Vancouver’s housing crisis: No, not like before, and not like anywhere else (except Hong Kong)
Try discussing Vancouver’s affordability crisis with enough baby boomers and you’ll probably encounter two corrosive falsehoods.
The first states that Vancouver might be unaffordable, but it’s been like this before. The second states that even if Vancouver has become particularly unaffordable recently, other “world-class” cities are being hit to the same degree everywhere, and Vancouverites should get used to it, because it’s the new normal.
For full effect, these sage observations are best delivered with a worldly sigh. Maybe a kindly pat on the head.
The subtext is that Vancouver’s pampered millennials should stop whining about the fact that their city’s real estate is now the second-least affordable in the world, according to Demographia’s* study of 378 cities around the globe in nine major markets. Sometimes it’s not even the subtext. Sometimes it’s the actual text.
The problem is that both positions betray a disregard for facts that is either woefully ignorant or wilfully self-serving.
Not like before
The “always been like this” myth is easily dispelled by checking the rapid escalation of Vancouver’s unaffordability ratio, a measure of median home prices as a multiple of median household income. Vancouver’s multiple (including all residential sales in greater Vancouver) is now 10.6. That’s the highest it’s ever been, double the 5.3 figure from 2005, which is as far as the data compiled by the number-crunchers at Demographia goes.
But let’s go back further. A quick look at adjusted home prices since the 1970s compared with adjusted incomes confirms what should be clear to anyone who pays attention: Vancouver is now deeply, disastrously, into uncharted territory.
Vancouver has only experienced two major price spikes in the past 40 years even remotely comparable to what we see now, peaking in 1981 and 1995. In adjusted-dollar terms, prices were about the same in both those years and in 2005. In adjusted terms, median household incomes were C$61,700 in 1981, C$52,000 in 1995 and C$57,000 in 2005.
In other words, using 2005 as a baseline, our hastily devised affordability index was 9.6 per cent higher in 1995. It was 7.6 per cent lower in 1981. (Prices were adjusted in 2008 dollars and incomes in 2011 dollars; applying different-year dollar adjustments to either will produce different index numbers - but the percentage differences won’t vary).
Let’s apply those differences to Demographia’s 2005 unaffordability multiple of 5.3, in order to estimate comparable figures. It might be rough maths, but it’s extremely instructive. We produce estimates of 4.9 for 1981, and 5.8 for 1995.
Unaffordability has soared since 2005. It’s 10.6 now, remember? So comparing the current situation with even the darkest days of 1981 and 1995 is ridiculous. Things are now far, far worse, regardless of what unsympathetic boomers might conjure from their foggy memory banks.
(This refers only to price : income; I make no judgement about the catastrophic impact of 20+ per cent interest rates in 1981).
Not like everywhere else
As for the second myth, that the current spike in unaffordability is similarly transforming other hedge cities – think New York, Sydney, London, San Francisco - well, that’s rubbish too, at least in terms of Vancouver’s recent scale.
As we have seen, unaffordability is up 100 per cent in Vancouver since 2005. In Sydney, it’s only up 11 per cent. In San Francisco, it’s up 16 per cent. New York’s unaffordability has actually decreased 14 per cent, and London’s multiple is only up by 2 per cent (compared to 2006). If we look at the top ten most unaffordable major metropolitan cities in the world in the Demographia study (setting aside Hong Kong for a moment), nothing comes close to Vancouver’s 100 per cent rise. Auckland in New Zealand comes nearest, with a 39 per cent hike.
The situation ought to be clear to any reasonable person, boomer or millennial: Vancouver’s real estate market is now a world-class freak show.
There is only one other major city that has experienced a concurrent unaffordability hike comparable to Vancouver’s. And it’s not just comparable – it’s virtually identical. That city is Hong Kong.
Hong Kong’s unaffordability multiple is up 49 per cent since 2011, when it was added to the Demographia stats. But data by Thomson Reuters reveals that Hong Kong’s unaffordability multiple since 2005 is up by almost exactly 100 per cent.
It’s true that other cities may have experienced similar spikes in unaffordability - but at different times. Pointing these out misses the point, which is to try to establish commonality by finding similar situations at similar times.
So what makes the last decade so unusual for both Vancouver and Hong Kong - and only Vancouver and Hong Kong? Is it mere coincidence? It’s an excellent question for anyone who discounts the impact of Chinese wealth: from 2005 to 2012, Vancouver attracted about 45,000 rich migrants under wealth-determined schemes, more than any other city in the world. A large majority were from China. In Hong Kong, few doubt the recent role of Chinese money in the real estate market; in 2012, luxury sales to mainland Chinese buyers had soared to the extent that they accounted for 47 per cent of the entire value of all new home sales, according to the Centaline agency. In late 2012, the Hong Kong government responded by imposing a hefty 15 per cent tax on sales to foreign buyers (incuding mainland Chinese). That cooled things, but Chinese luxury buying is back on the rise, and in 2014 accounted for 25.4 per cent of the new-home market.
Of course, factors other than Chinese wealth flows are probably at play in Vancouver. But have any had a similarly isolated impact on Hong Kong, Vancouver’s unaffordability doppelganger?
[*Update: This story has been updated to include a link to the latest Demographia study and to describe its scope]
The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email [email protected] or on Twitter, @ianjamesyoung70.