Mapping Affordability in the Epicenter of Canada’s Housing Bubble
At the epicenter of Canada’s housing bubble, which is now rated as the most overvalued in the world, is the west coast city of Vancouver. It’s there that low interest rates and foreign buying have fueled the average detached home price to a record of C$1.47 million, a 20% increase from the previous year.
While there are many measures of unaffordability, the government and federal agencies frequently use one such measure called the Shelter-cost to Income Ratio. It essentially compares the annual cost of an individual’s housing with the amount of income they have coming in each year. Federal agencies in Canada consider households that spend 30% or more of total before-tax household income on shelter expenses to have a “housing affordability” problem.
In Vancouver, however, the city has become so unaffordable that 25,000 households pay more for their shelter costs than their entire declared income. This works out to 9.5% of the households in the city – far higher than Greater Toronto (5.9%) or Montreal (5%).
We recently stumbled across a data mapping project by Jens von Bergmann, via the Hongcouver blog. Von Bergmann, who runs a data firm in Vancouver, has compiled a series of interactive maps that overlay census data onto the city. In Canada, the mandatory census happens every five years and creates a wealth of granular information.
Here’s the percent of people in each city block that pay more for housing than they take home in income:
In an example neighborhood pocket (dissemination area 59150581) located between Arbutus and Macdonald streets, 44.8% of households pay more for shelter than they bring in for income. The average value for each “shelter”? A cool C$1.98 million. Yet, the median individual income in the area is only C$19,993.
Things get stranger yet in Vancouver’s high-end Coal Harbour neighborhood, where somehow 62% of households claim to have lower income than shelter costs. In a pocket of Yaletown, 50% of people make less than the cost of their housing.
While the precision of the data is excellent, the only problem with it is that the last census in Canada took place in 2011. Four years ago, housing prices were a fraction of what they are today. Compare today’s price of a detached home (C$1.47 million) to the price in August 2011: C$888,243.
Have median wages jumped this much? Not likely – the problem is only getting worse.
Here’s how the value of land has changed by block from 2006 to 2014 according to some of von Bergmann’s other data based on City of Vancouver assessment records:
Despite the country entering a technical recession, consumers having record-high debt, and commodity markets getting routed, Vancouver’s market is still flying high today.
Housing sales in August 2015 were up 28% compared to the ten-year average, and the median price in Vancouver’s west side is entering “crazy” territory at C$2.87 million. While it is true that shelter in the epicenter of Canada’s housing bubble may seem quite expensive, at least the homes don’t look like crack shacks. Or do they?
Commercial Mortgage Delinquencies Near Record Levels
After the 2009 crisis, it took nearly 3 years for commercial mortgage delinquencies to hit record levels. In 2020, it took just 3 months.
Commercial Mortgage Delinquencies Near Record Levels
Delinquency rates across commercial properties have shot up faster than at any other time.
As thousands of restaurants, hotels, and local businesses in the U.S. struggle to stay open, delinquency rates across commercial mortgage-backed securities (CMBS)—fixed income investments backed by a pool of commercial mortgages— have tripled in three months to 10.32%.
In just a few months, delinquency rates have already effectively reached their 2012 peaks. To put this in perspective, consider that it took well over two years for mortgage delinquency rates to reach the same historic levels in the aftermath of the housing crisis of 2009.
The above chart draws data from Trepp and illustrates the recent shocks to the CMBS market, broken down by property type.
While there is optimism in some areas of the market, accommodation mortgages have witnessed delinquency rates soar over 24%.
Amid strict containment efforts in April, average revenues per room plummeted all the way to $16 per night—an 84% drop.
|Property Type||January 2020||June 2020|
Similarly, retail properties have been rattled. Almost one-fifth are in delinquencies. From January-June 2020, at least 15 major retailers have filed for bankruptcy and over $20 billion in CMBS loans have exposure to flailing chains such as JCPenney, Neiman Marcus, and Macy’s.
On the other hand, industrial property types have remained stable, hovering close to their January levels. This is likely attributable in part to the fact that the rise in e-commerce sales have helped support warehouse operations.
For multifamily and office buildings, Washington’s stimulus packages have helped renters to continue making payments thus far. Still, as the government considers ending stimulus packages in the near future, a lack of relief funding could spell trouble.
Weighing the Impact on U.S. Cities
How do delinquency rates vary across the top metropolitan areas in America?
Below, we can see that the delinquent balance and delinquency rates vary widely by city. Note that this data is for private-labeled CMBS, which are issued by investment banks and private entities rather than government agencies.
Despite the New York city metropolitan area having a delinquent balance of $7 billion, its delinquency rates fall on the lower end of the spectrum, at 7%. New York alone accounts for 18% of the total balance of private-label CMBS.
By comparison, the Syracuse metropolitan area has an eye-opening delinquency rate of 69%. Syracuse is home to the shopping complex, Destiny USA, which is facing tenant uncertainties due to COVID-19. The six-story mall attracts 26 million visitors annually.
Like the overall market, delinquencies are being driven by accommodation and retail properties across many of these U.S. metropolitan areas.
What Comes Next
What happens when delinquency rates get too high?
Often, when borrowers do not make payment after a reasonable amount of time, they enter into default. While time ranges can vary, defaults typically take place after at least 60 days of nonpayment. Between May and June, defaults in the CMBS market surged 792% to $5.5 billion.
As effects reverberate, properties could eventually fall into foreclosure. At the same time, institutional investors who own these types of securities, which include pensions, could begin seeing steep losses.
That said, the Federal Reserve has set up mechanisms to purchase CMBS loans with the highest credit quality. This is designed to inject liquidity into the mortgage market, while also financing small and mid-sized properties that house small businesses. In turn, this can enable the employment of millions of Americans.
Of course, it remains to be seen whether the mortgage market will face a sustained downturn akin to the financial crisis, or if the temporary decline will soon subside.
From Novelty to Necessity: The Growing Tiny Home Movement
Tiny homes have grown into a multi-billion dollar industry—but is it just a millennial novelty, or a necessity for every generation?
Visualizing the Rise of Tiny Homes
Born out of the desire for a simpler, more affordable way of life, the tiny home movement has spread at a furious pace—with the global market estimated to grow by a CAGR of almost 7%, adding nearly $5.2 billion in market size by 2022.
Given the economic pressures of today’s world, these alternative housing solutions have become not only a viable option for many people, but a vital one.
Today’s infographic from Calculator.me illustrates how the tiny home market got so big, and how it fares against traditional housing when it comes to providing environmentally friendly and affordable options.
How Did Tiny Homes Get So Big?
It was not until the 2009 recession hit the U.S. that tiny homes became more of a realistic option, as the benefits of downscaling became more apparent.
From then on, three things propelled the popularity of tiny homes: rising house costs, shrinking incomes, and a greater consideration for the environment.
Today, 63% of U.S. millennials would consider living in a tiny home. However, the need to go tiny is not only confined to millennials, as 40% of tiny home owners are over fifty years old.
Tiny Vs. Traditional
According to the infographic, a home is considered tiny (or micro) when it is between 80-400ft², and is at least 8ft in height.
Tiny homes also come with a tiny pricetag, costing just $23,000 on average to build—meaning tiny homes are almost ⅒ the price of traditional homes.
|Metric||Tiny Homes||Traditional Homes|
|U.S. Median Cost||$59,884||$312,800|
|Average Cost To Build||$23,000||$206,132|
|Home Ownership||78% own their home||65% own their home|
|Mortgage||32% have a mortgage||64.1% have a mortgage|
|Credit Card Debt||40% have credit card debt||37% have credit card debt|
Other benefits of tiny home living include:
- Avoiding mortgage debt
- Less maintenance required
- Allows for a more flexible lifestyle
Further, tiny homes are providing people with alternative solutions for more sustainable living.
An Environmentally Friendly Way of Living
Certain models of tiny homes use energy from solar panels—presenting ample opportunities for an independent off-grid lifestyle. Moreover, research from Virginia Tech shows that living in tiny homes reduces energy consumption by up to 45%.
Using less energy can also be attributed to tiny homeowners using the space outside as an extension of their home. In fact, when there is usable space available outdoors, tiny home living may not seem as drastic in comparison to living in a traditional home.
Room For Improvement
There are however, some challenges for those who are considering this way of life. Zoning laws and building codes in the U.S. can be restrictive, with some states more supportive of the idea than others.
Despite these barriers, there are numerous organizations and initiatives that have been created in order to eliminate the pain points that come with tiny homes, and legitimize the industry.
Not Just a Passing Trend
With the promising trajectory of tiny homes, it is inevitable that the interest from global retailers continues to grow.
Japanese minimalist company, Muji, released their own tiny homes in 2017, costing $26,000 on average. At just under 107.6 ft², these tiny homes are prefabricated, meaning they are constructed in a factory off-site.
Amazon also recently announced their foray into the tiny home space, with dozens of models available on their website—delivering new homes right to their customers’ front doors.
The Future Comes in All Shapes and Sizes
Beyond the typical tiny home formats we see entering the market en masse, there are other alternatives which will become more readily available to consumers, including:
- Traditional modular homes
- Shipping containers
- 3D printed houses
- Recreational vehicles
It is also worth pointing out that tiny homes and these alternative models don’t have to be restricted to under 400ft². Flat packs and do-it-yourself tiny homes can be as big as 1,000ft², with some of the largest models housing up to 24 people.
It is clear that the tiny home movement is not just about going back to basics, but rather, about making home ownership a reality for everyone—potentially disrupting the current housing market in the process.
The question is not if tiny homes will become the new normal, but when.
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