One might think that part of the price increases in the last two years have been fueled by gains in income. After all, we have an active tech industry and more younger people sticking around, so surely incomes must be going up, right? Those $900,000 houses aren’t too bad if you’re making $200,000 a year.
Well the new labour survey numbers are out, and unfortunately it doesn’t look like that has really been happening. Average incomes were the same in 2015 as they were 6 years earlier, just keeping up with inflation. And once you take into account the measurement error, there isn’t much of a trend over 10 years.
Even those dual income households we hear so much about are not that impressive. About half of our 100,000 families are dual earners, and the median family was earning $94,000 pre-tax in 2015. Enough to buy a
house townhouse costing about $475,000 with 5% down. And if the B20 rules hit in the fall, it won’t even help to beg borrow or steal the 20% down payment anymore as everyone will be subject to the stress test.
The 2016 census data isn’t out yet to show the income distribution (scheduled for September), but here are the 2011 numbers. If we make the very crude assumption that with an approximately ~70% ownership rate, the top 70% of earners are likely to be the home owners, we get down to some pretty small numbers for family income.
Of course most owners bought years ago and don’t have to worry about buying their million dollar Oak Bay warshack on their $40,000/year pension. But it indicates that the incomes for the higher earning segment that would have traditionally bought a house just aren’t sufficient to get into the market anymore. And as the older population that bought their houses for a fraction of the price on normal incomes decades ago passes away, they will have to be replaced by a much wealthier contingent. Right now to get into the 1% of high earners in Victoria you have to be making $227,000. That will hardly get you qualified for a somewhat better house in the core.
Unless prices drop, there will have to be either a mass shift to families in condos, or the ownership rate will drop going forward.