Canada has the most affordable housing in the English speaking world, according to a new international housing affordability survey released by the Frontier Centre for Public Policy. Nevertheless, this national average hides significant differences within Canada.
Vancouver is ranked as the fourth most unaffordable market out of 265 cities from around the world ranked in the survey, while other high growth Canadian housing markets are losing affordability at an alarming rate.
There are 34 Canadian housing markets from Victoria to Cape Breton included in the 5th annual Demographia International Housing Affordability Survey. The survey was written by New Zealand’s Hugh Pavletich and the USA’s Wendell Cox.
While Canada’s housing markets have had a less dramatic downturn experience compared to the USA over the past year, the authors write that underlying trends point to Canadian housing markets being equally vulnerable to changes in economic conditions. To buy a house in Vancouver requires 8.4 years’ income, while it would take over five years of income to buy a house in Victoria, Kelowna, and Abbotsford. All four cities are rated “severely unaffordable,” by the survey.
Recent upheavals in housing markets around the globe have led to the largest year-on-year change since the survey began, Cox said. But one main theme explored in previous years’ surveys, he added, “has been reinforced by this year’s results: there is evidence that land-use regulations by local governments are the defining factor in housing affordability.”
“The one factor that varies substantially between markets, at least in the United States and Canada, is the nature of land-use regulation. Most other factors, such as lower interest rates, applied equally throughout both the US and Canada cannot explain the difference in housing costs between markets. The land-use regulations implemented in each city is the one differentiating factor.”
The extent to which local authorities make land and development possibilities open to developers and would-be home buyers affects the affordability of housing more than any other factor, he said. “The most basic economic analysis is crystal clear that constraints in supply lead to increased prices.”
In his preface, Dr. Angel points out how questionable city planning policies contribute to low supply and high prices: “Cities grow and expand. As their population increases, their (land) areas increase even faster… In light of these findings, the current efforts to contain the pace of the outward expansion of cities for one reason or another are, at the very least, open to serious question.”
Canadian cities which experienced strong economic growth found their affordability slipping rapidly. Regina — the most affordable market in the world two years ago — is now ranked No. 121 out of 265. Major Canadian housing markets such as Calgary, Toronto, and Montreal require between 4.6 and 4.8 years’ income to buy a house. Compared to the traditional ratio of two to three years income per house price, these markets are all less affordable than they ought to be.
Canada, according to the survey, has so far escaped the bubble-and-bust trend that has plagued the US. However, the ratios of price-to-income experienced in major Canadian markets and the affordability trends observed when Canadian housing markets experience rapid economic growth suggest that artificial land supply constraints are setting the Canadian mortgage industry up for a similar fall.
To download a copy of the survey and related content, click here or copy and paste http://www.troymedia.com/Reports/FCPP/International-Housing-Affordability-Survey 2009.pdf