Housing Affordability Problems Are Not On Home Builders

Posted by Stu Niebergall on 2017-02-18 12:00 AM

The 13th Annual Demographia International Housing Affordability Survey for 2017 was recently published. This study looked at 406 metropolitan housing markets in nine countries which included Australia, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom, the U.S. and Canada.

I would suggest this study provides the simplest and most effective way to look at housing affordability. The only factors it considers is what is the median price of a house, divided by the median household income. This simple formula has been recommended by the World Bank and the United Nations for evaluating urban markets. It is also used by the Joint Center for Housing Studies at Harvard University.

The study describes a housing market that is affordable when it takes less than three times the annual household income to purchase the average house. A severely unaffordable housing market is when it takes more than five times the annual household income to purchase an average house.

So how did Regina fair when compared to the other 406 cities for least affordable city? Regina ranked 258th, or moderately unaffordable, with it requiring 3.6 times household income to buy the average Regina home. We ranked 27th out of 40 in the Canadian market. By comparison, Vancouver ranked No. 1in Canada and third in the international study as the least affordable market, with it taking the average Vancouver house hold 11.8 times to pay for the average home. Victoria (8.1 times) was ranked the second-worst Canadian city for affordability and followed by Toronto Toronto (7.7 times).

The study points out that there are “serious consequences for residents. The higher house prices reduce discretionary incomes, which reduces potential standards of living and raises relative poverty rates. This is of particular concern, because housing is the largest household expenditure in virtually all housing markets.”

What is interesting is that all three levels of governments, regardless of party stripes, tout their policy agenda and support for the middle class, but they have not given housing affordability a higher priority. Since housing is the largest household expenditure in Canadian housing markets, you can’t achieve and maintain a strong middle-class when individuals and family incomes require four, five, seven or10 times household income to buy the average home in their community.

In Canada, the federal government, virtually all provincial governments and the majority of municipal governments have enacted policies that erode housing affordability for the middle-class. They tend to point the finger at industry, foreign buyers and Canadian indebtedness, to name a few, as the culprit of the erosion of housing affordability for the middle class. In reality, the root of the problem is an infrastructure deficit that has mostly been downloaded onto new home buyers, land policies that create artificial scarcity of available land in a country that you could fit almost all of Europe and its 743 million people into, plus a fair bit of regulatory overreach.

By comparison, the middle class of Germany and Switzerland have experienced relatively stable housing prices. Research suggests that if it was not for the Euro crises and negative interest rates, the Germans would probably still be able to buy a home for the same price they paid 20years ago. Why is that possible? It really comes back to how German and Swiss communities are funded. Their city budgets largely depend on their ability to attract new residents and taxpayers. Their cities are more responsive and flexible to accommodate housing supply. Their planners and councillors have available the right financial incentives from higher orders of government to make all the difference in housing prices in the long run.

A town just 20 kilometres east of Regina seems to understand this very well. I think cities of every size in Canada could learn something from White City. From 2011 to 2016 their population grew by 70 per cent. To their credit, Mayor Bruce Evans and council do an excellent job of explaining to their citizens why growth is an investment in their community and although it creates challenges, the benefits outweigh those challenges for the community. This has allowed their council to “set aside tax dollars every year into an amortization fund so we can fix infrastructure when it breaks down,” Evans said recently. He went on to say, ”We are confident we can deliver those services.” In my opinion, White City is not passing its future infrastructure liabilities onto their future new citizens. They also work tirelessly to ensure they have the land availability to not be hemmed in if more Canadians want to be part of their community.