York City is 29 per cent.
Yan is far from alone among Canadian housing analysts, including from the big banks, in pointing to this Canadian phenomenon of speedy population growth almost entirely through migration, which comes with an influx of foreign capital. UBC prof. emeritus David Ley’s new book Housing Booms in Gateway Cities shows it also occurs in other key “gateways” such as Sydney and Singapore.
This week, Leger published a poll showing three out of four Canadians now believe Ottawa’s much higher immigration targets are worsening the housing crisis.
The impact of investors, domestic and foreign, on demand is also critical. Yan tracks how people who own multiple dwellings are increasingly dominating the housing market in Metro Vancouver. In the five-year period leading up to 2021, they bought more than half of Toronto’s and Metro Vancouver’s condos.
The California audience, well aware of investors powering their own housing market, were keen to hear Yan talk more about the laws B.C. has brought in to limit demand. They discussed how taxes on foreign buyers, speculators and empty homes could be introduced to the U.S.
There was extra interest, Yan said, in Singapore’s model, where foreign buying and investor buying is tightly controlled and strongly taxed. Singapore recently raised its foreign-buyer tax to a stunning 60 per cent, and local investors are taxed at 20 per cent on second properties.
Let’s not forget the third factor, beyond the binary of supply and demand. And that is finance.
Politicians don’t directly control one of the biggest factors in housing costs — mortgage rates. And they mostly like it that way, because it gets them off the hook for being blamed for prices soaring or, recently, flattening.
As one of Yan’s charts suggests, a big reason housing prices rose so fast in Metro Vancouver and Toronto since 2001 is that mortgage rates (finance) dipped to record lows at the same time population growth (demand) soared and developers were not able to keep up with construction (supply).
The recent slowdown in prices is caused almost entirely by last year’s actions by Bank of Canada Gov. Tiff Macklem, who basically doubled interest rates to tame inflation, particularly in housing.
Supply. Demand. Finance. The keys to the aggravating housing puzzle.
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