The cost of housing in Vancouver, already the highest in Canada, is predicted to climb still higher, an RBC report says today.

Of all the cities surveyed across Canada for affordability, Vancouver earned the financial institution’s most pessimistic forecast. Not only is the city’s housing the least affordable of any major Canadian city, it’s the least affordable it has been in more than five years.

It now takes nearly one-half of the average family’s pre-tax income to cover the costs of owning a bungalow in Vancouver. The average price of a house in Greater Vancouver in October was $407,166, according to the report. (Royal LePage estimated the average price of a standard bungalow on Vancouver‘s west side was $675,000 in the third quarter.)

Overall, housing costs are taking up a greater proportion of household income in all parts of the country and will continue to do so, according to the report.

It’s going to get worse, the report suggests.

“Potential buyers will increasingly have to opt for more affordable housing options, such as smaller condos or even rentals in the downtown core,” says the report. “Other potential buyers will be forced to migrate to more affordable regions outside of the city where possible, and older affluent migrants from out-of-province will make up a greater share of potential buyers in the core.”

In contrast, Toronto — where the average price was $324,278 (or $750,000 for a two-storey in the popular Moore Park area) — will see declines in demand and prices for housing aimed at first-time buyers, such as small condos. However, the report stressed that “this does not mean the entire Toronto condo market will collapse.”

Montreal, meanwhile, will see some deterioration in affordability in housing but the market will remain both healthy and balanced. The average price was $197,296 although a two-storey home in the Cote-St-Luc neighbourhood costs on average $550,000.

Nationally, the report says the pace at which housing is becoming less affordable for Canadian families is modest and will result in the current housing boom merely cooling instead of going bust as happened to the late 1980s boom.

“Slightly lower mortgage rates, combined with softer pricing growth, helped to moderate eroding housing affordability in the third quarter of 2004,” it said in releasing its latest quarterly housing affordability report.

“While housing affordability eroded in every region of the country, the degree was modest and we expect it to continue at the same measured pace thanks to only mildly increasing mortgage rates and softer pricing growth,” said Carl Gomez, RBC economist. “This will help keep the slowdown in housing activity tame compared to previous housing cycles.”

The softer pace of pricing growth is the result of an improving supply of new listings in tandem with a slower pace of house sales.

While slowing sales reflects the recent erosion of affordability, it partly reflects the near-exhaustion of pent-up housing demand in some markets and a shrinking pool of potential first time homebuyers, it said.

The financial institution’s affordability index, which measures the proportion of pre-tax household income needed to service the costs of owning a home, eroded slightly to 31.8 per cent in the summer from 31.5 per cent in the spring. The index is based on the costs of owning a detached bungalow, and includes mortgage payments, utilities and property taxes.

British Columbia remains the least affordable place to own a home, with a reading of 44.3 per cent, the worst since 1999, while Alberta remains the most affordable at 26.5, thanks to softer price increases and solid income growth.

The largest deterioration in affordability occurred in Manitoba and B.C., resulting from sharp annualized house price increases in both provinces.

The index, which is also compiled for Canada’s largest cities, was 48.6 in Vancouver, a much more affordable 38.4 in Toronto, 31.3 in Montreal, 31 in Ottawa, and 28.3 in Calgary. Calgary prices for a two-story home range from $212,900 in the north east to $310,400 in the north inner city. In Ottawa, a similar home costs $379,000, while the average in the nation’s capital is $237,327.

Regionally, the report says:

– In B.C. the deterioration in housing affordability will continue to slow the pace of first-time home buying, although an improving economy will help keep new construction activity elevated.

– Alberta‘s housing markets will remain affordable and healthy, as soaring income growth helps to offset higher borrowing rates but a lack of pent-up demand will dampen new construction activity.

– In Saskatchewan affordability of housing held steady at a relatively low 27.7.

– Manitoba‘s affordability was eroded to 30.4 from 29.6 by sharp price increases brought on by a supply squeeze.

– Ontario was a little less affordable with a 30.4 rating, and will become a little less affordable in the coming year.

– Quebec‘s housing affordability was stable at 31.2 per cent and a slowdown in price increases will moderate any deterioration.

– Atlantic Canada remains the second most affordable region for housing at 26.7.

COST CRUNCH:

Vancouver is the least affordable place to own a home in Canada.

Vancouver: 48.6%

Calgary: 28.3%

© The Vancouver Sun 2004