You may have heard through the media about this housing report that identified Vancouver and Victoria the 4th and 7th least-affordable cities in the world. The measure they used was ratio of median house price to median income.* The historic global value is 3. Vancouver was 8.4 in the third quarter of 2008.
The paper makes a compelling argument that a dramatic rise in the affordability of mortgages led to a increase in demand for housing that markets were unable to meet due to artificially constrained supply. This market failure caused a housing price bubble, which led to the mortgage meltdown, which triggered the financial crisis. The housing supply was constrained by two things:
- urban containment boundaries
- neighborhoods that, through planning or reactionary NIMBYism, prevent densification
Municipal voters and neighborhood association members are disproportionately homeowners (eg: your mom). Homeowners have a huge incentive to increase the price of their home. Therefore, they will seek policies that constrain supply both out and up.
Being a “neo-con” think-tank, the Frontier Centre for Public Policy says getting rid of urban containment boundaries is the only path to affordable housing. I’m going to talk about how we can increase densification in future posts.
* I think this is a good measure. Imagine homeowners being matched one-to-one to houses: the nth richest homeowner will probably buy close to the nth most expensive house.