Victoria might be a small city, but its high housing prices make it the least affordable Canadian city of its size, according to a new study that links median housing prices with median household incomes.
According to the 13th annual Demographia International Housing Affordability Survey, Victoria was the least affordable small market in Canada in 2016, a perch it has occupied for at least three straight years.
The Demographia study rates middle-income housing affordability by calculating the ‘median multiple,’ the median house price divided by the median household income.
This ratio allows policy makers to describe cities with a median multiple of up to 3 as affordable, between 3.1 and 4 as moderately unaffordable, between 4.1 and 5 as seriously unaffordable and over 5.1 as severely unaffordable. Victoria, according to the study, has a median multiple of 8.1.
This figure means that the median housing price in Victoria – $542,400 – is more than eight times higher than the median household income of $67,300. These figures rest on statistics from the third quarter of 2016.
So what accounts for this outcome? In one word, Vancouver. As the report says, Vancouver was the third least affordable major market among the surveyed cities in 2016 with a ratio of 11.8. According to the report, house prices there “rose the equivalent of a full year’s household income in only a year.”
This well-documented price inflation has had a “ripple-effect” upon the housing market in Victoria, as buyers from the Lower Mainland endowed by superior spending power are turning to Victoria for relative bargains.
Further evidence of this “ripple-effect” appears in the recent warning that the Canada Mortgage and Housing Corp issued last month.
It stated in a report that the agency had found “strong evidence of problematic housing market conditions” in having detected “moderate evidence of overheating in the Victoria CMA.”
Specifically, the agency found that “strong price gains, price levels outpaced fundamentals” such as employment and income.
By the end of September 2016, the number of new part-time jobs (6,300) outpaced new full-time jobs (1,900) by more than three times. “Typically, part-time employment is expected to support rental housing demand more so than the market for homeownership,” it said.
Accordingly, disposable income levels are not keeping up. “Average disposable income in the Victoria CMA continued to be outpaced by the rise in average home prices,” stated the agency.
These local conditions also appear across Canada. “Home prices [nationally] have climbed to levels exceeding those economic fundamentals that underpin the housing market,” the agency said.
Overall, it is not necessarily surprising to learn that Victoria is “severely unaffordable” for people with median incomes.
What is surprising is the consistency of this condition. Looking at available Demographia figures starting from 2006, Victoria has always ranked in the category of “severely unaffordable” with the multiple median ranging between a low of 6.6 in 2007 and a high of 7.9 in 2010.
In short, the unaffordability of Victoria has practically been a defining, if not permanent condition of the Victoria housing market since the early 2000s.
Overall, the study considered 406 metropolitan housing markets (metropolitan areas) in nine countries (Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States) for the third quarter of 2016. A total of 92 major metropolitan markets (housing markets) with more than one million are included, including five megacities: Tokyo-Yokohama, New York, Osaka-Kobe-Kyoto, Los Angeles and London.