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?
Mapped: The Salary You Need to Buy a Home in 50 U.S. Cities
Is owning a home still realistic? This map lays out the salary you’d need to buy a home in 50 different U.S. metro areas.
This is the Salary You Need to Buy a Home in 50 U.S. Cities
Depending on where you live, owning a home may seem like a far off dream or it could be fairly realistic. In New York City, for example, a person needs to be making at least six figures to buy a home, but in Cleveland you could do it with just over $45,000 a year.
This visual, using data from Home Sweet Home, maps out the annual salary you’d need for home ownership in 50 different U.S. cities.
Note: The map above refers to entire metro areas and uses Q1 2022 data on median home prices. The necessary salary was calculated by the source, looking at the base cost of principal, interest, property tax, and homeowner’s insurance.
Home Ownership Across the U.S.
San Jose is by far the most expensive city when it comes to purchasing a home. A person would need to earn over $330,000 annually to pay off the mortgage at a monthly rate of $7,718.
Here’s a closer look at the numbers:
|Rank||Metro Area||Median Home Price||Salary Needed|
|#7||New York City||$578,100||$129,459|
|#15||Salt Lake City||$556,900||$100,970|
Perhaps surprisingly, Boston residents need slightly higher earnings than New Yorkers to buy a home. The same is also true in Seattle and Los Angeles. Meanwhile, some of the cheapest cities to start buying up real estate in are Oklahoma City and Cleveland.
As of April, the rate of home ownership in the U.S. is 65%. This number represents the share of homes that are occupied by the owner, rather than rented out or vacant.
The American Dream Home
As of the time of this data (Q1 2022), the national yearly fixed mortgage rate sat at 4% and median home price at $368,200. This put the salary needed to buy a home at almost $76,000—the median national household income falls almost $9,000 below that.
But what kind of homes are people looking to purchase? Depending on where you live the type of home and square footage you can get will be very different.
In New York City, for example, there are fairly few stand-alone, single-family houses in the traditional sense—only around 4,000 are ever on the market. People in the Big Apple tend to buy condominiums or multi-family units.
Additionally, if you’re looking for luxury, not even seven figures will get you much in the big cities. In Miami, a million dollars will only buy you 833 square feet of prime real estate.
One thing is for sure: the typical American dream home of the big house with a yard and white picket fence is more attainable in smaller metro areas with ample suburbs.
Buying vs. Renting
The U.S. median household income is $67,500, meaning that today the typical family could only afford a home in about 15 of the 50 metro areas highlighted above, including New Orleans, Buffalo, and Indianapolis.
With the income gap widening in the U.S., the rental market remains a more attractive option for many, especially as prices are finally tapering off. The national median rent price was down nearly 3% from June to July for two-bedroom apartments.
At the end of the day, buying a home can be an important investment and may provide a sense of security, but it will be much easier to do in certain types of cities.
The World’s Largest Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITS) are a simple alternative for investors looking to gain exposure to real estate.
The World’s Largest Real Estate Investment Trusts (REITs)
Real estate is widely regarded as an attractive asset class for investors.
This is because it offers several benefits like diversification (due to less correlation with stocks), monthly income, and protection from inflation. The latter is known as “inflation hedging”, and stems from real estate’s tendency to appreciate during periods of rising prices.
Affordability, of course, is a major barrier to investing in most real estate. Property markets around the world have reached bubble territory, making it incredibly difficult for people to get their foot in the door.
Thankfully, there are easier ways of gaining exposure. One of these is purchasing shares in a real estate investment trust (REIT), a type of company that owns and operates income-producing real estate, and is most often publicly-traded.
What Qualifies as REIT?
To qualify as a REIT in the U.S., a company must meet several criteria:
- Invest at least 75% of assets in real estate, cash , or U.S. Treasuries
- Derive at least 75% of gross income from rents, interest on mortgages, or real estate sales
- Pay at least 90% of taxable income in the form of shareholder dividends
- Be a taxable corporation
- Be managed by a board of directors or trustees
- Have at least 100 shareholders after one year of operations
- Have no more than half its shares held by five or fewer people
Investing in a REIT is similar to purchasing shares of any other publicly-traded company. There are also exchange-traded funds (ETFs) and mutual funds which may hold a basket of REITs. Lastly, note that some REITs are private, meaning they aren’t traded on stock exchanges.
The Top 10 by Market Cap
Here are the world’s 10 largest publicly-traded REITs, as of March 25, 2022.
|REIT||Market Cap||Dividend Yield||Property Type|
|Prologis (NYSE: PLD)||$116.4B||2.03%||Industrial|
|American Tower (NYSE: AMT)||$109.8B||2.38%||Communications|
|Crown Castle (NYSE: CCI||$76.8B||3.35%||Communications|
|Public Storage (NYSE: PSA)||$65.9B||2.14%||Self-storage|
|Equinix (NYSE: EQIX)||$64.4B||1.74%||Data centers|
|Simon Property Group (NYSE: SPG)||$48.9B||5.07%||Malls|
|Welltower (NYSE: WELL)||$43.0B||2.58%||Healthcare|
|Digital Realty (NYSE: DLR)||$40.1B||3.55%||Data centers|
|Realty Income (NYSE: O)||$40.1B||4.44%||Commercial|
|AvalonBay Communities (NYSE: AVB)||$34.6B||2.62%||Residential|
As shown above, REITs focus on different sectors of the market. Understanding their differences is an important step to consider before making an investment.
For example, Prologis manages the world’s largest portfolio of logistics real estate. This includes warehouses, distribution centers, and other supply chain facilities around the globe. It’s reasonable to assume that this REIT would benefit from further growth in ecommerce—more on this near the end.
Realty Income, on the other hand, owns a portfolio of over 11,100 commercial real estate properties in the U.S. and Europe. It rents these properties out to major brands like Walgreens and 7-Eleven, which together account for 8.1% of the REIT’s annual income.
More Than Just Buildings
Cell towers and data centers may not seem like “real estate”, but they are both critical pieces of modern infrastructure that take up land.
REITs that focus on these sectors include American Tower and Crown Castle, which own wireless communications assets in the U.S. and abroad. They are likely to benefit from the increased adoption of 5G networks and the Internet of Things (IoT).
On the other hand, Equinix and Digital Realty are focused on data centers, a fast growing industry that is benefitting from digitalization. Both of these REITs work with major tech firms such as Amazon and Google.
Trends to Watch
The demand for real estate can be heavily influenced by overarching trends found around the world. One of these is population growth and urbanization, which has drastically pushed up the cost of housing in many cities around the world.
There’s also the rising prevalence of ecommerce, which has triggered a boom in demand for warehouse space. This is best captured by Amazon’s massive growth during the COVID-19 pandemic, during which the company doubled the number of its warehouse facilities.
Globally, ecommerce accounts for just 19.6% of total retail sales. Should that figure continue to rise, industrial real estate prices could be in store for robust, long-term growth.
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