Comment: Price drops fail to defuse housing affordability concerns

“Changes in prices do not materially affect resale activity [in Metro] Vancouver,” says economist

The ongoing slide in the benchmark price for a residential property in Metro Vancouver is approaching the point that will make headlines: the million-dollar mark.

When the benchmark price broke through $1 million in July 2017, it confirmed the sense of crisis around the local housing market. Now, with prices heading south, will there be a collective sigh of relief that properties are again affordable?

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Recapping the 2018 housing market, Ontario economist Will Dunning writes in the latest report from New Westminster-based Landcor Data Corp. that Vancouver is not like other markets.

To be sure, there’s some stickiness in the benchmark price. Activity in February shifted it $1,800 below where it was in July 2017. It could dip below $1 million this month, or spring housing activity could support it for another month.

But the curious phenomenon in Dunning’s analysis is that for every 5 per cent increase in house prices, there are 1 per cent fewer sales than if prices didn’t change. This contrasts with other B.C. cities, where a 5 per cent increase in prices boosts buying by upwards of 15 per cent.

When prices decrease, on the other hand, it’s not enough to make them affordable.

“Changes in prices do not materially affect resale activity [in Metro] Vancouver,” he concluded. “The level of house prices is preventing [potential buyers] from acting on their desires.”

RBC Economics called for more housing choices in its own report. Price is important, but it follows supply.

“What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options – be it to own or rent,” RBC senior economist Robert Hogue said.

Triple threat

Vancouver renters are often price takers. The City of Vancouver, meanwhile, is the price maker, because it governs housing supply by approving projects and, in the case of its rental incentive program, establishing a maximum for what it considers affordable rents.

The latest guidelines for affordable rents in the city drew hooting and guffawing from the usual quarters, but this year there’s some good news. Recommended rents for two- and three-bedroom units are down from last year.

A year ago, monthly east side rents for a two-bedroom unit fell to $2,457 from $2,505 (down 1.9 per cent). Monthly rents for three-bedroom units fell to $3,235 from $3,365 (down 3.8 per cent). (West side rents for both types are 10 per cent higher.)

The changes indicate that the city’s efforts to offer more family-sized units seem to be working, but that’s cold comfort for those facing smaller units, by choice or availability (read: necessity). The maximum rents for both studio and one-bedroom units considered to be affordable increased 7.4 per cent and 8 per cent, respectively, on both sides of the city. This works out to $1,607 a month for an east-side studio, and $1,869 for a one-bedroom unit (west-side rents for both types are 10 per cent higher).

However, the news gets worse for those seeking smaller units. The increases in the maximum rents are approximately triple the province’s 2.5 per cent maximum allowable rental increase within tenancies.

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