I doubt that anyone who’s followed British Columbia’s real estate trends will find this news surprising: apparently, home ownership in the province isn’t as affordable as it used to be. Shocking, I know.
But what does interest me about the article is this bit:
The RBC affordability index measures the proportion of pre-tax household income needed to service the costs of owning a home…Across B.C., a standard two-storey home stood at 68 per cent…and a standard condo at 34 per cent. [Emphasis added.]
Lookit: condos in the province cost about half as much as standard two-storey homes. (I’m all about the Canadian spelling!)
Which makes me wonder: what’s all the fuss I hear about condo developments making housing unaffordable?
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The idea that condos hurt affordability is surprisingly common, and I feel a little like Johnny–One–Note whenever I take time to debunk it. But at risk of boring any regular readers out there: the whole idea is a bit wacky.
Of course, declines in housing affordability and increases in condo construction often do go hand in hand. But that’s not because one causes the other. Instead, they’re both consequences of a single underlying dynamic: a rise in demand for housing relative to the supply.
In fact, since the supply of land is limited, building condos is one of the only ways to create new housing in a dense metropolis. Condo construction increases the supply of the lowest-priced homes—half the cost of 2-storey homes in BC—which gives some people a shot at buying who otherwise would be forced to rent. Condo construction may even hold down apartment rents, by taking some pressure off the rental market. And given that condos are the cheapest homes available for sale, new condo development typically means more affordable housing for people who aren’t super-rich.
So sure, some new condos—particularly in up-and-coming neighborhoods, or close to downtown—can be pretty darn pricey. But at heart, it’s not the condos themselves that are causing affordability problems. Rather, condos are a response to a shortage of affordable housing, not a cause.
(And yes, I do understand that this discussion leaves out the problems of providing low-income housing—which typically requires solutions that the market alone can’t provide. That’s a discussion for another day, though a very important one.)
So next time you hear someone complain that new condos are making it impossible for ordinary people to afford a home, call foul. Just ask them to check the prices on houses vs. condos—the more affordable option will be clear enough.