Quickest Fix for Vancouver’s Affordability Crisis: Change the Standard

[*updated with better income stats for Canadian metros*]

Every year (since 2005), the Demographia organization (think tank? consulting front?) comes out with its International Housing Affordability Survey, and every year Vancouver is ranked the most unaffordable housing market in North America (currently the third most unaffordable in the world! – or at least across the selection of countries compiled by Demographia). The results always make headlines in Vancouver, though sometimes a healthy dose of skepticism is applied. Regardless, I don’t think there’s a big problem with Demographia’s data. But I DO think there’s a problem with the standard they use to generate their findings. That standard, of course, is the single-family house.

Demographia uses the ratio of the median price of single-family detached houses to the median household income to create a “median multiple” measure of affordability. In their most recent study, the median cost of a single-family detached house ranged from 2.6 times median household income (in Buffalo, NY*) to 19.0 times the median household income (in Hong Kong). Metro Vancouver came in as the third most unaffordable, after Hong Kong and Sydney, with a median multiple of 10.8.

But what if we didn’t use ownership of a single-family house as the measure of what’s affordable? After all, why should this be the standard? To be clear, it’s not the standard for everyone, and it never has been. Poor people aren’t really part of the discussion for Demographia’s report, where the subtitle explicitly notes a focus on “middle-income” folks. The subtext for using the single-family house as a standard is that this is where middle class people should be able to live and what they should be able to afford. But as I discuss in my forthcoming book, The Death and Life of the Single-Family House, this is both unjust and generally a wrong-headed idea. Single-family detached houses are kind of bad for our cities, our lifestyles, and our planet.

But doesn’t this all trickle down? The degree to which the middle class can’t afford single-family houses – a normative life goal! – must indicate pain for everyone, right? Let’s see by looking at a different possible standard: the two bedroom apartment. What if we divided the median yearly rent of a two bedroom apartment by median household income?

Here’s what I get for major North American metropolitan areas:

Comparative-2BR-Rent-to-Income-updated

 

Changing the standard really changes the picture!

By this measure New York City, San Francisco, Los Angeles, and Miami all look like they’re converging at an exceptionally high rent-to-income ratio! By contrast, Vancouver is suddenly far, far down on the list of unaffordable metro areas, as of 2015 below both Seattle and Portland, its American sisters to the South. To be sure Vancouver remains the most expensive metropolitan area in Canada, but this just highlights the very different situations facing renters in Canada and the USA (or at the very least, different measurement issues: see more below).

To return to the theme: on the whole, different standards produce very different results. The most unaffordable metro area in North America using the “ownership of a single-family house” standard suddenly looks pretty average under the “rent a 2BR apartment” standard. The house standard makes San Francisco (3rd), NYC (7th), LA (5th), and Miami (8th) all look more accessible than Vancouver, but the 2BR rental standard leaves a decent lifestyle looking much, much farther out of reach in these locales. In fact, under the 2BR rental standard, unaffordability for Metro Vancouver looks even better than the situation for Metro Dallas or Metro Houston, each deemed perfectly affordable by Demographia’s house standard. It’s no wonder we’re not really seeing the flight of the millennials from Vancouver. The rent’s not too bad.

None of this is to suggest that Vancouver doesn’t have issues with affordability. It most certainly does. And renters also face a very tight market, with extraordinarily low vacancy rates (0.8% in 2015!) But Vancouver looks much better when we use a 2BR rental standard than when we use an owner-occupied single-family detached house standard. Once again, this speaks to the detachability of the detached house market in Vancouver from what’s going on elsewhere.

Why? Well, Vancouver is moving away from the single-family detached house as a standard and toward a different model – potentially a much better, more urban and more sustainable model. To be sure, it still has a long way to go, and all sorts of crazy things will keep happening in the single-family house market along the way. But the story of Vancouver, overall, is less about a painful housing market destroying EVERYONE’S hopes and dreams and more about providing an alternative model for how we should build cities and encourage people to live. Not everyone is going to like that new model, and we should keep tinkering with it to make it more just and more sustainable. But there are good reasons we shouldn’t be using the single-family detached house as a metric of where we want to be. It’s a dead end. When we use different metrics, Vancouver looks better and can keep improving.

—————————————————————————

Now where did my data come from and should you believe it? As noted on the chart, for US metro areas, I drew upon median rental data for 2BR apartments available from Zillow a not entirely disinterested commercial provider. For Canadian metro areas, my rental data came from the CMHC. Here I used averages because I could easily find this data for multiple cities. Using medians would actually make Canadian cities look even more affordable compared to their US counterparts, since median rents tend to be lower than average (see Metro Vancouver’s posting of median rents in the area). For median household incomes, I drew upon Census reports in the US and Statistics Canada data (in this case bringing together economic families and people not in economic families to more or less equate with households, though this may (?) result in understating the household incomes of unrelated roommates) [*update: the link broke on the StatsCan data, so I’m now using CMHC data, for real median pre-tax household income, and have updated the chart accordingly – this actually improves Vancouver and other Canadian cities affordability. Thanks for note from Jens at Mountain Math for making me check this!*].¬† Census and Stats Can data is pretty solid, but I cannot fully vouch for comparability of the data from Zillow or the CMHC. In the former case, it’s because the data is proprietary, though it seems modeled mostly based on listings. In the latter case, it’s because of the restrictions placed on where the rental data comes from (“privately initiated apartment structures with at least three rental units”), an artifact of CMHC’s attempts to keep tabs on the primary rental market (see also their secondary market data, which includes rented condo units, but doesn’t distinguish by rooms in this time series).

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10 thoughts on “Quickest Fix for Vancouver’s Affordability Crisis: Change the Standard

  1. Why don’t we all live in cardboard boxes? Foreign money is squeezing out locals. If we change our standard to that of North Korea, things look great in Detroit.

    Pull your head out of the sand.

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    1. I’m approving this one, only because I haven’t been called “Nathan Loser” for a long, long time! Heart-warming really… Incidentally, Detroit looks very affordable using the preferred Demographia metric.

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  2. I guess just I find this analysis and the chart it’s based on hard to believe.
    I make about 57k a year and renting a ROOM in a crappy, old, noisy 2-bedroom apartment in Vancouver costs me near 50% of my take-home after-tax pay. I straight-up couldn’t afford a one-bedroom or even a room in a place built in the last 20 years. And it took two months of solid searching to luck out on this place… everywhere you go, potential renters are already lined up with forms and references in hand (as was I) and were attempting to out-bid the asking price and each other (something I couldn’t afford to do).
    Maybe things are different for long-time tenants, whose prices fall under controlled increases, but for someone looking to enter a Vancouver rental anew, I found the crap-apartment prices to be on par with mortgage + strata payments for a better condo – something I’m debating doing if I stay in the city, although both options still seem far too expensive.

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    1. Thanks B Danyluk, and sorry to hear about your apartment woes, though I really do find these anecdotes helpful for thinking through situations. I do worry that the analysis may not fully capture conditions faced by new renters looking for apartments in certain tight locales – especially given our very low vacancy rates. Small comfort, but I suspect many other places in the metro area (e.g. Surrey, Langley, etc.) might even out the affordability picture in Vancouver, accounting for why the metro area as a whole looks so rosy relative to other metro areas across the USA (but not across Canada). Good luck with finding a better and cheaper place!

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  3. Not arguing with your work Nathan, but I find the data somewhat suspect.

    Is there a reason as well why you’re looking at pre-tax income? Rent is most likely to be paid with wages and post-tax income.

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    1. Doing a post-tax income comparison is a good idea! I’d be curious about any differences. I used pre-tax income primarily because the data are easy to obtain and compare and it was the first data I stumbled across, but why not do post-tax too? If I get the time, I’ll try and look into it, but I’d be just as happy if someone else beat me to it. Either way, thanks for the comment!

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