Canadian Business released its latest ranking of Canada’s wealthiest neighbourhoods this week, complete with average income and average house prices.
We decided to take advantage of this data to compare how house prices stack up to incomes among Canada’s wealthiest. And it looks like Canada’s richest people spend far less of their income on their palaces and McMansions than the rest of us do on our homes.
First, let’s look at the average Canadian household. According to StatsCan, the average household had an income of $75,000 in 2012. Assuming 2-per-cent wage growth over the past two years, that puts the average household income at $78,000 this year.
Meanwhile, house prices have been growing rapidly (though much of that growth recently has been limited to Toronto, Vancouver and Calgary), and the average house in Canada now costs $413,000.
That means the average house costs 5.3 times the average household’s income; this is known as a house price-to-income ratio.
(Incidentally, that’s way above historical norms. Houses in Canada have averaged about three times household income over the long run, but it’s unlikely prices will return to those levels unless interest rates go back to their historic norms, too.)
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Now let’s take a look at Canada’s wealthiest neighbourhoods. Number one is Toronto’s Bridle Path, where the average household income is $936,137, and the average house price is $2.24 million.
That works out to a house-price-to-income ratio of 2.4. In other words, wealthy people need to use only about half as much of their income to pay for a house in the Bridle Path as the average Canadian household would have to in its own neighbourhood.
This is remarkably low, compared to the rest of the housing market. Middle class home buyers would be lucky to see a ratio that low even in the middle of a deep housing slump.
Vancouver’s wealthiest enclave is Shaugnessy Heights, where the average house runs you $3.09 million and the average household income is $777,000.
That works out to a house price-to-income ratio of 3.9. Wealthy Vancouverites have to spend considerably more of their income to buy a house than wealthy Torontonians. No surprise there, really.
But for the average Vancouverite, the house price-to-income ratio is a whopping 10 -- it costs 10 times the average income to buy an average house.
So why are the rich spending so much less of their income on housing? Because they can. It’s a truism that the richer you are, the less of your income you need to spend on basic living costs, and housing is no exception.
Reports from the real estate industry say the luxury housing market is booming. Sales of million-dollar-plus homes jumped 34 per cent both in Toronto and Greater Vancouver in the first half of this year, according to Sotheby’s.
And despite the fact that Canadians’ debt burdens are near a record high and even the optimists predict house prices will have to moderate, Sotheby’s predicts the luxury market will continue to boom.
And why not? The rich can afford to pay way more for their homes.