The second annual Demographia international housing affordability survey reveals some positive news from a local and national perspective, as well as some less positive facts and arguments with respect to government regulation, particularly in the area of land supply.
The good news is that Canada has only one city among the top 20 severely unaffordable housing markets, and it’s not Toronto. Vancouver makes the list at number 15 while the next Canadian entry in the world rankings – Toronto – is at number 50, which is considered seriously as opposed to severely unaffordable.
The Demographia study looks at the median multiple between household income and house prices. In Vancouver, it takes 6.6 times household income to purchase the median-priced house ($373,000). In Toronto it takes 4.4 times to purchase the median house ($290,400).
In the most unaffordable market, Los Angeles and Orange County, California, it takes 11.2 times the income to buy the median house costing $553,200.
By comparison, in the most affordable market – Buffalo – it takes a mere 2.2 times income to buy the median home ($103,700). Not far behind is Winnipeg at 2.4 times, and Edmonton and Quebec City at 2.8 times, placing these three cities in the top 20 affordable housing markets internationally.
Looked at by nation, Canada fares extremely well with a market average of 3.6 times household income to purchase, compared with 4.6 times in the U.S., 5.5 times in the U.K., 5.9 in New Zealand, 6.0 in Ireland, and 6.2 in Australia.
The Demographia study notes that in recent decades, the median multiple has been below 3.0 in most markets, but that this historic relationship has been broken due to unprecedented price escalation. This is a matter of concern, the report states. “Homeownership has played an important role in democratizing prosperity in the nations covered in the survey. Widespread home equity, together with the related quality of life, neighbourhood, community and social cohesion benefits make home ownership a pillar of a sustainable, affluent economy.”
What’s really interesting is the study’s finding that house price increases are not solely confined to macroeconomic factors such as low interest rates. “If macroeconomics were a major factor, then similar price escalation would have occurred in all markets,” the study asserts, noting that between 2000 and 2005, Atlanta experienced a 0.6 per cent increase in the median multiple while San Diego experienced a 6.6 per cent increase.
Government policies that create land scarcity are cited by the study as the explanation for such wide regional variations. “A growing body of university and international research indicates that the proximate cause for extraordinary house price escalation in the unaffordable markets is government policies that create land scarcity. These policies, which range from so called ‘smart growth’ policies that prohibit housing on large swaths of land to government land hoarding are found throughout the markets rated as ‘severely unaffordable.’ At the same time, much lighter land regulation is typical of the ‘affordable’ markets.”
The report goes on to state “the unprecedented housing affordability crisis appears attributable to the negative effects of land regulation, rather than natural market forces. The main cause seems to be excessive land use regulation that strangles housing markets and drives prices upwards at rates far higher than can be attributed to conventional economic trends.
Demographia is a product of the Wendell Cox Consultancy, an international public policy consulting firm. Cox is a visiting professor at the Conservatoire Nationale des Arts et Metiers in Paris, France (a national university). He is also associated with various public policy organizations such as the Heritage Foundation (Washington), Institute economique de Montreal and the Frontier Centre, Winnipeg. For further information, visit www.demographia.com.