A case of twinning articles, both published yesterday, with contradictory observations. First up, Patrick Condon in The Tyee:
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Young Prospects? Vancouver’s Wealth Gap Demands a Drastic Move
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Unless we do something drastic, we will have deprived that generation of productive 20- to 35-year-olds the ability to own a house in Vancouver. If you think that’s no big deal, consider this: each person shut out of affordable home ownership in Vancouver is consigned to the screwed side of the increasingly widening global wealth divide.
That’s right. Vancouver’s perverse real estate market is a textbook example of the suddenly fashionable realization that the rich are getting way richer at the expense of an evaporating middle class. Further down I’ll propose how Vancouver could instead be a laboratory for at least partly reversing that trend by enacting a simple and straightforward policy change.
But first, let’s look at where we’ve arrived and why.
Unlike Vancouver’s baby boomers, their children and grandchildren do not have, and apparently will never have, the money to buy a house in Vancouver, not in its leafy single-family residential neighbourhoods anyway. The trend for this generation is to either rent for life, or move out to the greener fields of the suburbs to buy. The burbs beckon particularly when the urge to breed strikes. Residents 15 years or younger constitute a 25 per cent greater share of Surrey’s population than they do of Vancouver’s, and this disparity is increasing with time. …
Right now the average single-family unimproved bungalow in Vancouver is valued at about $1.2 million (and most of that is land value). Given that the average family income in this city is around $60,000, this is about five times too expensive to buy because the rule of thumb is that average house should cost four times the average family income.
A simple solution emerges. Split that average home into smaller more affordable parts. Currently subdividing homes into separate ownerships is prohibited in RS-1 zoned areas, and RS-1 zoning covers over 60 per cent of all residential lands in the city. But if you could split a single family bungalow in Killarney or Dunbar into five units of various sizes, the purchase price would be, in simplified terms, $250,000. A figure much more approachable for families earning the average wage. …
We really need a strategy that lets our children compete with those who can afford a $1.2 million home. Today’s millennials, by and large, cannot.
The fact that this strategy will reinvigorate parts of the city that seem to be losing their vitality — with aging residents, emptying schools, empty buses and shops without customers — seems a huge bonus as well
Full article here.
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And then, in the other corner, Frances Bula in The Globe and Mail:
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How young Vancouver buyers are crashing the real estate party
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A recent analysis of home-ownership rates in Canada done by Vancouver-based Urban Futures shows that the proportion of young homeowners increased from 2006 to 2011, a period when prices appeared to be climbing out of reach in many urban centres, including Toronto, Calgary and Ottawa.
“The headlines that portray the current younger generation as being more challenged than previous younger generations to enter the owned side of the housing market are balanced by the data that show continued increase in home ownership rates among young age groups,” the report said.
Home-ownership rates among younger people in B.C.’s Lower Mainland went up more than the national average. Vancouver homeowners in the 20- to 24-year-old age bracket increased four percentage points, to 25 per cent, in those five years – putting young Vancouverites near the top of the list among Canadian cities in proportion of homeowners under 25. The rate went up to 37 per cent from 35 among those 25-29. It stayed around 50 per cent for the 30- to 34-year-olds. …
“The relationship between incomes and prices of homes has totally broken down here,” (Andrew Ramlo of Urban Futures) said. He, like others, said part of the explanation has to be that parents, who benefited from the last several decades of real-estate appreciation, are transferring their wealth to their children.
But that’s not all. It’s clear from talking to young people who are buying homes in the expensive Lower Mainland that they’re also strategizing how to crack the market on their own.
Siblings or friends will buy an apartment together until they’ve built up enough equity to sell and take their proceeds to buy their own dwellings. They’ll buy a condo in a suburb that’s affordable and rent it out to build up equity, while they continue to live in the central city. They’ll definitely make do with less space.
Fully 25% of 20-24 year olds own a home in the Lower Mainland?!? That’s truly remarkable.
When I was that age all I owned was a piece of paper saying I’d graduated from UBC, some well used sports equipment and a rather rusty old Datsun. As the product of a nice west side neighbourhood I’d made it through school debt free, but many of my peers were still up to their necks in student loans. Everyone I knew under the age of 26 rented or lived at home with their parents.
The flip side of
a) excessive immigration to Canada, as certain immigrants cluster in certain cities such as Vancouver, and
b) far too low land transfer taxes, especially on high end homes, and
c) far too low property taxes for non-residents and non-income earners even if they are residents
What the articles fail to mention is that with far higher land transfer and property taxes FOR ALL, with a credit on your income tax return, we would at least monetize this desire by foreigners to park their (ample, illegal ? excessive ? non-stock market ?) cash here.
I suggest we double property taxes, say over 10 years, 10% a year and at the same time gave a credit on this additional tax to income tax filers. Neutral to income tax paying residents, but 100% more for cash-parkers.
Ditto for land transfer taxes, far too low. How about 1% per %1M to 15% up to $15M. That additional money could solve our homelessness problem and allow the city to build some affordable subsidized housing for the bottom 10% of society.
Unclear why we hand over precious real estate so easily AND SO CHEAPLY to non-Canadians ?
We should continue to encourage foreign investment, but we ought to monetize it for the residents of this beautiful province first and foremost !
Well, I’m 22 and I don’t think it’s that bad out there.
Affordable housing is supposed to be less than 30% of total income.
I can reasonably expect to make at least $30,000 per year upon graduating with my economics degree.
30,000/12 = $2,500 per month. 30% of that is $750. I think I can find a reasonably nice place in the city for $750 per month. Then, you know, I get promoted n’ stuff and make more money.
You know what housing policy I think would benefit me the most? Less housing policy. Reduce the number of regulatory hurdles to new housing. I’m one of these people who actually believe that the housing market behaves like other markets and price is determined basically by supply and demand. There are all these wealthy older aesthetes out there who think low rises are just so damn charming to look at, but I would be happy seeing the market get flooded with housing. Build some high rises (maybe even near the skytrain!). Keep my rent down.
Your entire comment is about renting not buying. Once you switch over to buying you need to worry about amassing money for a down payment, qualifying for a mortgage and then finding housing that your combination of down payment, mortgage can afford taking into consideration that you’ll also have property taxes, strata fees, utilities, etc. taking a bite out of your monthly payments. If you can’t afford to live near work then you’ll either have to get really good at long distance cycling or further reduce your housing budget so you can afford to commute by transit or car.
I agree that we need more housing supply, but don’t be too quick to call for towers. A lot of new high rise housing is aimed at an investor class whose ability to pay exceeds what you and I are likely to ever reach. In most parts of Metro Vancouver low rise wood frame buildings are the most economically viable. What’s needed is permission to put up more of them and that’s blocked mostly by single family zoning and the voters residing in those single family areas.
I don’t believe the articles are necessarily contradictory of each other. Once you accept the fact that Vancouver today is not the same village it was in the 1970s or 1980s, and get over the fact that the West Side single-family dwellings that everybody keeps focusing really only comprise about 3%-4% of total Greater Vancouver housing stock, you see that there are tons of affordable options for young millennials in Greater Vancouver. In this era of 3-year 2.6% fixed mortgages, you can buy a condo for the same or less than rent, start building equity and then move up to a townhouse should you ever decide to couple-up and start thinking about future stages of life.
A first-time buyer today can buy a new, water-view 1 bedroom concrete condo in Downtown New Westminster, for example, at under $250,000, which, with a $12,500 down payment means a mortgage of $950/month. Add in property taxes and strata fees, and she’s still under $1,200 per month, which is approximately the same as the cost of rent, but she’s banking $500 each month in principal repayment of her mortgage. That’s $20,000 in equity growth over the 3 year term of her mortgage; her $12,500 down payment has become $32,500 assuming values don’t increase. And her total housing cost of $1,200 per month, at 35% of her income, is easily affordable if she makes $40,000 per year as a single person. And because she lives close to Skytrain and has tons of amenities at her doorstep, she doesn’t really need the hassle or expense of a car so that is another $1,000 per month that she can save or put against her mortgage.
People need to stop focusing on what ISN’T achievable (i.e. a West Side house…I wish I could have bought Apple stock 15 years ago too but unfortunately I can’t turn back the clock), and look at what options exist out there and take advantage of them.
I don’t agree that Patrick Condon’s “rich get richer, poor get poorer” piece is all that relevant to the discussion here. It’s a defeatist attitude that will discourage young people into being renters for life. I started out relatively poor but worked my way over to the richer side of the ledger by working hard, saving my pennies and buying real estate young. My first condo (1996) was a small one-bedroom which cost $165,000, and my monthly payments were approximately the same $950 per month as our hypothetical New West first-time buyer, almost 20 years later. So…the more things change…the more they stay the same I guess.
I do however agree that we need more intensive use of our land within the City of Vancouver and the inner suburbs like Burnaby. In particular, we need more row-houses and townhouses. We need to improve the variety of housing stock available in desirable, close-in locations. Young families who don’t want the long commute to the suburbs should have something to trade-off to in the city that works for their family, at a price point they can afford. Single-family houses are not the be-all-end-all, people.
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