Why are Vancouver wages so low compared to other cities?

Affordability is such a hot topic in Vancouver right now, one that affects everyone in the city. But we’re sick of repeating the same old stories about rising house prices. We don’t just want to keep telling you that it’s happening, we want to find out why it’s happening and what can be done to tackle it.

Vancouver Affordability Series

Part 1: How Vancouver got so expensive and what you can do about it
Part 2: Why are wages so low in Vancouver compared to other cities?
Part 3: Is Vancouver in the midst of a real estate bubble? Will it burst?
Part 4: Opinion: Why I chose to move to Vancouver
Part 5: Land-locked region: Is geography a factor in Vancouver’s affordability crisis?

Buying a property in Vancouver is out of reach for many first-time home buyers. But rising housing prices are just part of the problem: low wages are a major issue plaguing the city.

A study by Vancity Credit Union found that millennials who want to purchase a home in Vancouver at an average price will go into debt by almost $3,000 per year – hardly surprising, given that the average cost of a home in the city is close to $800,000, while the average salary hovers around $73,000 for millennial couples, the second lowest rate in all of Canada.

Beyond that, BC currently has the lowest minimum wage out of any province or territory.

Why the discrepancy between wages and the cost of homes?

While many other cities have high housing costs – Toronto and San Francisco to name a couple – the phenomenon of low wages in combination with high housing costs seems to be unique to Vancouver.

“Any city that’s a particularly attractive place to be – especially if it has geographical limitations – is going to have high housing prices relative to income,” Tsur Somerville, an economics professor at UBC’s Sauder School of Business tells Daily Hive. “The baseline is that it should be less affordable here than anywhere else.”

Problems start arising, says Somerville, when the demand for real estate becomes disconnected from the local labour market.

“In a normal market, wages and house prices are connected and they can’t get more out of whack than is appropriate for the city. On the other hand, if you get demand for real estate here – say for vacation homes, that’s completely disconnected from wages here.”

Another aspect of the equation is that Vancouver has very limited geographic space, making it more difficult to build outwards. That, combined with regulatory issues makes for a perfect storm of unaffordable housing.

“That’s going to exacerbate any issues you have around affordability, especially if you have really tight supply constraints,” he says. “A place that has lots of places to build can have demand for vacation homes without messing everything up.”

And then there’s the issue of those who invest in Vancouver’s housing market without living, working, or contributing to the local economy – although Somerville was hesitant to say those are strictly foreign investors.

“That can be local boomers owning condos for an investment that they don’t want to rent out, that can be Americans having vacation pads, and it can be Chinese spiriting money out and parking their kids here to go to school. There are all different ways that can happen.”

As it stands, there are 10,800 empty homes in Vancouver, according to a report released by the City of Vancouver back in March, and they say the numbers are continuing to grow.

And, sadly, there’s nothing that can be done on a city level to mandate occupancy or create an empty home registry; that’s up to the province. On June 22, Mayor Gregor Robertson made an appeal to Premier Christy Clark to implement an empty homes tax and gave her an August 1 deadline. He says the city will move forward with their own taxation system if they don’t respond swiftly.

Ultimately, raising wages doesn’t make sense economically if workers aren’t being more productive, says Somerville, but raising service industry-related wages does if we change our focus to view Vancouver as a vacation city.

“Then we would pay the wages necessary to be able to service the folks who came on vacation and that would be part of the expense of having a vacation. So your coffee is more expensive in Japan than it is in Bolivia.”

All in all, Vancouver is an attractive city, and people want to live in beautiful places – because of this, employers need less incentive in the form of wages to lure in prospective workers.

“That attractiveness of an area both pushes up housing prices and depresses wages compared to what they would be otherwise,” adds Somerville.

A booming industry?

Computer / Shutterstock

One industry, however, is growing and doesn’t have enough workers to fill the positions available: the tech industry. Vancouver has the third highest wages for the tech sector in the nation, according to job recruiter Nathan Wawruck with Robert Half. In the top spot is Toronto, followed by Calgary.

“Wages are definitely going up based on the competitive nature of the local job market,” says Wawruck. “Companies will generally interview people from outside of Vancouver.”

Still, jobs aren’t getting filled fast enough on a local level, forcing many Vancouver tech companies to hire people to work remotely.

“It doesn’t work for everything, but remote workers are filling some of the gap.”

He adds there’s significant growth in the financial tech sector as well.

What can be done to solve the discrepancy?

For his part, Somerville believes there are a few solutions in the battle of wages versus housing prices. The first solution might be taxing those who make it more difficult to buy homes here, like foreign investors and those who own vacant properties, and using that money to benefit people who work here.

“The tax system here taxes labour much more than it taxes property. So that’s taxing folks who work here at the expense of folks who own things here.”

Another answer could be creating incentives to increase peoples’ productivity to allow them to earn higher wages, perhaps in the form of post-secondary education.

If this trend continues without some form of intervention, Somerville says Vancouver could turn into more than just a vacation city – it could turn into a playground for the rich.

“The extreme form of that is Vancouver becomes a place where the world’s wealthy have their condos and then you’ve got a class that services them.”

“I don’t think we’re going that far, but that’s as far as you can get.”