Housing affordability sensationalism–enough already!

It has come to this. Every time some bank or other organization releases a new study about housing affordability in various cities I want to scream. Usually, the press release and all media stories have some sensational headline like “Vancouver 2nd most unaffordable city in the world.” As if. Those of you living in San Francisco, New York or London feel free to post in the comments.

What virtually all of these studies do is look at median or average prices of detached bungalows (moderate houses on their own lots) compared to the median or average income. This metric worked okay in the 20th century in most cities when bungalows on modest lots were the first homes of young families.  It is becoming increasingly meaningless in the 21st century. Here’s why.

1. Average and median home prices are being driven up by the larger, mature demographic (think those over 50) who have equity and are now trading homes. Some are buying a nicer location, some are downsizing to a penthouse condo. Everyone has their own reason. Regardless, they are not taking out a $1 million mortgage on their $80,000 salary.

Average prices are also being driven up in some cities, like Vancouver, by an increase in “Luxury Market” sales.  Over 700 homes priced at over $3 Million sold in Vancouver in 2011, nearly doubling the previous record of 375.

This luxury product is not about homes for younger families. Therefore, we should stop including it in analysis of housing market affordability for young families. Bob Rennie argued this in a talk last year. With help from Urban Futures, he noted that if you removed the top 20% of sales from analysis, pricing and affordability had not changed much in Metro Vancouver in recent years.  Suburban developers tell me pricing has been quite flat for some time.

2. With number one said, we can still see that demand today is strong and growing in walkable, mature cities and neighbourhoods; the detached houses are often in highest demand (even when more modest price strata-homes exist).  Because you can’t make more detached homes on lots in these mature areas, demand exceeds supply for this type of product.  This drives up the average and median price of even fixer-uper, non-luxury product; increasingly only those trading an existing home or coming in with cash can purchase them.  Families are buying in these neighbourhoods, but they are typically not first-time buyers; they have above average incomes and often equity from a condo or suburban home.

3. Points one and two above illustrate that detached bungalows are no longer typical first-time buyer product. When individuals, couples or families buy their first home in larger Canadian cities (and many cities around the world), increasingly it is more likely to be a townhouse or a condo. According to Realnet, In the Greater Toronto Area, 62% of homes sold in 2011 were high rise condos. And from watching House Hunters on HGTV this is also happening in many US cities as well.

Therefore a statement like “Vancouver 2nd most unaffordable city” is not that helpful if we are concerned about the “affordability” of buying a decent home for young families. Measuring something that is not first time buyer product against the incomes of first time buyers is comparing apples to Yugos.

If we are truly interested in understanding the ability of individuals with average incomes to buy a home in the higher priced, metro areas, then at minimum look at strata-titled attached homes (rowhouses and condos) instead of detached homes. Ideally you also remove the product coveted by the multi-millionaire club from the analysis.  Suddenly the income needed to get into the market looks more familiar to most of us — $50,000 for Metro Vancouver, $38,000 in Greater Toronto according to this study.

Flashy headlines about Vancouver and other cities being unaffordable get the publisher of the reports and newspaper articles attention–this is why they publish them.  Also it’s much easier to calculate median price and median income, and harder to do real housing market analysis.

What worries me is that politicians, policy makers and lobby groups are using this mis-information.  I fear for the results.  So banks and others, please move your thinking into the 21st century!

 

6 comments

  1. REW.ca says:

    You’re so right. As content editor for a real estate portal for the Lower Mainland, I see every study that comes along and I’m amazed at how many of them base their findings on broad, meaningless statistics. It is sad that most young families can no longer afford a detached house on Vancouver’s west side. That fact is going to make those neighbourhoods less lively and varied places. In the meantime, young families seek attached housing, and other neighbourhoods to the east or south evolve into great, walkable, more-affordable places to live. Developers are building walkable communities instead of just plunking down housing. And people adapt and live differently from their parents and the city changes. Thanks for a great post.

  2. DB says:

    Good points, but ‘Vancouver’ is not a single uniform place. Yes, there are is some affordable product, but supply is intensely restricted and skewed to the high end in most if not all locations that correspond to what Chris Leinberger would call ‘walkable urbanism’ with anything approaching quality transit. In those locations, where it’s possible to live car free or car lite, and enjoy a decent urban quality of life, it’s pretty hard to afford anything.

    I’d also note that the 50k versus 38k yvr yyz difference is pretty alarming when average incomes (generally higher in yyz) are taken into account.

  3. Wendy Waters says:

    Thanks for the comments. I’m pondering a post addressing some of these issues. If people who are complaining they “can’t afford” Vancouver (or Washington DC or Toronto or San Fran) can actually afford some product–like a suburban townhouse or condo–this means that what they’re saying is they can’t afford to live in either the type of home they want, or the location they want (or both).

    So the problem isn’t necessarily lack of affordable ownership options period. The problem is lack of _appealing_ affordable options, and each couple or family will have a slightly different definition of “appealing”

    To solve the “affordability crisis” it will be important to identify exactly what definition of affordability problem we want to address.

  4. [...] Further Reading: A great blog post by Wendy Waters at All About Cities on the problem with housing a… [...]

  5. Ralph Cramdown says:

    We do the math with the stats we have. The study you cite looks at prices for the bottom decile of condos. These properties are generally poorly maintained, in undesirable, crime-ridden areas, and are often subject to whopping-huge special assesments: That’s why they’re priced in the bottom decile. Good luck convincing young families that owning that is a better choice than renting in a nicer area, or buying what they really want, SFH, in a city where it’s affordable.

  6. Wendy Waters says:

    Thanks for the comment Ralph. And good question/comment.

    I agree that not all condos for sale in the lower price ranges are in locations that people want–that’s why they are priced lower (supply and demand dynamics around land). Some listings in those prices ranges are actually quite nice, but their small and not near transit and a ways out into suburbia.

    My point is more about challenging what is meant when people say a a city or region is unaffordable.

    Also, if demand growth is rapidly outpacing supply growth in certain locations, the question then comes as to whether a city can or should do anything to increase supply (re-zoning sights, allowing for extra density, etc.). Thus collecting data or analyzing it like this helps identify this very situation.