Vancouver Real Estate: You Can’t Afford It

By Joel Rybachuk

Everyone knows Vancouver’s real estate market is sizzling hot and many can’t cope.

According to MLS (Multiple Listing Service), the average price of a detached house in Vancouver as of April 2016 is $1.4 Million, while the average in price Canada is $508,567. Besides the fact that British Columbia is the best place in Canada (no bias here!), it’s no mystery as to why house prices are soaring: foreign investment.

Money is coming into Vancouver at unprecedented levels and houses are often being bought with cash, hundreds of thousands or even a million dollars over asking price.  In a recent academic study covering a 6-month period, 70% of all detached homes sold in Vancouver were purchased by Mainland Chinese buyers. Even further, on homes over $3.05 million, 36% of owners were listed as either housewives or students with little or no income. 18% of the 172 homes in the study were purchased without a mortgage, prompting questions regarding money laundering.

The massive influx of foreign investment into the Vancouver housing market means big money for investors, but real estate agents can win big as well. Where there is money to be made, greed thrives and questionable practices arise. Enter the shady practice of ‘Shadow Flipping’. These questionable tactics net real estate agents multiple commissions on a single house sale while the seller of the house is left in the dark, often receiving much less than the actual selling price of the home. The Globe and Mail did a great piece on Shadow Flipping that explains what it is, and how it is affecting housing prices. Beyond that, many have started to question if the 10 week online course it takes to become a Real Estate Agent is sufficient.

While some people are poised to make tons of money, most will get the short end of the stick. Insane house prices are forcing a lot of younger people out of Vancouver and this could put a strain on the economy.

 
Young people simply can’t afford to become homeowners in Vancouver.
 

Source: I am one of them. While I know Vancouver is unaffordable, I decided to crunch the numbers to understand how unaffordable it really is.  Check out the table below:

Average House Price Of Detached House in Greater Vancouver
Today (2016) -  $1,403,200.00
Past (2000) -  $343,980.00

Average Income Unattached Individuals
Today (2016) -   $34,668.00*
Past (2000) -  $30,300.00

Savings Rate
Today (2016) - 4.00%
Past (2000) - 3.20%

Assume a 20% Down Payment
Today (2016) - $280,640.00
Past (2000) - $68,796.00

Savings Per Year Based on Savings Rate
Today (2016) - $1,386.72
Past (2000) - $969.60

*Note: Average Income for Unattached Individuals for 2016 uses the 2011 number and adjusts for 2% inflation per year to arrive at the 2016 number. 

Although this was a very basic analysis, it’s easy to see how hard it is to buy a house in today’s day and age.  It would take an individual about 202.4 years to save for a DOWN PAYMENT on a house using the average savings, income, and house pricing statistics in Canada compared to the year 2000 when it would only take around 71 years. These numbers both seem crazy, but keep in mind these are averages for individuals and not families, and hopefully you are saving more than 4% of your income. Regardless everyone’s situation is slightly different so as these numbers may not apply directly to you, it’s indicative of the whole situation. Even if you took today’s income and savings numbers and double them both to 8% savings and income of $69,336, it would take around 50 years to save up for that same down payment.

So it’s not that younger folks want to leave, but we are being pushed out. This shift in demographics could substantially alter Vancouver economically as less and less people living in Vancouver will be adding value to the community – essentially turning Vancouver into a retirement and tourist destination.

Obviously, there are countless variables that affect the prices of houses in Vancouver, but it’s clear that the impact foreign investments are having are materially changing the city. In a great interview with MacLean’s Magazine , Reporter Ian Young described Vancouver’s housing market as a ‘FREAK SHOW’, citing issues with income vs housing costs, Vancouver’s low salaries, tax consequences for these foreign investors (hint: almost none), the impact on millennials, and what’s next.

Unless Vancouver can figure out a way to regulate foreign investment in real estate, people will take advantage of it, leading to the rich owning more and the average or now ‘poor’ getting pushed to the side. Canada needs to step up like many other countries have already and protect their citizens, economy and future.