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.
You’re right that condos are providing ownership opportunity for people who can’t afford the $500,000 median home price just reached here in Seattle. But one adverse effect of condo developments is on those who choose not to own, either through economic necessity or the desire for flexibility. In the desire to sell condos many apartment complexes are being converted into condos, and new development is focusing on building condos instead of apartments. As a result rents are rising pretty quickly, which is starting to put the squeeze on people who already were not in a position to afford expensive housing.
Good point—though from what I hear, in Vancouver at least, some people are buying condos as investments, and then turning around and renting them out.Obviously, condo construction is a different animal than conversion. Conversion can be bad for renters, while construction can be good. That said—yep, housing’s still going up around these parts, whether you’re a renter or a buyer. I’d be interested in seeing if that’s true in other parts of the country, where housing prices have slid…
Both Mark and Clark make good points. However, even if someone buys a condo and rents it out it doesn’t mean the new rent will be afforable for many of us.This topic is really important to me because I live in one of the few remaining afforable apartments in Seattle: My monthly rent for a 470 sq’ 1-bdr is $580. There are condo conversions and development all around me and it scares me to death. I can’t afford the monthly payment for an ‘affordable’ ($250K+) condo.
jackson place seattle
i used to live in san francisco where in the 90’s there was this condo boom (and live/work loft boom – developers figured out they could sell unfinished spaces for the same price as finished units). home prices went thru the roof (i had a two bed one+half bath house valued just shy of $1M in a fair neighborhood.) why? because the condos weren’t big enough or suited for the family. in my hood you would typically see 30 condos for sale and only one house. developers claim that there is no demand for family housing in that i market. i believe that they don;t build properly for that market – there needs to be amenities such as play areas, open space, childsafe design (eg sightlines, no pun intended), etc. its just not being built.
a-kos—Jeez, scary indeed. Good luck!!
I would be curious to see the % of income breakdown for Vancouver proper…. Most condos in Vancouver are in the 300-500k range.re: condos are purchased as investments and rented, I recall a government report that pointed out that condo rentals are on average 20% more than an apartment.While I do agree that condos don’t cause unaffordability – they do bugger with the construction of purpose built rental housing, namely by replacing it. Why build a rental property when you can build condos and make way more money up front and be taxed less? This is the problem in downtown Vancouver, there are condos going up everywhere and nary a rental building to be seen. Personal Pity Party: My affordable, pet friendly rental building is being gutted and renovated (which was needed) to be sold as condos and I dread eviction given the vacancy rate of 0.7%.