According to the Conference Board of Canada and the Greater Vancouver Board of Trade as reported in MacLeans, housing affordability in Vancouver, as measured by median house price as a ratio of median household income, is more than double that of Seattle- 10.6 compared to Seattle’s 5.2. In the survey ranking the city against 20 others, only Hong Kong and Shanghai were less affordable. This statistic, while perhaps surprising to some and angering to others, is first and foremost misleading to Burnaby residents.
First of all, after gleaning statistics for median household incomes from data collected by compiled by Metro Vancouver based on census data and benchmark detached home prices from the Greater Vancouver Real Estate Board, the regional value of 10 is close to what the Conference Board reported. That is true if the numbers are based on the last census in 2011. In that year the median income for the region was $63,347 and the benchmark price of a detached home in August of that year was $625,578. When we look at Burnaby stats, the ratio is somewhat more depressing. For Burnaby, the median household income was only $56,136 while the benchmark price for a detached home in Burnaby South was $958,600, putting the Burnaby ratio at over 17.
That was 2011; the results of the latest census won’t be out until February 2017. If income trends hold, the median household income in Burnaby should be around $62,000 for 2016. Regionally, incomes will be higher. The benchmark price of a home in the same neighbourhood in August 2016 was $1.7 million. This brings that ratio for Burnaby to 27.
Housing prices in Burnaby have outpaced the region for a variety of reasons. A house that cost around $650,000 in 2006 has risen in value by over a million dollars in ten years Certainly, its proximity to Vancouver is a factor as is the Mayor of Burnaby’s commitment to “protect single family neighbourhoods” from densification. It is also a preferred destination for k-12 international students and home to Simon Fraser University and BCIT. These factors understandably increase demand.
These prices have also attracted speculators, flippers and investors that see housing as a high yield investment product rather than a home. Buying and selling property has become the economic driver of British Columbia. To keep the dream of homeownership alive, banks have offered the lowest interest rates in history and allowed generously low down payments that ignore the fact that people are saving less and less.
Cities sell density to developers who pass those costs onto the purchasers. Realtors collect commissions that might have made sense in 2001 when a home in Metro Vancouver cost $355,000 ($13,375). In 2016, a comparable home at $1.5 million nets realtors $42,000. These commissions are built into the price, so, ultimately, it is the buyer who pays. These are the straightforward commissions, but what about the incomes realtors have derived from the shady practice of shadow flipping?
In addition to legal, brokerage, banking and inspection fees, there are the taxes. The GST on a home in 2001 was about $700. In 2016 it is $2100. Then the province takes its share. The Property Transfer Tax Act was introduced in 1987 by the Social Credit Government. It was recently amended to exempt new homes valued under $750,000. On a home with a fair market value of $1,500,000, the PTT is $28,000. On an older $350,000 home the tax would be $5000. Each time a home is resold these fees and taxes are levied. When the investor resells the property, these payments are included in the markup, in addition to the expected return on investment. According to a report on Global Television earlier this year, one realtor, found that of a total of 179 homes on the west side of Vancouver that sold in the month of May, “28 had already been sold at least once in the previous 12 months.” The average profit made on each home- $1.14 million. While only 15 percent of properties are being flipped, neighbouring properties understandably appreciate as a result.
In the early 1990’s the PTT made up only about 3.5 percent of the Province’s revenues. In 2015 it comprised 4.6% of tax revenue. In contrast, personal income taxes, the largest source of tax revenue, comprised over 40 percent of revenues in 1994, but only 35 percent in 2015. Annual property taxes, which pay for schools amount to about 10 percent of the total. Unlike income taxes, the property transfer tax is a regressive tax as it does not differentiate between a wealthy invester and a family with just enough income to qualify for a mortgage and with barely a toehold on the property ladder.
Commissions and taxes are paid each time the property is bought and sold, so when speculators resell their properties, which is what they do, these costs are reflected in the new selling price. Predictably we see the inflationary effect of treating homes as short and medium term investments. While Household incomes increased 23.5 percent in Burnaby, house prices climbed 156.5 percent.
Where does the money come from? Clearly, there are a lot of wealthy people living in Greater Vancouver. I marvel at the number of luxury and high end vehicles on our roads. These drivers, or their parents, obviously can afford the real estate if they have the income to buy such a sweet ride, or they are deeply in debt. With a median household income of under $70,000, it is difficult to imagine that the majority of this wealth is generated by the economy. Certainly, FIRE industry, finance, insurance and real estate is based locally, but beyond that where does the money come from? The fact that Burnaby has the highest real estate prices and one of the lowest median household incomes suggests that the owners of the homes are not earning their income, (or not reporting it) locally.