A new report finds average home prices in Victoria would need to fall by $413,000 to make housing affordable for a typical young person. Alternatively, typical full-time earnings would need to increase to $134,000 per year, more than double current levels.
These figures appear in a report Straddling the Gap: A Troubling Portrait of Home prices, Earnings and Affordability for Younger Canadians, which also includes a host of policy recommendations that target among other areas current tax regimes and the real estate industry itself.
Paul Kershaw of the UBC School of Population and Public Health and founder of Generation Squeeze, a organization advocating for housing affordability, and Sutton Eaves, co-executive director for Generation Squeeze, prepared the report.
“It shows that Canadians between the ages of 25 and 34 continue to straddle a massive gap between housing prices that remain at near-historic levels in key parts of the country, and earnings for this age group that have been relatively flat, if not down, for several decades,” it reads.
While the authors acknowledge the recent softening of the Canadian housing market, they remain pessimistic.
“Despite recent nominal declines in housing prices compared to previous years, the gap between the cost of owning a home and the ability of younger Canadians to afford it is still dramatic,” it reads. “Data in this report show that average home prices would need to drop by nearly 50 [per cent] for a typical person aged 25-34 to afford an 80 [per cent] mortgage on average-priced homes. Alternatively, earnings would need to double for this generation to afford the same home.”
Area residents can take some comfort in the fact that Victoria’s gap does not appear as severe as elsewhere in British Columbia.
“Average home prices would need to fall $452,000 to achieve affordability by 2030 – about two-thirds of the current value,” it reads. “[Or] typical full-time earnings would need to increase to $136,200 [per year] – nearly triple current levels.”
In Metro Vancouver, average home prices would need to fall about $795,000, about three-quarters of the current value. Alternatively, full-time earnings would need to increase by $200,400, quadruple current levels.
Kelowna residents, meanwhile, find themselves in a relative affordable place. Average home prices would need to fall $239,000, about half of the current value, it reads. Alternatively, typical full-time earnings would need to increase to $100,000 per cent year, nearly double current levels.
The report also includes several policy recommendations, with some more specific than others.
It recommends “governments at all levels” reduce non-housing costs. “These include expenses related to child care and parental leave, student debt and tuition, transit costs and more,” it reads.
Another recommendation calls for higher taxes to “capture wealth windfalls” as the “dramatic rise” in home prices in some regions has created a population of “housing lottery winners” not captured by the tax system.
“For example, annual revenue from municipal property taxation is down $4.4 billion (measured as a share of gross domestic product) by comparison with 1976, despite the $2.6 trillion in additional net wealth accumulated in principal residences over that time period,” it reads. In short, property taxes might not be enough, or not sufficiently granular to capture these windfalls.
“Similarly, federal estimates show that that non-taxation of capital gains from principal residences will cost the federal coffer around $6 billion in 2019, with corresponding losses to provincial coffers as well,” it reads. “These tax shelters have encouraged the commodification of housing in Canada.”
The authors also call for fundamental changes to the overall economic mix of Canada. They note the real estate and ancillary sectors account for 13 per cent of total GDP, yet employ only two per cent of Canadians.
“No other industrial sector has such a big gap between its share of GDP and share of employment,” it reads. “This means Canadians have been growing our economy by increasing the major cost of living, without generating jobs in that industrial sector at a rate that ensures local earnings keep pace, particularly in urban centres.”