Recent media reports have focused on the gap between median household incomes in Metro Vancouver and median home prices, from RBC’s affordability study to SFU professor Andy Yan’s findings that the region has the biggest affordability gap in North America. (You may remember I recently wrote about my problems with these kinds of ratios, but let's set aside those issues for now.)
This housing-income gap has led experts to argue that Metro Vancouver needs more corporate headquarters in order to bump up Vancouverites’ average earnings. Bring high-paying jobs into the city, and local people can more easily afford our expensive real estate – makes sense, right?
Hold up, though – there’s a problem with that, too. In fact, several problems.
First off, the high-paying jobs have to be given to local folks in order to help those locals better afford our real estate. Sure, some locals would get the benefit – but any international corporation setting up an HQ would also bring in swathes of highly paid employees from overseas who would eat up our local housing stock, both for sale and rent.
It’s happening already, all over town. I’m fortunate enough to own a tiny rental studio downtown, and I rent it to a young woman from Seattle who was transferred to the Vancouver Microsoft office last year. She’s 20 years younger than me and earns considerably more than I do. She can outcompete virtually any other local renter with her guaranteed ability to pay a certain rent on her Microsoft salary. Bring more corporate HQs to town, and you also bring many more people like my tenant from out of town. That’s great news for landlords, but bad news for locals looking for housing.
Second, for the sake of argument, let’s imagine for some reason that 100 per cent of the jobs in a massive new Vancouver-based corporate HQ go to locals. Maybe several new corporate HQs, with thousands of local, highly paid jobs created. The median local household income rises, and our income-to-home-price ratio eases in line with other cities. Whoo-hoo!
But wait a minute – what if you’re not one of those new-job beneficiaries? Your own salary stays exactly the same, so you can’t afford real estate any more than you could before. In which case, what use is an improved house-price-to-income ratio to you? None at all.
What’s more, all the local folk who did benefit from a shiny new job can now afford local real estate better than they could before. So what happens then? Home prices rise as demand increases and buyers are more competitive with their offers. People will always spend up to the maximum they can afford, and more spending inevitably means higher prices as sellers cash in on the new flow of money. And that leaves those of us not in the high-paid sector even less able to afford real estate than we could before the HQs moved to town. Add to that, the jump in high-paid tech workers brings other cost-of-living hikes to everyone, such as expensive new restaurants opening up, more luxury retail, higher prices in bars and stores, and so on. Beware the “Amazon effect,” which I wrote about recently.
I come from London, England, which is by anybody’s standards a world-leading city with countless global HQs, particularly in the financial industry. Home prices there are 14.5 times the average salary (according to HomeTrack) – even higher than Vancouver’s 11 times (according to Yan’s study). The English capital’s host of HQs has not helped with its affordability problem – indeed, it has just created a bigger gap between the haves and the have-nots. Local teachers, nurses, small-business owners and – yes – journalists cannot compete for housing with the thousands upon thousands of ultra-rich bankers and stockbrokers employed in the city. It’s one of the reasons I moved to Vancouver.
Of course, there are also numerous benefits to having corporate HQs setting up in a city, there’s no doubt about that. Economic growth, higher employment, more people to shop at local stores, a vibrant and diverse community, and much more besides. But making local housing more affordable for locals isn’t typically one of them.
We should perhaps be careful what we wish for.
