Vancouver crowned second most-expensive city in the world

Bank of Canada economists, and homeowners respond

By Mercedes Deutscher, Staff Writer

On January 20, the Demographia International Housing Affordability Survey named Vancouver as the second most unaffordable city in the world to live in, second to Hong Kong.

The survey was conducted by comparing the median incomes of the respective area to the median housing prices. According to Demographia’s 2015 report, Vancouver scored a 10.6 median multiple, ranking as “severely unaffordable.” The next raking unaffordable Canadian city, Toronto, reported a 6.5 median multiple.

These high, oftentimes unaffordable, rates have the tendency to place Vancouver homeowners at risk, as speculated by Canadian economist David Madani.

“Given how high house prices are relative to household incomes, you’d only have to see a moderate increase in mortgage rates to have a really huge hit to affordability,” Madani explained to the Globe and Mail. Madani predicted that homeowners may have trouble making monthly payments on their homes if there were to be a rise in mortgage rates.

In a response to the survey and economists’ predictions, the Bank of Canada lowered the lending interest rate from one per cent to 0.75 on January 21, in hopes of providing a boost to the real estate market. In addition, Central 1 Credit Union forecasts that interest rates on housing will not be raised until at least early 2016.

This is a change from the Bank of Canada’s original plan, which was to raise the interest rates later this year. However, interest increases may still occur, depending on if the US Federal Reserve raises housing rates.

In Vancouver, it is difficult to find a home for under $1 million. In East Vancouver, buying an empty lot can cost over $1 million.

Macdonald Realty Group gathered data from two Vancouver real estate boards. In 2014, over 800 houses in Vancouver were valued at $3 million or higher. Meanwhile, 199 homes were each bought for over $5 million.

More expensive homes are increasingly hitting the Vancouver housing market, where people are buying older, un-renovated houses. These homes often cost around $600,000, and are often bought and demolished so that new houses or condos can replace them. Those new houses and condos are then put on sale for a much higher price.

In response to the “property flipping” trend, city officials are placing restrictions on properties that have houses on them built before 1940. If someone buys a pre-1940 lot and builds a new house on it, said house must be smaller than the original house.

Homes in municipalities surrounding Vancouver have begun to regularly hit the $1-million mark, including homes in Richmond, Burnaby, and the South Surrey/White Rock area.