Not all cities are equal, and neither are the people who live in them. The biggest opportunities for earning money and building a career tend to be concentrated in a relatively small number of places. In Canada, they’re led by Vancouver and Toronto. And in the U.S. they include San Francisco, Boston and New York. These cities share a global outlook, access to culture and commerce and high levels of social mobility. They’re also becoming rapidly unaffordable for anyone but the wealthy elite.
Only a decade or so ago, for instance, the idea of owning a house in Vancouver was plausible for many residents. The ratio of average home prices to median income in Vancouver — a measurement of affordability — was about six-and-a-half to one. Now homeownership is a fantasy for all but the highest earners. As of last year, the ratio of home prices to income had grown to 11 to one. You’d need to be earning about $140,000 a year to afford a house. Rent, meanwhile, is also skyrocketing.
The same thing is also happening in the U.S. Two decades ago, housing in the most socially mobile cities was pricey but relatively affordable. The price gap between cities like Seattle and places with less economic opportunity was about 56 per cent. Today, that gap has risen to about 147 per cent. “It’s extremely expensive to afford homes in these places,” explained Svenja Gudell, chief economist for the online real estate database Zillow, which tracks housing trends. “It’s happening very quickly and I think it’s going to present a whole bunch of problems in the long run.”
The idea that a low-income person can become wealthier over their lifetime is one of our society’s founding narratives. It’s so pervasive many people simply accept it as fact. Success is possible for anybody who wants it badly enough, and all it requires is hard work, perseverance and luck. The reality, of course, is more complex.
When Harvard economists Raj Chetty and Nathaniel Hendren studied incomes of Americans born between 1980 and 1982, they discovered social mobility is not a given. It’s highly dependent on where you live. Someone who grew up on the West Coast, for instance, was likely to earn more money than someone in the Midwest. “For example, if a child were to grow up in the Seattle metro area instead of an average place, he/she would make about 12 per cent more at age 26,” they observed.
To some extent this has always been true. Big cosmopolitan cities tend to have the best universities. They provide access to editors, investors, mentors and audiences. They are where you go to test out new ideas, meet new people and be exposed to new cultures. If you want to get established in finance or media, you move to New York. For tech, to San Francisco. For film, to Los Angeles or Vancouver.
But as our manufacturing industries declined over the past decades, these cities became more important to the economy. More than 50 per cent of America’s GDP is generated by its 20 largest cities. And in Canada it’s the same — about 52 per cent from just 12 cities.
Even within these groups, though, the best opportunities are skewed towards a few superstars. New York, for instance, is worth about 10 per cent of the U.S. economy. In Canada, much of the economic action occurs in just three large cities. Of the 277,000 jobs created here over the past several years, about 94 per cent were generated in Vancouver, Toronto and Montreal. Vancouver now has the country’s fastest growing economy. “[It’s] firing on all cylinders,” Business in Vancouver recently reported.
The economies of Edmonton and Calgary, meanwhile, have been shrinking for the past two years. In theory it would make sense for a laid-off worker in one of those cities to relocate to Vancouver. Geographically it’s relatively close. And right now it offers much better economic opportunities. But in practice such a move is getting more and more difficult to undertake. Homes in Vancouver have always been more expensive than in the rest of Canada. Yet even back in 2005, the average price of $600,000 for a detached house was within the financial means of many people.
These days it’s totally out of the question. Though prices are down 18 per cent from last year, a laid-off worker from Alberta would still find it difficult to afford the $1 million asking price of the average Vancouver home. Renting an apartment isn’t much easier either. Rental prices in Metro Vancouver went up 6.4 per cent in 2016, the steepest rise ever recorded here.
The irony is that a key driver of Vancouver’s economy is real estate. And yet “anyone contemplating a move to the region faces exorbitant housing costs,” a recent Conference Board of Canada report noted.
What’s happening in Vancouver represents a much larger problem. Cities such as Toronto, San Francisco and New York offer the best opportunities in our society. But those opportunities are increasingly inaccessible to regular people. The real estate group Zillow has calculated that house prices in the best American cities for social mobility are 147 per cent more expensive than prices in the worst. “Recent growth in home values over the past few decades could essentially be shutting the door to the middle class by preventing low-income families from being able to affordably live in places that allow them to ascend the socioeconomic ladder,” Zillow wrote.
Many developers argue that this is an unfortunate side effect of prosperity and that ultimately high land values benefit us all. And that if we want to make housing more affordable for regular people we simply have to build more of it. “The answer... is to increase density,” Anne McMullin, president of the development industry non-profit the Urban Development Institute, explained to the CBC. But the problem, she added, is “people don’t want that. They’re looking for an easy answer — let’s blame others."
As The Tyee has reported in recent pieces, however, limited housing supply in geographically constrained cities like Vancouver is only part of the reason prices have risen so fast. There is a rapidly growing surplus of global investment capital. And investors have poured huge amounts of it into housing over the past decade. Some investors belong to a global elite who view secondary homes in Vancouver and elsewhere as investments or safe havens for their wealth. By focusing only on supply, we ignore the extent to which these elites profit from unaffordability.
We also ignore the widening social divisions that high housing costs are creating. The exorbitant prices we now see in Vancouver, and increasingly Toronto, are an issue for our entire society. “We are driving a very large wedge between the lowest income earners and the highest income earners and their access to opportunity,” said Zillow economist Gudell. “That will turn into a problem.”
Our political and economic leaders haven’t been eager to acknowledge it. But sooner or later we will all be forced to deal with the consequences. And the longer we wait the more destabilizing they’ll be.
Read more: Housing, Municipal Politics
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