Pretty comes at a premium in sizzling real estate market
Ask any wannabe property owner in Vancouver what the affordability index is in the city and the weary, outraged response is likely to be: what affordability?
The Royal Bank of Canada recently released a survey that compares the affordability of home ownership in the country's major cities.
It surprises no one that it's twice as expensive to own a house in Vancouver than it is in the country's capital, Ottawa. What particularly chafes is how much more expensive it is in Vancouver than Toronto and Calgary, cities more economically vibrant than Vancouver.
CEOs of major corporations may prefer to be based in Calgary or Toronto, with both cities having more head offices than Vancouver, but the west does have the advantage of being pretty.
That may count for something, but when it comes to affordability, Vancouver's desirable location has come at too high a price for most average families.
Servicing a mortgage for a detached bungalow in Vancouver would chew up 71 per cent of pre-tax household income. Toronto and Calgary homeowners spend an average of 45 per cent of their household income and in Ottawa, just under one-third.
Short of bulldozing mountains and emptying the ocean, it's unlikely that Vancouver's real estate will lose its draw, says Professor Tsur Somerville of the University of British Columbia's Centre for Urban Economics and Real Estate.
Although owning a home in Vancouver is increasingly difficult for most, the affordability gap is offset by other factors, according to Professor Somerville. Rent in Vancouver is comparably less than in Toronto, a leftover from decades of rent control and the phenomenon of basement and secondary, sometimes illegal, flats put in by homeowners to help with the mortgage.
And while the two-storey home is the desirable way into the housing market in other cities, the dream in Vancouver is downscaled to condominiums.
'Lots of people agree our house prices are above where they should be and that has to readjust over time,' Professor Somerville said. 'But that doesn't necessarily mean falling house prices.'
The RBC report found that market conditions in Vancouver loosened up during the past year, but conditions remain tilted in favour of sellers. The bank believes more rises are ahead.
One way out of the rental bind for those who can't come up with the 25 per cent, or about C$150,000 (HK$1.13 million), needed for the standard mortgage for the average Vancouver house is to take an unconventional loan. The RBC says getting a 40-year mortgage, rather than the traditional 25-year one, helps bring the mortgage payments down.
Vancouver real estate agent Kim Cheng says it's a tough job to convince some desperate people not to become house rich and poor everywhere else.
'I know zero per cent and 5 per cent down is attractive, but I tell my clients that it's better to come up with as much as you can for the down payment,' he said.
Mr Cheng said he had been tracking the soaring number of foreclosures in previously hot markets like California, Arizona and Texas, but he hadn't seen any signs of it yet in Vancouver. But he tips it will come.
But sticker shock remains. Recent clients from Seattle, just two hours south in Washington state, couldn't believe what they could afford there compared with what they would have to pay in Vancouver, he said.
The frustration is high for renters like Vanessa Osborne, a mother of three who keeps looking for a home she can afford to buy. A C$400,000 house she looked at last week was a tear-down and still unaffordable.
'We think about leaving and going someplace where we can afford to have a nice home,' she says. 'Anywhere else in Canada, we could buy a place, but not in Vancouver. Here we have the ocean and the mountains, but that's not really important when you're stuck with no place of your own.'