A study of the obvious.

There’s a story in the Globe and Mail today about a study on affordability across canada. Apparently its expensive to live in the most expensive cities and 14% of Canadians spent 30% or more of their income on shelter. The 30% of income thing is a standard indicator of lack of affordability.

The concept of affordability has traditionally been based on a ratio of housing costs to total household income, Statscan said. A household paying 30 per cent or more of its pre-tax income for housing is considered to have affordability problem.

During Statscan’s survey period, 12 per cent of households spent between 30 per cent and 50 per cent of pre-tax income on housing. Two per cent spent 50 per cent or more to keep a roof above their heads.

Averaged across Canada, it was renters that were more inclined to have this affordability problem, so I’m guessing most other Canadian cities don’t have the situation we have in Vancouver where owners buying at current prices are subsidizing renters.

Renters were much more likely to fall into this category of people who struggle to afford housing, Statscan said. Thirty-one per cent of people who rented in 2004 spent 30 per cent or more of their budget on shelter, compared with 6 per cent of home owners.

“These rental households consisted mostly of individuals living alone, those relying on government assistance, and those in low income,” Statscan said.

Not surprisingly, people who rented in Canada’s two most expensive cities, Toronto and Vancouver, incurred the highest cost in terms of rent.

The best line of the whole study is at the end:

Renters who earned less than $19,190 a year were 18 times more likely to be cost-burdened when it comes to housing than people in the top one-half of the income chain.

Yes, the startling fact: People with lower incomes have a more difficult time affording things. Thanks Statscan!

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ReductiMat
ReductiMat
13 years ago

No offense taken whatsoever aetakeo.People of most (not all) walks are truly incredulous when I attempt to inform them that our landlords are subsidizing our housing.I've been bitten by one bubble. I'm sure as hell not about to be bitten by one again.

aetakeo
aetakeo
13 years ago

No offence to reductimat, but I'm going to use him/her as an example of the ridiculousness of this statement by d_oush:"reductimat you have a good deal, but it is short-term. As the city grows and rents increase then you will end up paying more." reductimat is making, what, at least $72K? And the median is $56 for a family? We're not looking at a "good deal", here. We're looking at what the market will carry on the higher end. I'm sure the place is lovely; but it's not a deal, and rents are not *magic*. They are tied to wages.Grown ups making less than $72K per year are going to leave the city before they try to cram their families into 2 bedrooms with roommates. Rents are tied fundamentally to people willing to pay the rents, and those rents are… Read more »

bc_cele
bc_cele
13 years ago

Anonymous said… bc_cele, what other areas is housing reasonable? The pricing is ridiculous and the increase in RE over the last 5 years is quite unrealistic. I'm looking in the New West/Bby area and prices are still beyond reasonable. I'm going to have to leave the Lowermainland for more reasonable pastures! Most locations = most of Canada. If you're going to stick in the LM then, unfortunately, you'll have to wait for a correction.

Anonymous
Anonymous
13 years ago

Well how about Trail? Lowest price/income ratio in BC, I'm sure.Anywhere in BC north of Kamloops is pretty affordable too. Take a look at this place in Prince George – priced 125 x monthly rent.http://tinyurl.com/wm2wgEdmonton.And pretty much the whole country east of the Alberta-Saskatchewan border is affordable, although Toronto is a bit frothy.

Anonymous
Anonymous
13 years ago

bc_cele, what other areas is housing reasonable? The pricing is ridiculous and the increase in RE over the last 5 years is quite unrealistic. I'm looking in the New West/Bby area and prices are still beyond reasonable. I'm going to have to leave the Lowermainland for more reasonable pastures!

ReductiMat
ReductiMat
13 years ago

A mortgage is for 25 or 35 years and buying is the only way to lock in your living cost for that long.Are you aware of the unfortunate number of people in Tokyo, who at the peak, locked in a price that wasn't seen again for twenty-plus years?Or closer to home, those who bought here at the peak in '89, only to see the equity in their homes drop 30% and not revisit their purchase price until fifteen years later?Now imagine some people, who foresaw a price correction coming in real estate, decided to rent in the meantime and grow their money using other financial instruments.In that situation, who would you rather be?

Anonymous
Anonymous
13 years ago

The people that have the most affordability problems are renters, not owners, which is contrary to everything a lot of you claim when you say vancouver is overpriced.Wrong. You are forgetting that the great majority of owners in Vancouver bought before the start of the runup in the late 1990's when buying really was affordable.Entry into ownership now is unaffordable.The reason that renters consistently have higher affordability problems than owners, as others have pointed out, is that the poor have no choice but to rent. In other words renters (in aggregate) have considerably less income than owners (in aggregate). People rent because they're poor; they're not poor because they rent.

bc_cele
bc_cele
13 years ago

digi said… I wonder if thats true.. If we have a large number of people that can buy, but are choosing not to then our market will probably be ok. If most people who want to buy can't afford to, then the affordability gap will be how far prices have to fall before they start to recover. There are a number of individuals who rent when they can afford to buy because they realize that things are out of wack. However, the overall number isn't that great. It's sad to think of all the people I know, personally, who equate being a renter with being a failure. I think this will drive prices lower in the end as we are borrowing from the future.

mk-kids
mk-kids
13 years ago

and who actually gets a 25 year mortgage & stays in the same place & pays it off in 25 years? my grandparents for sure but no generation since – more is what subsequent generations have been about – bigger, better with spa bathrooms & granite countertops. today natural soap & pesticide-free food is the upscale option, 50 years ago it was the norm.

bcubbins
bcubbins
13 years ago

d_oush said…A mortgage is for 25 or 35 years and buying is the only way to lock in your living cost for that long.Tell that to the folks who were wiped out by special assessments on their leaky condos.

solipsist
solipsist
13 years ago

I'm thinking that a Kia Sportage would be worth $65k if they only dressed it up with some granite hubcaps.

Snap Up Real Estate
Snap Up Real Estate
13 years ago

There are great agruments for renting and buying. But $850,000 for dinky condo is out of line. Why do people want to live in Vancouver anyway? The fact that people want to live there drives up the price.

d_oush
d_oush
13 years ago

reductimat you have a good deal, but it is short-term. As the city grows and rents increase then you will end up paying more.A mortgage is for 25 or 35 years and buying is the only way to lock in your living cost for that long. It may cost you 3 times to buy now, but what about 30 years from now? If you put that money into your condo you could be looking at a situation where rent cost three times what it would cost to buy there.

ReductiMat
ReductiMat
13 years ago

d_oush, we live in interesting times.I am a renter. My rent of $2k get's me a fantastic suite on the water in a great urban area. That $2k is one-third of what we could "afford" (according to the 30% rule).I've seen my suite-type list for up to $850,000. Add in the $500 montly strata fee, $300 in taxes and don't forget general maintenance.I'd find it quite the feat if you could use some of your special mathemagic to show me why I should buy this place instead of renting it.

digi
digi
13 years ago

So what this means is that people that have decent incomes will buy houses, while those who don't will rent. In fact, that's still pretty much the way it is in Vancouver. There is really only a small number of individuals who can buy that actually stay on the sidelines.I wonder if thats true.. If we have a large number of people that can buy, but are choosing not to then our market will probably be ok. If most people who want to buy can't afford to, then the affordability gap will be how far prices have to fall before they start to recover.

Anonymous
Anonymous
13 years ago

ROAD NOT TO BE TAKENRenters and OwnersThey walk on opposite direction.Most of them are very choosy buying is not a problem,But problem is managing maintainace running cost, paying bills,Than comes future plan if some one is realy can stick to place we buy,Cost of living,Changing strata fee too often apply to condo/apartments changes to property tax,Hydro etc.is too often for houses that means cost to run something is not fix big problem is cost to run life is not fix because there is no freedom but monopoly of government control over people than comes conclusion "ENTREPRENEUR"People who takes a risk of dealing with this hidden cost when price goes up they can make profit,but for comon people if things turn otherside they get "BANKRUPTCY"plus lots of social issue spouse issue,parteners etc.Leaky condos,house without insulations can cost you $800.00 Hydro bill… Read more »

bc_cele
bc_cele
13 years ago

d_oush said… Is everyone here missing the key point to that article? The people that have the most affordability problems are renters, not owners, which is contrary to everything a lot of you claim when you say vancouver is overpriced. You do know that you have to put the cart in front of the horse, and not the otherway round, right? It could be very embarassing if you don't remember the order in which they go. Just for clarification, in general, renters are in a worse situation because…wait for it….they don't make as much. I know, shocking isn't it. I realize that you probably didn't pay much attention when you were a teenager to such things, but house prices weren't always this nuts, and in most locations, they are still very reasonable. So what this means is that people that… Read more »

bc_cele
bc_cele
13 years ago

ken said… bc_cele: I wonder if they studied affordability for the extremely wealthy in a small town?I'm willing to volunteer as a guinea pig for that one, load me up with cash and send me to keremeos!I'm sure with some of the research I've seen over the years you could probably get funding for it. I volunteer to be in the same cohort. 😉

the pope
the pope
13 years ago

d_oush: Thats for Canada as whole, not just Vancouver, and I don't think it has any bearing on the opinion that Vancouver real-estate is overpriced.. I'd love to see a statistic on what the average percent of income is needed to service a new mortgage purchased in vancouver in 2005.

d_oush
d_oush
13 years ago

Is everyone here missing the key point to that article? The people that have the most affordability problems are renters, not owners, which is contrary to everything a lot of you claim when you say vancouver is overpriced.

ken
ken
13 years ago

bc_cele: I wonder if they studied affordability for the extremely wealthy in a small town?I'm willing to volunteer as a guinea pig for that one, load me up with cash and send me to keremeos!

bc_cele
bc_cele
13 years ago

So, if you're poor, and live in an expensive city, then you're likely to have trouble affording things? Are they sure? I'd like to see their methodology because this just doesn't make sense. I'm sure glad we're spending money to figure this out, otherwise we'd go through life not realizing this apparent contradition.