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Purchasing power by income class within the metropolitan Vancouver market for single family dwellings Rooney, William John 1970

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PURCHASING POWER BY INCOME CLASS WITHIN THE METROPOLITAN VANCOUVER MARKET FOR SINGLE FAMILY DWELLINGS  by WILLIAM JOHN ROONEY Comm., U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1969  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE MASTER OF BUSINESS ADMINISTRATION i n the Faculty of Commerce and B u s i n e s s  Administration  We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o the r e q u i r e d  standard  THE UNIVERSITY OF BRITISH COLUMBIA May, 1970  In  presenting this  thesis  an advanced degree at the L i b r a r y s h a l l I  f u r t h e r agree  for scholarly by h i s of  this  written  fulfilment of  the U n i v e r s i t y o f  make  it  British  freely available  that permission  for  the r e q u i r e m e n t s f o r  Columbia,  I agree  r e f e r e n c e and  for extensive copying o f  this  It  for financial  i s u n d e r s t o o d that gain shall  permission.  Department The U n i v e r s i t y o f B r i t i s h Vancouver 8, Canada  Columbia  not  that  study. thesis  purposes may be g r a n t e d by the Head o f my Department  representatives. thesis  in p a r t i a l  or  copying or p u b l i c a t i o n  be a l l o w e d w i t h o u t my  ABSTRACT  The other  u r b a n market f o r d e t a c h e d homes, i n c o m p a r i s o n w i t h most  c o m m e r c i a l and i n d u s t r i a l m a r k e t s , i s h i g h l y d e c e n t r a l i z e d .  T y p i c a l l y , no s i n g l e f i r m c o n t r o l s more t h a n a s m a l l p o r t i o n o f t h e t o t a l market.  T h e r e f o r e t y p i c a l f i r m s w i t h i n t h e market p o s s e s s n e i t h e r t h e  resources  nor t h e m o t i v a t i o n  market s t u d i e s .  necessary f o r the undertaking  The r e s u l t i s t h a t e m p i r i c a l d e s c r i p t i v e d a t a r e l a t i n g  to these markets i s almost t o t a l l y no e x c e p t i o n  to t h i s general  lacking.  pattern.  Hopefully,  Metropolitan  Vancouver market f o r d e t a c h e d  the a n a l y s i s contained  i n s i g h t i n t o t h e above m a r k e t .  Vancouver i s  This study i s designed to f u r n i s h  e m p i r i c a l data r e l a t i n g to the M e t r o p o l i t a n dwellings.  of extensive  h e r e i n w i l l p e r m i t some  i  TABLE OF CONTENTS  CHAPTER  Page Preface  i i  L i s t of Tables  v  L i s t of I l l u s t r a t i o n s Introduction I. II. III. IV.  v i i .  M.L.S. S a l e s and T o t a l M a r k e t S a l e s  1 5  The M e t r o p o l i t a n Vancouver H o u s i n g S u p p l y  28  Income Requirements f o r Home P u r c h a s e  44  Policy  65  Recommendations  Appendix I  90  Conclusions  97  Glossary o f Abbreviations  98  Bibliography  99  PREFACE  T a b l e 1 r e v e a l s t h a t , d u r i n g the 15 y e a r p e r i o d 1951-66, < M e t r o p o l i t a n Vancouver w h i c h exceeded  e x p e r i e n c e d an a n n u a l p o p u l a t i o n growth  by 50 p e r c e n t t h e n a t i o n a l a v e r a g e .  rate  Urban a r e a s w h i c h  e x p e r i e n c e d i f f e r e n t i a l l y r a p i d r a t e s o f p o p u l a t i o n growth a l s o e x p e r i e n c e , c e t e r i s p a r i b u s , d i f f e r e n t i a l l y heavy h o u s i n g demand.  T h i s heavy demand  i s however, e x e r t e d upon a r e l a t i v e l y f i x e d h o u s i n g s u p p l y .  The  result,  a t l e a s t i n the s h o r t r u n , i s t h a t r a p i d l y g r o w i n g u r b a n a r e a s a r e c h a r a c t e r i z e d by r e l a t i v e l y h i g h h o u s i n g p r i c e s .  Given a p e r s i s t e n t l y  rapid  r a t e o f p o p u l a t i o n i n c r e a s e , such as t h a t c h a r a c t e r i z i n g M e t r o p o l i t a n Vancouver  d u r i n g t h e p a s t 20 y e a r s , t h e s e " s h o r t r u n " p r i c e l e v e l s assume  an a u r a o f permanence.  R e l a t i v e l y h i g h h o u s i n g p r i c e s are n o t , i n themselves, s i g n i f i c a n t . More i m p o r t a n t i s t h e f a c t t h a t , a l t h o u g h a l l u r b a n d w e l l e r s r e q u i r e accommodation, a l l may  n o t p o s s e s s incomes adequate  t o meet t h e h i g h  s h e l t e r c o s t s i n d u c e d by r a p i d r a t e s o f p o p u l a t i o n i n c r e a s e . f o r t h i s study i s t h e r e f o r e to determine  One  reason  i f the c u r r e n t v a l u e p r o f i l e o f  d e t a c h e d d w e l l i n g s w i t h i n M e t r o p o l i t a n Vancouver  i s such t h a t t h e popu-  l a t i o n c o u l d e f f e c t home p u r c h a s e under c u r r e n t market c o n d i t i o n s . The q u a l i t y o f h o u s i n g d e t e r m i n e s t o a l a r g e degree t h e p h y s i c a l and m e n t a l w e l f a r e o f t h o s e o c c u p y i n g t h a t h o u s i n g .  It i s therefore  c l e a r t h a t h o u s i n g q u a l i t y i s o f paramount i m p o r t a n c e . q u a l i t y " i s an i n e x a c t term.  Consequently  However, " h o u s i n g  "housing q u a l i t y " i s extremely  iii  Table 1  RATES OF POPULATION  INCREASE 1951-66  SELECTED METROPOLITAN AREAS AND CANADA  Canada  Vancouver  Winnipeg  Halifax  1951  530,728  354,069  133,931  14,009,429  1956  665,017  409,121  164,200  16,080,791  1961  790,165  475,989  183,946  18,238,247  1966  892,286  508,759  198,193  20,014,880  24,104  10,312  4,284  400,297  4.5%  3.0%  Average Annual Increase Average Annual Rate o f Increase  Sources:  3.2%  2.9%  Canada, Dominion Bureau o f S t a t i s t i c s , Census o f Canada P o p u l a t i o n and H o u s i n g C h a r a c t e r i s t i c s by Census T r a c t . Ottawa: The Queen's P r i n t e r ( f o r the y e a r s and m e t r o p o l i t a n areas i n d i c a t e d above) . Canada, Dominion Bureau o f S t a t i s t i c s , Canada Year Book 1969 . Ottawa: The Queen's P r i n t e r , 1969. p. 155.  d i f f i c u l t t o measure.  Regrettably, cost considerations precluded  i n v e s t i g a t i o n i n t o the q u a l i t y o f the M e t r o p o l i t a n Vancouver supply being undertaken during t h i s  Another important  evidence.  housing  study.  l i m i t i n g f a c t o r i s the l a c k o f c u r r e n t adequate  f a m i l y income d a t a p e r t a i n i n g t o M e t r o p o l i t a n Vancouver. p o t e n t i a l housing  an  Estimates  of  demand were, as a consequence, based upon i n d i r e c t  Although  t h e absence o f income d a t a was  l a c k d i d not v i t i a t e the c o n c l u s i o n s  The w r i t e r w i s h e s t o e x p r e s s  regrettable, this  drawn.  h i s g r a t i t u d e t o P r o f e s s o r S.  W.  H a m i l t o n o f the U n i v e r s i t y o f B r i t i s h C o l u m b i a f o r the many p e r c e p t i v e comments w h i c h he o f f e r e d d u r i n g the p r e p a r a t i o n o f t h i s  study.  V LIST OF TABLES  TABLE 1  .2  Page R a t e s o f P o p u l a t i o n I n c r e a s e 1951-66: M e t r o p o l i t a n A r e a s and Canada  Selected i  i  i  Comparison o f M a r k e t Coverage o f M.L.S. and T .M.S . Data  11  3  Frequency D i s t r i b u t i o n :  4  Frequency D i s t r i b u t i o n : M.L.S. Data  15  5  R e l a t i v e Frequency D i s t r i b u t i o n : T.M.S. Data ( H o r i z o n t a l Percentage) R e l a t i v e Frequency D i s t r i b u t i o n : M.L.S. Data  16  6.  T.M.S. D a t a  13  ( H o r i z o n t a l Percentage)  17  7  C o m p a r a t i v e S t a t i s t i c s : T.M.S. and M.L.S. Data  8  Estimated S i n g l e Family Dwelling Stock W i t h i n  23  M e t r o p o l i t a n Vancouver, by M u n i c i p a l i t y  30  Sample S a l e s Frequency D i s t r i b u t i o n by A r e a  31  10  R e l a t i v e S a l e s Frequency D i s t r i b u t i o n by A r e a  33  11  R e s i d e n t i a l Property Value P r o f i l e : Metropolitan Vancouver, ( u n i t s ) Estimated S i n g l e Family Housing Turnover Rate: M e t r o p o l i t a n Vancouver M e t r o p o l i t a n Vancouver H o u s i n g S u p p l y : A n n u a l F l o w Concept  39  Maximum N.H.A. I n s u r e d Mortgage Loans: V a l u e and P r o p e r t y Type  51  9  12 13 14  34 37  by P r o p e r t y  15  M o n t h l y Payments t o A m o r t i z e a Mortgage o f $11,600*....  52  15(a)  A n n u a l Income R e q u i r e d t o S e r v i c e a Mortgage o f $11,600  52  16  M o n t h l y Payments t o A m o r t i z e a Mortgage o f $15,400*  ...  53  16(a)  A n n u a l Income R e q u i r e d t o S e r v i c e a Mortgage o f $15,400  53  L i s t of Tables  (Con't)  Table  Page  17  M o n t h l y Payments t o A m o r t i z e a Mortgage o f $17,800*....  54  17(a)  Annual  Income R e q u i r e d t o S e r v i c e a Mortgage o f $17,800  54  18  Monthly  Payments t o A m o r t i z e a Mortgage o f $18,000*....  55  18(a)  Annual  Income R e q u i r e d t o S e r v i c e a M o r t g a g e o f $18,000  55  19  M o n t h l y Payments t o A m o r t i z e a .Mortgage o f $20,000*....  56  19(a)  Annual  56  20  S c h e d u l e o f M o n t h l y A m o r t i z a t i o n C o s t s p e r $1,000  Income R e q u i r e d t o S e r v i c e a M o r t g a g e o f $20,000  Borrowed 21  Home P u r c h a s i n g Power by Income C l a s s  22  R e l a t i v e A b i l i t y o f Low Income F a m i l i e s t o P u r c h a s e A v a i l a b l e I n e x p e n s i v e H o u s i n g Under Proposed Plan, Given Current P r i c e s D i s t r i b u t i o n o f Non-Farm F a m i l i e s by Income C l a s s , •  23  Canada  71 72  76 91  24  D i s t r i b u t i o n o f Non-Farm F a m i l y Income B e f o r e Tax  93  25  D i s t r i b u t i o n o f F a m i l y D i s p o s a b l e Income, M e t r o p o l i t a n Vancouver 1969 ( P e r c e n t a g e )  95  T a b l e s 15-19 i n c l u s i v e c o n t a i n t h e monthly a m o r t i z a t i o n payments n e c e s s a r y t o r e t i r e a mortgage l o a n o f t h e s t a t e d amount a t v a r i o u s r a t e s o f i n t e r e s t and f o r v a r y i n g l o a n t e r m s .  vii  LIST OF ILLUSTRATIONS  GRAPH 1  2  3  Page R e l a t i v e Frequency D i s t r i b u t i o n s T.M.S. data: Q u a r t e r 1, 1969  o f M . L . S . and '  R e l a t i v e Frequency D i s t r i b u t i o n s T.M.S. Data: Q u a r t e r 3, 1969  o f M . L . S . and  R e l a t i v e Frequency D i s t r i b u t i o n s o f M . L . S . and T.M.S. data: Q u a r t e r s 1 and 3, 1969  18A  18B  18C  INTRODUCTION  This study  i s an a t t e m p t t o d i s c o v e r whether t h e v a l u e  distribution  of d e t a c h e d d w e l l i n g s w i t h i n M e t r o p o l i t a n Vancouver i s such t h a t t h e p o p u l a t i o n c a n e f f e c t home p u r c h a s e under c u r r e n t c o n d i t i o n s .  I f the  above i s n o t t h e c a s e , we would e x p e c t l o w income f a m i l i e s , as a r e s u l t o f t h e i r r e l a t i v e l y weak p u r c h a s i n g disadvantaged.  In order  power, would be t h e most s e v e r e l y  t o answer t h e above q u e s t i o n ,  i t i s obviously  necessary t o determine the c o n d i t i o n s c u r r e n t l y p r e v a i l i n g w i t h i n the M e t r o p o l i t a n Vancouver s i n g l e f a m i l y d w e l l i n g m a r k e t . The M e t r o p o l i t a n Vancouver market f o r d e t a c h e d d w e l l i n g s and  diverse.  Therefore  the conducting  i s large  o f a market census i n o r d e r t o  d e t e r m i n e c u r r e n t c o n d i t i o n s was r e j e c t e d as b o t h t o o c o s t l y and unnecessary. was  A r e p r e s e n t a t i v e sample o f home s a l e s r a t h e r t h a n a h o u s i n g census  therefore used.  Once t h e d e c i s i o n t o t a k e a sample o f home s a l e s had  been made, t h e q u e s t i o n o f w h i c h d a t a base from w h i c h t o draw t h e s a l e s sample r e m a i n e d .  Initially  i t was d e c i d e d  to u t i l i z e multiple  s a l e s d a t a p e r t a i n i n g t o M e t r o p o l i t a n Vancouver as a d a t a b a s e .  listing However,  i t was n o t p o s s i b l e t o p r o c e e d w i t h a n a l y s i s u n t i l i t had been a s c e r t a i n e d t h a t t h e s e l e c t e d d a t a base was r e p r e s e n t a t i v e o f t h e market from w h i c h i t was drawn.  In Chapter I the r e p r e s e n t a t i v e n e s s tested.  A n a l y s i s contained  o f m u l t i p l e l i s t i n g data i s  t h e r e i n i n d i c a t e s t h a t marked and i r r e m e d i a l  biases e x i s t w i t h i n multiple l i s t i n g data. to  draw t h e home s a l e s sample upon w h i c h  source other than the m u l t i p l e l i s t i n g  Consequently  t h i s s t u d y i s based  r e f l e c t e d t o t a l market a c t i v i t y .  Survey, a data source  amount.  the t o t a l of a l l sales  d w e l l i n g s e f f e c t e d w i t h i n M e t r o p o l i t a n Vancouver d u r i n g t h e  f i r s t and t h i r d q u a r t e r s o f 1969. t h i s sample.  which  From t h i s s o u r c e was drawn a p r o p e r t y  sample o f 5,620 h o u s i n g u n i t s w h i c h a p p r o x i m a t e s detached  t o be b i a s e d  i t was d e c i d e d t o draw t h e u n d e r l y i n g home s a l e s sample  from d a t a c o n t a i n e d i n t h e T e e l a Market  of  from a  service.  Because m u l t i p l e l i s t i n g d a t a had been demonstrated beyond a d j u s t m e n t ,  i t was d e c i d e d  Chapter  I I c o m p r i s e s an a n a l y s i s o f  The s a l e s sample was c l a s s i f i e d b o t h by s a l e s a r e a and by  From t h i s c l a s s i f i c a t i o n a sample s a l e s f r e q u e n c y was c o n s t r u c t e d .  T h i s sample s a l e s f r e q u e n c y was t h e n c o n v e r t e d t o a r e l a t i v e sample s a l e s f r e q u e n c y by a r e a and by v a l u e c l a s s .  Next, the c u r r e n t M e t r o p o l i t a n  Vancouver detached h o u s i n g s t o c k by a r e a was e s t i m a t e d . of  Through  comparison  t h e above s t o c k e s t i m a t e w i t h t h e r e l a t i v e sample s a l e s f r e q u e n c y by  a r e a and v a l u e c l a s s , a v a l u e p r o f i l e o f r e s i d e n t i a l p r o p e r t y w i t h i n M e t r o p o l i t a n Vancouver was c o n s t r u c t e d .  F i n a l l y , b o t h t h e magnitude o f  t h e a n n u a l detached h o u s i n g f l o w w i t h i n M e t r o p o l i t a n Vancouver and t h e M e t r o p o l i t a n Vancouver detached h o u s i n g t u r n o v e r r a t e was e s t i m a t e d .  The a n a l y s i s c a r r i e d o u t i n C h a p t e r  I I i l l u m i n a t e d the c o n d i t i o n s  c u r r e n t l y p r e v a i l i n g w i t h i n t h e M e t r o p o l i t a n Vancouver market f o r detached of  d w e l l i n g s . However, i n o r d e r t o a s c e r t a i n t h e p u r c h a s i n g power  t y p i c a l f a m i l i e s w i t h i n t h i s m a r k e t , an a n a l y s i s o f c u r r e n t home  f i n a n c i n g c o n d i t i o n s was a l s o n e c e s s a r y .  Due t o a l a c k o f c u r r e n t  adequate f a m i l y income d a t a p e r t a i n i n g t o M e t r o p o l i t a n home p u r c h a s i n g  Vancouver, the  power o f t h e f a m i l i e s w i t h i n the m e t r o p o l i s  could  not,  however, be d i r e c t l y measured.  C h a p t e r I I I , by a p p l y i n g  t h e c u r r e n t N.H.A. mortgage f i n a n c i n g  r e g u l a t i o n s p e r t a i n i n g t o e x i s t i n g p r o p e r t i e s t o the Vancouver p r o p e r t y the  value  income r e q u i r e d  p r o f i l e derived  Metropolitan  i n C h a p t e r I I , makes e x p l i c i t  f o r t h e purchase o f t h e l e a s t expensive housing u n i t s  currently available.  As  s t a t e d p r e v i o u s l y , adequate c u r r e n t  taining to Metropolitan  f a m i l y income d a t a p e r -  Vancouver does n o t e x i s t .  I , t h e a v a i l a b l e income d a t a a r e p r e s e n t e d . f a r from a d e q u a t e , when a n a l y s e d income r e q u i r e m e n t s d e r i v e d  However, i n A p p e n d i x  Although these data a r e  and compared w i t h the home p u r c h a s e  i n C h a p t e r I I I , they i n d i c a t e t h a t low income  f a m i l i e s cannot p u r c h a s e s t a n d a r d  detached d w e l l i n g s w i t h i n  Metropolitan  Vancouver under c u r r e n t market c o n d i t i o n s .  C h a p t e r I V c o m p r i s e s a f i n a n c i n g scheme under w h i c h home p u r c h a s e by  low income f a m i l i e s would be f a c i l i t a t e d t h r o u g h t h e g r a n t i n g o f an  i n t e r e s t subsidy.  Contemporaneously, Chapter I V proposes a r a d i c a l  change i n p u b l i c p o l i c y w i t h r e s p e c t mortgage l o a n a p p l i c a t i o n s .  to the approval  o f N.H.A. i n s u r e d  T h i s change i n v o l v e s t h e e s t a b l i s h m e n t  income c e i l i n g above w h i c h mortgage a p p l i c a n t s would be i n e l i g i b l e N.H.A. i n s u r e d mortgage f i n a n c i n g .  o f an for  Subsequent t o t h i s p r o p o s e d change i t  i s e x p e c t e d t h a t t h e b e n e f i t s o f N.H.A. i n s u r e d mortgage f i n a n c i n g , w h i c h  c u r r e n t l y accrue  t o m i d d l e and upper income g r o u p s , would be r e d i r e c t e d  t o p r o s p e c t i v e low income home  Due subsidy  purchasers.  t o a l a c k o f adequate income d a t a , a r e l i a b l e e s t i m a t e  c o s t o f t h i s f i n a n c i n g scheme was i m p o s s i b l e t o d e r i v e .  o t h e r problems l i k e l y t o be induced  by t h e i m p l e m e n t a t i o n  of the However,  o f t h e proposed  home f i n a n c i n g subsudy scheme a r e d i s c u s s e d a t c o n s i d e r a b l e  length.  CHAPTER I  M.L.S. SALES AND TOTAL MARKET SALES  Introduct ion In o r d e r t o e s t i m a t e t h e number o f " l o w income" h o u s i n g u n i t s i n M e t r o p o l i t a n Vancouver, i t i s n e c e s s a r y t o f i r s t c o n s t r u c t a h o u s i n g value p r o f i l e .  Of n e c e s s i t y , t h i s v a l u e p r o f i l e must be based upon t h e  e x i s t i n g h o u s i n g s t o c k o r some proxy f o r t h a t s t o c k .  Excessive cost  p r e c l u d e d t h e t a k i n g o f a M e t r o p o l i t a n Vancouver h o u s i n g c e n s u s , t h e r e f o r e s e l e c t i o n o f a s u i t a b l e housing s t o c k proxy i s n e c e s s a r y . M e t r o p o l i t a n Vancouver i s s e r v e d by a m u l t i p l e l i s t i n g (m.l.s.).  T h i s s e r v i c e i s extended by t h e r e a l e s t a t e boards  Vancouver and t h e County o f New W e s t m i n s t e r .  service of Greater  At f i r s t glance, m.l.s.  seemed t h e i d e a l h o u s i n g s t o c k p r o x y f o r t h e f o l l o w i n g r e a s o n s :  a) D a t a , because t h e y were c o l l e c t e d and t a b u l a t e d by c e n t r a l a g e n c i e s , were e x t r e m e l y easy t o c o l l e c t .  As a consequence, d a t a  collection  c o s t s were l o w . b) The m . l . s . c o v e r a g e was s p a t i a l l y c o m p r e h e n s i v e ,  a l l areas o f t h e  m e t r o p o l i s , as d e f i n e d , b e i n g i n c l u d e d . c) The i n f o r m a t i o n c o n t e n t o f i n d i v i d u a l l i s t i n g s was h i g h . In a d d i t i o n t o p r o p e r t y s a l e s p r i c e , each l i s t i n g gave a complete  d e s c r i p t i o n , l e g a l and  p h y s i c a l , o f the p r o p e r t y  Notwithstanding utilized  S i m p l e o b s e r v a t i o n had  data over-represented represented  sold.  the above a d v a n t a g e s , m . l . s . d a t a c o u l d not  as a h o u s i n g s t o c k p r o x y u n t i l  been c h e c k e d .  being  properties  i t s i n t e r n a l consistency  y i e l d e d the hypothesis  had  that m.l.s.  i n the low v a l u e r a n g e s , and  more e x p e n s i v e p r o p e r t i e s .  be  under-  A possible explanation  of  this  phenomenon a r i s e s f r o m the r e a l e s t a t e c o m m i s s i o n s t r u c t u r e c u r r e n t l y operant w i t h i n M e t r o p o l i t a n commission o b t a i n i n g  Vancouver.  At p r e s e n t ,  the g r o s s  sales  i n the case o f a s a l e t h r o u g h the m u l t i p l e  s e r v i c e i s 7 p e r c e n t o f the p r o p e r t y  sales price.  listing 3k  Of t h i s amount,  p e r c e n t i s p a i d t o the l i s t i n g a g e n t , 3% p e r c e n t t o the s e l l i n g  agent,  the r e m a i n i n g \ o f 1 p e r c e n t a c c r u e s to t h e r e l e v a n t r e a l  estate  while  b o a r d as payment f o r the use o f i t s m u l t i p l e l i s t i n g  service.  In  the  c a s e o f an e x c l u s i v e agency s a l e , the s p e c i f i e d c o m m i s s i o n r a t e i s 5 percent of the property  sales price.  Assuming t h a t agent  cooperation  o c c u r s on an e x c l u s i v e agency l i s t i n g , the l i s t i n g agent i s p a i d 2\ c e n t , w h i l e the s e l l i n g agent i s p a i d the r e m a i n i n g 2% p e r c e n t .  per-  In  t h i s i n s t a n c e , because the m u l t i p l e l i s t i n g s e r v i c e i s not u t i l i z e d , r e a l e s t a t e board i s paid n o t h i n g . cooperation  the  However, i n most c a s e s , agent  on e x c l u s i v e agency l i s t i n g s  i s not  S u p e r f i c i a l l y , t h e r e appears t o be an  popular.  incentive for a real  salesman to l i s t e x c l u s i v e r a t h e r than m u l t i p l e .  estate  T h e o r e t i c a l l y , he w o u l d  p r e f e r a h i g h p r o b a b i l i t y o f a 5 p e r c e n t c o m m i s s i o n c o u p l e d w i t h a lower p r o b a b i l i t y o f a 2% p e r c e n t c o m m i s s i o n i n t h e e x c l u s i v e agency case, t o a  high probability of a 3% percent commission coupled with a low probab i l i t y of a 6% percent commission in the multiple l i s t i n g case.  This  incentive is however more apparent than real as an exclusive l i s t i n g is exclusive to the agent rather than to the salesman.  In the aggregate,  given the above, the typical real estate salesman prefers to l i s t multiple, that i s , he prefers a high probability of a 3% percent commission coupled with a low probability of a 6^ percent commission, to an indeterminate probability of a 2\ percent or 5 percent commission.  This indeterminacy  arises for the following reasons: a) The l i s t i n g is exclusive to the agent.  Therefore, the probability  of a salesman selling his own l i s t i n g depends both upon the number of salesmen in the employ of his agent, and the attitude of his agent with regard to cooperation on exclusive listings. b) Although ceteris paribus, the probability of selling one's own l i s t i n g is higher in the case of an exclusively as opposed to a multiple listed sale, and hence the probability of collecting both the l i s t i n g and the selling commission is higher; due to the greater coverage of m.l.s., the probability of a multiple l i s t i n g actually selling is greater than in the case of an exclusive listing. Given the above commission structure real estate salesmen usually press prospective vendors to l i s t their properties through the multiple l i s t i n g service.  Vendors of commonplace, inexpensive properties, in  order to secure the wider coverage which the m.l.s. provides, usually agree.  However, in the case of expensive properties, vendor resistance  8. a r i s e s f o r two  reasons:  a) For e x p e n s i v e p r o p e r t i e s a 7 p e r c e n t s a l e s c o m m i s s i o n a high s e l l i n g cost i n absolute  represents  terms.  b) Because e x p e n s i v e p r o p e r t i e s are c l u s t e r e d i n t o s p e c i f i c and  because some r e a l e s t a t e companies s p e c i a l i z e i n the  of expensive p r o p e r t i e s ,  a metropolis-wide multiple  s e r v i c e i s of l i m i t e d value  For  areas sales  listing  t o a vendor o f e x p e n s i v e h o u s i n g .  the above r e a s o n s , v e n d o r s o f e x p e n s i v e r e s i d e n t i a l  t e n d t o r e s i s t the salesman's s u g g e s t i o n i n s i s t that t h e i r property  t h a t they l i s t m u l t i p l e ,  and  be s o l d on an e x c l u s i v e agency b a s i s .  A second cause f o r b i a s i n m . l . s . d a t a a r i s e s from the of p r i v a t e s a l e s .  properties  I t i s hypothesized  t h a t t h e r e w o u l d be a  p r o b a b i l i t y o f e x p e n s i v e , as opposed t o i n e x p e n s i v e  influence  greater  homes b e i n g  sold  p r i v a t e l y f o r the f o l l o w i n g r e a s o n s : a) As n o t e d above, e x p e n s i v e p r o p e r t i e s a r e g e o g r a p h i c a l l y This creates  a more p e r f e c t market s i t u a t i o n t h a n t h a t  i n the r e a l e s t a t e market a t l a r g e .  clustered. obtaining  Hence owners o f e x p e n s i v e -  property  can more e a s i l y a r r a n g e f o r t h e p r i v a t e s a l e o f  property  t h a n c o u l d owners o f more commonplace,  dispersed  geographically  properties.  b) W e a l t h y p e o p l e t e n d t o be b e t t e r i n f o r m e d and t h a n the n o n - w e a l t h y . property  their  more s o p h i s t i c a t e d  Hence t h e w e a l t h y a r e b e t t e r a b l e t o t r a n s f e r  w i t h o u t the a i d of a r e a l e s t a t e  agent.  c) A commission o f even 5 p e r c e n t o f the p r o p e r t y s a l e s p r i c e r e p r e s e n t s a h i g h a b s o l u t e s e l l i n g c o s t i n the case o f  expensive  property.  cost  The  presence of t h i s l a r g e absolute s e l l i n g  c o n s t i t u t e s a d i r e c t i n c e n t i v e f o r the w e a l t h y p r o p e r t y by o t h e r means, w h i c h u n l i k e lower  to t r a n s f e r  income c l a s s e s , they  have a t t h e i r d i s p o s a l .  I f the above i s indeed t h e c a s e , u n a d j u s t e d i n a p p r o p r i a t e as a h o u s i n g  stock proxy.  m.l.s. data i s c l e a r l y  This chapter  i s devoted to the  t e s t i n g o f the above h y p o t h e s i s .  The  T e s t i n g Technique M e t r o p o l i t a n V a n c o u v e r , i n a d d i t i o n t o b e i n g s e r v e d by m . l . s . i s  a l s o s e r v e d by the T e e l a M a r k e t Survey ( t . m . s . ) . e x t e n d e d by a p r i v a t e company.  As a d a t a s o u r c e  The  latter service is  t.m.s. has  two  major  disadvantages: a) The  information content  i s l e s s than t h a t of m.l.s.  b) The  c o s t i s much g r e a t e r .  W h i l e t h e c o s t o f a two  quarter  M e t r o p o l i t a n Vancouver m . l . s . sample i s z e r o , the c o s t o f a comparable t.m.s. sample e q u a l s  $720.00.^  $720 r e f e r s to the c o s t o f p u r c h a s e o f a two q u a r t e r t.m.s. d a t a sample c o v e r i n g M e t r o p o l i t a n V a n c o u v e r . In a d d i t i o n , u n l i k e m . l . s . d a t a , t.m.s. d a t a a r e not r e c o r d e d on I.B.M. c a r d s . Hence, upon c o l l e c t i o n they r e q u i r e k e y p u n c h i n g . T h e r e f o r e , t h e d i f f e r e n t i a l c o s t a s s o c i a t e d w i t h u s i n g a two q u a r t e r t.m.s. sample r a t h e r t h a n a comparable m . l . s . sample i s c o n s i d e r a b l y h i g h e r t h a n $720.  10.  T.M.S. however p o s s e s s e s  one s i g n i f i c a n t advantage o v e r m . l . s . : i t  records a l l property sales w i t h i n a given area during a given period. T h i s i s so because t h e d a t a from w h i c h t.m.s. i s c o m p i l e d d i r e c t l y from e v i d e n c e registry offices. coverage.  o f property t r a n s f e r s recorded  i n local  land  I n c o m p a r i s o n , m . l . s . i s n o t n e a r l y so b r o a d i n  Only p r o p e r t i e s s o l d v i a m . l . s . a r e r e c o r d e d  statistics.  a r e drawn  i n m.l.s.  P r o p e r t i e s s o l d e i t h e r p r i v a t e l y o r on an e x c l u s i v e agency  basis are n e c e s s a r i l y omitted.  The s i g n i f i c a n c e o f t h e above d i f f e r e n c e  i n d a t a bases c a n be a p p r e c i a t e d by c o n s i d e r i n g t h a t w i t h i n Vancouver C i t y , N o r t h Vancouver and West V a n c o u v e r , d u r i n g e i g h t weeks o f t h e f i r s t q u a r t e r and t h e e n t i r e t h i r d q u a r t e r o f 1969, w h i l e t.m.s. l i s t e d  3,806  p r o p e r t y t r a n s f e r s , m . l . s . l i s t e d o n l y 1,398 t r a n s f e r s , o f 36.7 p e r c e n t o f t h e t.m.s. t o t a l . i n T a b l e 2.  This discrepancy  i n market c o v e r a g e i s c a l c u l a t e d  The m . l . s . s a l e s f r e q u e n c y  was a d j u s t e d t o m i r r o r t h e f a c t t h  w h i l e an m . l . s . sample o f two f u l l q u a r t e r s was t a k e n , o n l y 20 weeks o f t.m.s. d a t a proved o b t a i n a b l e .  As mentioned above, t.m.s. i s c h a r a c t e r i z e d by comprehensive coverage.  Given  t h i s f a c t , i t i s by d e f i n i t i o n i m p o s s i b l e f o r t.m.s. t o  contain a bias w i t h respect t o the value c l a s s o f p r o p e r t i e s s o l d . was t h e r e f o r e s e l e c t e d as a datum a g a i n s t w h i c h t h e i n t e r n a l  T.M.S.  consistency  o f m . l . s . c o u l d be c h e c k e d . For purposes o f h y p o t h e s i s all  t e s t i n g , a t.m.s. sample  p r o p e r t i e s t r a d e d w i t h i n Vancouver C i t y ,  comprising  ( s u b d i v i d e d i n t o "Vancouver  E a s t " and "Vancouver W e s t " ) , N o r t h Vancouver and West Vancouver d u r i n g  Table 2 COMPARISON OF MARKET COVERAGE OF M.L.S. AND T.M.S. DATA  Frequency of Sale by Value Range Value Range  Sales Frequency M.L.S.  T.M.S  <$15,000  287  665  $15,000 - $17,500  236  297  $17,500 - $20,000  233  423  $20,000 - $22,500  182  293  $22,500 - $25,000  189  343  $25,000 - $27,500  132  286  $27,500 - $30,000  115  339  $30,000 - $32,500  92  223  $32,500 - $35,000  57  218  >$35,000  154  719  Total  1,677  3,806  Adjusted M.L.S. Total  1,677 x 5/6  =  1,398  Adjusted M.L.S. Market Coverage i n terms of T.M.S. coverage = 36.77«  e i g h t -weeks o f t h e f i r s t was  taken.  q u a r t e r , and t h e e n t i r e t h i r d q u a r t e r o f 1969  T.M.S. d a t a c o v e r i n g t h e e n t i r e f i r s t  u n o b t a i n a b l e , hence t h e p a r t i a l f i r s t  q u a r t e r o f 1969 proved  q u a r t e r sample.  s a l e s p r i c e s b e i n g r e c o r d e d , s a l e s p r i c e s were b r o k e n as shown i n T a b l e 3. also recorded.  Instead o f a c t u a l down by v a l u e range  The f r e q u e n c y o f s a l e w i t h i n each v a l u e range was  I n t h e case o f t h e e i g h t m i d d l e v a l u e r a n g e s ,  ($15,000-  $17,500','$32,500-$35,000) i t was assumed t h a t t h e mean s a l e s p r i c e w i t h i n . each v a l u e r a n g e c o i n c i d e d w i t h t h e m i d - r a n g e . a s s u m p t i o n was checked a c c u r a t e f o r purposes assumption  The v a l i d i t y o f t h i s  on a sample b a s i s and found  t o be s u f f i c i e n t l y  o f v a l u e p r o f i l e c o n s t r u c t i o n . However, t h i s  d i d n o t h o l d i n t h e case o f t h e extreme v a l u e r a n g e s ,  > $35,000) .  (<$15,000,  Accordingly, actual sales prices f a l l i n g into either of  t h e s e c a t e g o r i e s were r e c o r d e d and t h e i r a r i t h m e t i c mean computed.  Again,  the f r e q u e n c y o f s a l e was r e c o r d e d . In  a d d i t i o n t o computing mean v a l u e s and s a l e f r e q u e n c i e s by  v a l u e range f o r each o f t h e f o u r sample a r e a s by q u a r t e r , t h e above parameters  were a l s o computed f o r t h e sum o f t h e sample a r e a s by q u a r t e r .  I t was f e l t t h a t t h e above p r o c e d u r e would n e u t r a l i z e any p o s s i b l e i n t e r a r e a b i a s w h i c h might e x i s t i n t h e m . l . s . d a t a .  F i n a l l y , the derived  f r e q u e n c y d i s t r i b u t i o n s by a r e a and q u a r t e r were summed t o a r r i v e a t a f r e q u e n c y d i s t r i b u t i o n f o r q u a r t e r s 1 and 3 by a r e a .  I t was f e l t  t h i s p r o c e d u r e would n e u t r a l i z e any p o s s i b l e b i a s a r i s i n g from r e l a t e d market d i f f e r e n c e s . described  procedures.  that  time-  T a b l e 3 summarizes t h e r e s u l t s o f t h e above  Table 3  /3  FREQUENCY DISTRIBUTION - T . M . S .  Av. Price Area VE  $15000  #  $17500 >  22S  *  $20000 X  #  $22500 x .  $11 90  89  $16.25  74  $18.75  #  X  39  $21.25  $25000  #  X  45  . VN  43  $12 6  10  "  38  NV  42  $11 1  21  ."  46  WV  7  $10 6  1  "  4  "  5  All  320  $11 So  121  "  162  "  98  n  111  " VE  270  $12 3  136  " •  167  108  n  95  VW  36  $10 0  13  41  50  II  70  NV  33  $11 1  22  "  46  33  II  WV  6  $11 8  5  "  7  All  345  $11 93  176  VE  498  $12.1  225  "  241  VW  79  $11. 5  23  "  79  NV  75  $11. 1  43  92  WV  13  $11. 1  6  11  All  665  $1.1. 89  297  "  25  "  423  II  37  II  27  II  2  52  30  $28.75  22  $31.25 "  #  X  2  $33.75  X  8  $38.30  99  $47.40  16  33  $46.90  30  "  7  "  6  53  $56.50  119  126  73  "  54  193  $49.43  it •  61  62  36  23  45  $41.40  ti  51  68  40  63  243  $54.90  48  69  100  $42.40  7  n  II  "  147  n  140  II  "  79  II  107  II  II  79  n  17 343  II  II  . "  19  #  9  232  II  $26.25  X  6  II  n  293  35  #  $35000  •44  195  9  X  $35000  45  it  15  "  #  $32500  43  it  58  $30000  $27500  33  II  4  "  261  .  29  $23.75  DATA  11  25  "  56  55  • 14  18  23  138  $52 .20  167  213  150  164  526  $50.66  96  92  55  "  "  '  •"  .  25  "  53  $40.90  93 .  "  342  $52 .70  "  133  $43.50  111  "  62  93  113  "  Sl  "  71  n  13  23  25  "  29  191  $53.30  it  286'  339  223  "  21S  719  $50.32  II  84  • "  14. An m.l.s. sample covering the same areas as the above t.m.s. sample for quarters 1 and 3 of 1969 was taken.  The m.l.s. data were processed  in exactly the same fashion as in the case of t.m.s. The results are shown in Table 4. A dual comparison of t.m.s. and m.l.s. data was envisioned.  The  f i r s t was s t a t i s t i c a l in nature, comprising essentially the comparison of various measures of central tendency of the two data bodies.  The  second was graphical in nature, comprising essentially the comparison of sales distribution by value range for each of the two bodies of data. However, in order to negate the effect of the greater size of the t.m.s. sample in comparison to that of m.l.s., i t was necessary to compute relative frequency distributions.  This was done by f i r s t totalling a l l  sales for each area in each period. The fraction of total sales which f e l l into each value range by period and area was then computed for t.m.s. and m.l.s. As in the case of the construction of absolute frequency distributions, the relative frequency distribution for the sum of the sample areas by quarter was computed.  In addition, the relative sales frequency  by value range by area and quarter were summed to arrive at a relative frequency distribution for quarters 1 and 3 by area.  This procedure was  followed in the processing of both t.m.s. and m.l.s. data. are summarized in Tables 5 and 6 respectively.  The results  Table 4  FREQUENCY DISTRIBUTION - M.L.S. DATA  \  Av. < $15000  NPTice  .a  Area  X  $17500 v  $20000 X  #  $22500 X  #  X  VE  108  $12 .99  94  VW  7  $12 .86  4  NV  13  $13 .13  14  "  26  "  22  WV  1  $14.80  2  "  2  "  1  All  129  $13 .01  114  132  VE  133  $12 .80  96  67  » .  46  VW  4  $11 .94  6  15  "  16  NV  19  $13 .20  18  "  WV  2  $ 9 .40  2  "  158  $12 7S  122  VE  241  $12 88  190  VW  11  $12 52  10  NV  32  $13 17  32  WV  3  $11 20  4  .287  $12 88  236  All  $16.25  88  $18.75  16  11  15  100  18 1  62  19  "  101  1  $21.25  #  X  59  $30000  $27500  $25000  $23.75  #  X  18  $26.25  16  "  n  23  II  30  II  3  "  2  II  115  "  63  it  22  "  20  11  II  18  "  14  11  it  II  " •  11  #  x  #  X  16 '$28.75  13  14  14  "  36  25  "  10  4  "  76  27  . 56  7  "  6  8  "  6  23  "  19  $31 .25  II  II  II  n  4  3  "  1  "  5  69  "  39  "  36  II  38  23  "  19  n  30  22  "  20  74  108  n  81  II  41  X  3  16  II  32  n  #  11  II  30  82  >$35000  $35000  $32500  II  II  5 35 0 10  #  •  X  11  $37 .62  25  $45.72  29  $41.02  42  $49.56  n  107  $45.12  II  0  $33 .75 II  II  II  II  0  14  $46.25  9  n  15  $40.32  3  n  18  $48.48  22  it  47  $45.21  3  it  11  $37.62  II  39  $45.91  II  44  $40.78  8  it  60  $49 .23  57  it  154  $45.14.  • -  All  "  «'  "  155  »  31  31  44  41  n  60  3  2  n  7  182  n  233  "  189  ""  "  "  59  "  59  5  11  132  115  44 "  9 92  II  II  n>  n  21 25  Table 5 RELATIVE FREQUENCY DISTRIBUTION - T.M.S. DATA  \  (HORIZONTAL PERCENTAGES)  5  AREA  < $15000  $16250  $18750  $21250  $23750  $26250  $28750  $31250  $33750  >$35000  VE  .40  .16  .13  .07  .08  .06  .05  .03  .00  .01  VW  .11  .03  .10  .08  .10  .08  .11  .06  .08  .26  NV  .13  .06  .14  .08  .08  .14  .14  .08  .05  .10  WV  .07  .01  .04  .05  .02  .06  .09  .07  .06  .53  All  .23  .09  .12  .07  .08  .09  .09  .05  .04  .14  VE  .27  .14  .17  .10  .09  .06  .06  .04  .02  .04  VW  .05  .02  .06  .07  .10  .08  .10  .06  .09  .36  NV  .06  .04  .09  .06  .10  .09  .13  .11  .11  .19  WV  .03  .02  .03  .02  .06  .03  .06  .07  .10  .58  All  .14  .07  .11  .08  .10  .07  .09  .06  .07  .22  VE  .32  ' .14  .15  .09  .09  .06  .06  .03  .02  .03  VW  .07  .02  .07  .07.  .10  .08  .10  .06  .09  .32  NV  .09  .05  .11  .07  .09  .11  .13  .10 .  .08  .16  .04  .02  .03  .03  .05  .04  .07  .07  .08  .56  .17  .08  .11  .08  .09  .07  .09  .06  .06  •19  WV All  -  Table 6 RELATIVE FREQUENCY DISTRIBUTION - M.L.S. DATA (HORIZONTAL PERCENTAGES)  AREA  <$15000  $16250  $18750  $21250  $23750  $26250  $28750  $31250  $33750 >$35000  VE  .33  .24  .17  .11  .05  .05  .02  .02  .00  .00  VW  .04  .05  .13  .14  .16  .13  .07  .05  .09  .13  NV  .09  .09  .09  .09  .15  .16  .11  .09  .04  .07  WV  .05  .05  .02  .03  .10  .07  .03  .12  .08  .45  All  .21 ,  .16  .13  .11  .10  .09  .05  .05  .03  .06  VE  .23  .20  .19  .13  .13  .04  .03  .03  .01  .02  VW  .05  .03  .11  .10  .16  .11  .10  .10  .07  .17  NV  .05  .06  .11  .09  .13  .11  .15  .10  .07  .12  WV  .01  .03  .03  .01  .04  .03  .14  .05  .07  .58  All  .14  .12  .14  .11  .12  .07  .08  .06  .04  .12  VE  .28  .22  .18  •12  .09  .04  . .03  .02  .00  .01  VW  .04  .04  .12  .12  .16  .12  .09  .08  .08  .15  NV  .07  .07  .10  .09  .14  .13  .13  .10  .06  .10  WV  .03  .04  .03  .02  .06  .04  .10 .  .08  .07  .54  All  .17  .14  .14  .11  • 11  .08  .07  .05  .03  .09  .  18.  The G r a p h i c a l  Comparison  As mentioned  p r e v i o u s l y , a d u a l c o m p a r i s o n o f m . l . s . and t.m.s.  d a t a was e n v i s i o n e d w i t h one c o m p a r i s o n b e i n g g r a p h i c a l i n n a t u r e .  In  o r d e r t o negate t h e e f f e c t o f t h e d i f f e r e n c e i n s i z e between t h e m . l . s . and t.m.s. s a m p l e s , i t was d e c i d e d t o p l o t r e l a t i v e as opposed frequency d i s t r i b u t i o n s . of  Such a p r o c e d u r e s i m p l y e n t a i l e d t h e p l o t t i n g  t h e f r a c t i o n s computed i n T a b l e s 5 and 6.  d i f f i c u l t y remained.  to absolute  However, one t e c h n i c a l  The v a l u e s t o be p l o t t e d ranged i n magnitude  0 t o .58, w i t h t h e m a j o r i t y o f t h e r e a d i n g s f a l l i n g below  from  .10. Under  t h e s e c o n d i t i o n s , u s e o f c o n v e n t i o n a l graph paper would have r e s u l t e d i n asymmetric, undecipherable graphs. each t i m e p e r i o d examined.  F u r t h e r , f i v e graphs were r e q u i r e d f o r  F o r t h e above r e a s o n s , i t was d e c i d e d t o sub-  s t i t u t e 5 c y c l e s e m i - l o g a r i t h m i c graph paper f o r c o n v e n t i o n a l p a p e r .  To  f a c i l i t a t e c o m p a r i s o n , graphs o f t h e r e l a t i v e f r e q u e n c y d i s t r i b u t i o n s o f b o t h t.m.s. and m . l . s . d a t a f o r each a r e a and t i m e p e r i o d were s u p e r imposed.  Results The f o l l o w i n g c o n c l u s i o n s c a n be drawn from e x a m i n a t i o n o f graphs 1-3: a) I n t h e extreme l o w v a l u e r a n g e , ( < $15,000), t h e t.m.s. d a t a has b o t h a l o w e r mean v a l u e and a h i g h e r r e l a t i v e f r e q u e n c y t h a n t h a t of  the m.l.s.  b) I n t h e extreme h i g h v a l u e r a n g e , ( > $35,000), t h e t.m.s. d a t a has b o t h a h i g h e r mean v a l u e and a h i g h e r r e l a t i v e f r e q u e n c y t h a n t h a t  fn-L.S.  l l ^ Sates r i f i t g ^4eoo'>)  ^  19. o f the m . l . s . c) E x c l u s i v e o f the  < $15,000 r a n g e , m . l . s . d a t a has  a higher  relative  f r e q u e n c y i n the low v a l u e ranges t h a n does t h a t o f the t.m.s. .higher  r e l a t i v e f r e q u e n c y p e r s i s t s f o r some t i m e as we  the v a l u e range c o n t i n u u m , but  eventually a point  This  move a l o n g  i s reached at which  the r e l a t i v e f r e q u e n c y o f the m . l . s . d a t a d e c r e a s e s and  remains  b e l o w t h a t of t.m.s. d) A l t h o u g h the above g e n e r a l  pattern obtains  i n a l l c a s e s and  time p e r i o d s , s i g n i f i c a n t d i f f e r e n c e s w i t h respect and  r e l a t i v e sales frequencies  in a l l  t o mean v a l u e s  e x i s t between d i f f e r e n t a r e a s  w i t h i n the same t i m e p e r i o d and between the same a r e a s w i t h i n d i f f e r e n t time e) The  periods.  magnitudes o f the above mentioned d i f f e r e n c e s appear t o v a r y  a random as opposed t o a s y s t e m a t i c f ) Of a l l the sample a r e a s , frequencies  o f m . l . s . and  i n West Vancouver.  fashion.  the g r a p h i c a l r e l a t i o n between the  One  sales  t.m.s. d a t a appeared the most e r r a t i c  Of a l l the sample a r e a s , West Vancouver pos-  s e s s e d the s m a l l e s t number o f home s a l e s and home v a l u e .  in  possible explanation  the h i g h e s t  average  o f the above mentioned  e r r a t i c r e l a t i o n s h i p i s the e f f e c t o f non-arms l e n g t h  trans-  2 actions.  By d e f i n i t i o n , non-arms l e n g t h t r a n s a c t i o n s  arranged p r i v a t e l y .  are  Hence they would n e v e r be r e c o r d e d i n t h e  A l t h o u g h d u r i n g d a t a c o l l e c t i o n s a l e s between p a r t i e s h a v i n g the same surname, and s a l e s o f a s u s p i c i o u s l y low d o l l a r amount were d e l i b e r a t e l y e x c l u d e d , d o u b t l e s s some non-arms l e n g t h t r a n s a c t i o n s were i n a d v e r t e n t l y i n c l u d e d i n the c o l l e c t e d d a t a .  m.l.s. data.  Although non-arms length transactions undoubtedly  occurred in a l l other sample areas, they may have exerted an unusually powerful effect in West Vancouver due to that municipality's comparatively small number of home sales. The Statistical Comparison In addition to the foregoing graphical comparison, a s t a t i s t i c a l analysis, comprising essentially the comparison of various measures of central tendency of the t.m.s. and m.l.s. data,was made. Because the raw sales data had been grouped into 10 value classes, the definitions of the measures of central tendency employed differed slightly from convention.  The four measures of central tendency selected were as  follows: a)  The Arithmetic Mean, x  This s t a t i s t i c was defined by the  following equation: Arithmetic Mean =  1  f(x)  10  i=l  *i  (x.>  f  The value of this s t a t i s t i c indicates the average property sales value within each sample area by time period and data base.  The unit is  dollars. b) The Standard Deviation, vi. This s t a t i s t i c was defined by the following equation: Standard Deviation =  21. The value of this s t a t i s t i c indicates the degree of dispersion characterizing the associated property sales price distribution.  For example,  given a normal distribution, 95 percent of the values would differ by less than + 2 standard deviations from the mean value.  The larger the  value of the standard deviation, the more dispersed the underlying distribution.  The unit is again dollars.  c) Alpha Three, <j-3.  This s t a t i s t i c was defined by the following  equation: ^ Alpha Three =  10  - 3  i=l. cr 3  The value of this s t a t i s t i c indicates the degree of skewness characterizing the associated property sales price distribution.  Given a  perfectly symmetrical distribution, the mean, median and mode w i l l coincide.  Under this condition, alpha three w i l l have a value of zero. If  the value of alpha three exceeds zero we say that the underlying d i s t r i bution is positively skewed, in our case meaning that the mean sales price exists to the left of the midrange.  For values of alpha three less  than zero, the distribution is said to be negatively skewed, in our case meaning that the mean sales value exists to the right of the midrange. The unit is absolute. d) Alpha Four, d* 4.  This s t a t i s t i c is defined by the following equation: l  Alpha Four  =  i_  10  9.  i=l  (X cr  - 4 - x r f(x) 4  22. The value of this s t a t i s t i c indicates the degree of peakedness or kurtosis characterizing the associated property sales price distribution.  Given  a perfectly bell-shaped distribution, alpha four w i l l have a value of 3. If the value of alpha four exceeds 3, the underlying distribution is said to be leptokurtic or peaked.  If the value of alpha four is less than 3,  the underlying distribution is said to be platykurtic or f l a t .  The degree  of "flatness" or "peakedness" of any distribution is indicated by the amount by which the value of alpha four deviates from 3.  Again the unit  is absolute. Values of the above statistics were computed for a l l sample areas in a l l sample periods for both the t.m.s. and the m.l.s. frequency distributions.  The findings are summarized in Table 7.  Results. The following conclusions can be drawn from examination of Table 7. a) The x value by sample area of the t.m.s. data is consistently higher than that of the m.l.s.  This supports the hypothesis that  more expensive properties tend to be traded either on a private or on exclusive agency basis, rather than through a multiple fc  l i s t i n g service. b) The rank order of average value by sample area indicated by each data base was the same. This indicates that the tendency to trade more expensive properties either privately or on an exclusive basis is general, rather than restricted to any particular area.  23.  Table 7 COMPARATIVE STATISTICS:  T.M.S. AND M.L.S. DATA 3  X  T.M.S.  M.L.S.  T.M.S .  M.L.S.  T.M.S .  M.L.S.  4  VE VW NV WV  17.91 29.70 25.18 41.51  6.45 11.89 9 .72 16.71  .9145 .3627 .7056 -.4167  3.0940 1.8836 3.2283 1.5683  All  24.62  11.94  .9573  2.9623  VE VW NV . WV  18.60 27.15 25.28 37.89  5.06 8.37 7.02 15.80  .6914 .8971 .1863 1.6292  2.8793 3.5067 2.5705 6.9004  All  21.76  8.42  1.2429  4.2970  VE VW. NV WV  20.30 35.67 28.43 41.57  7.49 15.36 9 .05 13.22  1.0264 • .1996 .0290 -.6593 .  3.7226 1.5475 2.2744 1.8880  .All  28.13  13.48  .6950  2.1504  VE VW NV WV  18.40 28.01 26.21 41.73  5.52 10.22 7.92 11.59  1.4732 .6619 .4177 - .9878  5.4636 2.2732 2.4994 2.3480  All  24.23  9.45  .9817  3.1726  VE VW NV WV  19.43 33.50 27 .17 41.50  7.22 14.33 9 .41 14.24  1.0181 .2940 .2406 . -.5982  3.6987 1.6501 2.3990 1.8120  All  27.08  13.04  .7748  2.4190  VE VW NV WV  18.51 27.57 25.73 38.54  5.27 9 .33 7.48 12.27  1.0828 .7836 .3383 -.5431  4.2258 2.7917 2.6066 1.8374  All  23.12  9.09  1.0961  3.6018  Ql  c) The o value by sample area of the t.m.s. data is consistently higher than that of the m.l.s., which indicates that the t.m.s. data has the greater dispersion.  This results from the fact that  while the t.m.s. value continuum ranges from very inexpensive to very expensive properties, that of the m.l.s. ranges only from the very inexpensive to the moderately expensive, as noted above. d) In general, the interarea relative rankings with respect to dispersion remained the same under both data bases. e) Generally, the cr- 3 values of the t.m.s. data more closely approached zero than did those of the m.l.s. data.  This, by definition, means  that the t.m.s. value distribution is more symmetrical, (or less skewed), than that of m.l.s.  The above constitutes further proof  that expensive properties are under-represented in the m.l.s. data. f) In the case of both data bases, while the value distributions of Vancouver East, Vancouver West, and North Vancouver were positively skewed, that of West Vancouver was negatively skewed. This is a consequence of the unusually high proportion of expensive properties which exists in West Vancouver. g) The interarea relative rankings with respect to skewedness remained the same under both data bases. h) Generally, the t.m.s. Ch 4 values were lower than those of the m.l.s. data.  With respect to a l l sample areas during both  quarters, the amount by which 3 exceeded the average t.m.s.cj- 4 value approximated  the amount by which the average m.l.s. d~ 4  value exceeded 3.  This indicates that in general, t.m.s. value  d i s t r i b u t i o n s a r e " f l a t " whereas m . l . s . v a l u e d i s t r i b u t i o n s a r e "peaked" f o r t h e same a r e a .  F u r t h e r , w i t h respect to our p a r t i c u l a r  sample, t h e degree o f " f l a t n e s s " c h a r a c t e r i z i n g t h e t.m.s. v a l u e d i s t r i b u t i o n s approximated  t h e degree o f "peakedness" a s s o c i a t e d  w i t h the corresponding m.l.s. d i s t r i b u t i o n s .  The above i s a  f u n c t i o n o f the s m a l l e r v a l u e ranges a s s o c i a t e d w i t h the m.l.s. data. i ) The i n t e r a r e a r e l a t i v e r a n k i n g s w i t h r e s p e c t t o k u r t o s i s  differed  under each d a t a b a s e .  Conclus i o n s  As h y p o t h e s i z e d , t h e m . l . s . d a t a were b i a s e d w i t h r e s p e c t t o t h e value of properties traded.  The g r a p h i c a l and t h e s t a t i s t i c a l  y i e l d e d the f o l l o w i n g s p e c i f i c  analyses  findings:  a) P r o p e r t i e s under $15,000 i n v a l u e a r e u n d e r - r e p r e s e n t e d  by m . l . s .  .data. b) E x c l u s i v e o f t h e under $15,000 v a l u e c l a s s , i n e x p e n s i v e p r o p e r t i e s a r e o v e r - r e p r e s e n t e d by m . l . s . d a t a .  Although  this  t i o n p e r s i s t s o v e r some p o r t i o n o f t h e v a l u e r a n g e , p o i n t i s reached s a l e s frequency  over-representainvariably a  on t h e v a l u e r a n g e c o n t i n u u m a t w h i c h t h e r e l a t i v e a s s o c i a t e d w i t h t h e m . l . s . d a t a drops and r e m a i n s  below t h a t a s s o c i a t e d w i t h t h e t.m.s. d a t a . c) T h i s " c r o s s - o v e r " p o i n t v a r i e s by b o t h sample a r e a and by t i m e p e r i o d ; i t i s t h e r e f o r e i m p o s s i b l e t o a d j u s t f o r t h e above d i f f e r e n tial.  26. d) The average v a l u e o f p r o p e r t i e s t r a d e d t h r o u g h t h e medium o f m . l . s . was  c o n s i s t e n t l y lower by a r e a and t h r o u g h time t h a n t h e c o r r e s -  ponding v a l u e r e c o r d e d by t h e t.m.s. d a t a .  F u r t h e r , t h e rank  o r d e r o f a v e r a g e v a l u e by sample a r e a i n d i c a t e d by each d a t a base was  t h e same.  The f o r e g o i n g s u p p o r t s t h e h y p o t h e s i s t h a t  expensive  p r o p e r t i e s tend t o be t r a d e d e i t h e r p r i v a t e l y o r on an e x c l u s i v e agency b a s i s , and f u r t h e r , t h a t t h i s tendency than r e s t r i c t e d t o a p a r t i c u l a r  i s general, rather  area.  e) Due to t h e g r e a t e r r a n g e o f t h e t.m.s. d a t a , t h e i r d i s p e r s i o n i s g r e a t e r t h a n t h a t o f the m . l . s .  data.  f ) . T.M.S. v a l u e d i s t r i b u t i o n s a r e l e s s skewed t h a n c o r r e s p o n d i n g distributions.  m.l.s.  A g a i n , t h i s i s a f u n c t i o n o f t h e g r e a t e r range o f  t.m.s. d a t a . g) T.M.S. v a l u e d i s t r i b u t i o n s tend towards t h e p l a t y k u r t i c , w h i l e those o f m.l.s.  tend t o be l e p t o k u r t i c .  T h i s g r e a t e r degree o f  "peakedness" e x h i b i t e d by m . l . s . d a t a i s once a g a i n a consequence of t h e i r c o m p a r a t i v e l y narrow v a l u e h) A l t h o u g h sion,  range.  i n g e n e r a l , i n t e r a r e a rank orders a s s o c i a t e d w i t h d i s p e r -  symmetry, and k u r t o s i s remained s i m i l a r w i t h r e s p e c t t o d a t a  b a s e , s i g n i f i c a n t d i f f e r e n c e s i n magnitude e x i s t e d w i t h rank o r d e r s . No p a t t e r n was e v i d e n t i n t h e manner by w h i c h d i f f e r e n c e s v a r i e d by d a t a b a s e ,  t h e above mentioned  i t i s therefore impossible to  a d j u s t f o r t h e above i n t e r - d a t a base d i f f e r e n t i a l s . . i ) Because s e v e r a l b i a s e s e x i s t i n t h e m . l . s . d a t a , and because t h e s e b i a s e s do n o t l e n d t h e m s e l v e s  t o adjustment,  i t i s concluded  that  m . l . s . d a t a c o n s t i t u t e s a poor p r o x y f o r t h e M e t r o p o l i t a n Vancouver h o u s i n g  stock.  ) In o r d e r to d e t e r m i n e whether t h e above b i a s e s r e m a i n  constant  w i t h r e s p e c t t o t i m e , i t would be n e c e s s a r y t o t a k e sample d a t a from a y e a r d i f f e r e n t from 1969  and r e p e a t t h e f o r e g o i n g a n a l y s i s .  Comparison o f r e s u l t s would e i t h e r c o n f i r m o r r e f u t e t h e h y p o t h e s i s t h a t the m.l.s. data b i a s e s are c o n s t a n t w i t h r e s p e c t to time.  CHAPTER II  THE  METROPOLITAN VANCOUVER HOUSING SUPPLY  Introduct ion  The p r e c e d i n g c h a p t e r i l l u s t r a t e d the inadequacy  of m.l.s.  data  as a p r o x y f o r t h e M e t r o p o l i t a n Vancouver h o u s i n g s u p p l y .  However, i f  t h e a b i l i t y o f low income r e c i p i e n t s t o p u r c h a s e  detached  standard  d w e l l i n g s i n M e t r o p o l i t a n Vancouver under p r e s e n t , ( 1 9 7 0 ) , market c o n d i t i o n s i s t o be measured, i t i s n e c e s s a r y t h a t a v a l u e p r o f i l e o f the e x i s t i n g h o u s i n g s t o c k be c o n s t r u c t e d . been p r e c l u d e d due  to excessive cost.  proven b i a s e d beyond a d j u s t m e n t .  However, a h o u s i n g census  In a d d i t i o n , m . l . s . d a t a had been  I t was  t.m.s. d a t a as a h o u s i n g s u p p l y p r o x y .  had  t h e r e f o r e decided to u t i l i z e T h i s c h a p t e r c o m p r i s e s an examina-  t i o n o f the M e t r o p o l i t a n Vancouver h o u s i n g s u p p l y , i n terms o f b o t h s t o c k and o f f l o w .  The H o u s i n g  Stock  A l t h o u g h , as p r e v i o u s l y m e n t i o n e d , was  the t a k i n g of a housing  p r e c l u d e d due t o e x c e s s i v e c o s t , an e s t i m a t e o f t h e number o f  h o u s i n g u n i t s w i t h i n M e t r o p o l i t a n Vancouver was  detached  r e l a t i v e l y easy t o d e r i v e .  The p r o p e r t y t a x r o l l and t h e r e c o r d o f w a t e r c o n n e c t i o n s o f each governmental  census  local  u n i t w i t h i n M e t r o p o l i t a n Vancouver as d e f i n e d were examined.  29.  The  t o t a l number o f s i n g l e f a m i l y d w e l l i n g s w i t h i n each l o c a l u n i t was i n  t h i s manner d e t e r m i n e d .  Through a d d i t i o n o f t h e t o t a l s a r r i v e d a t i n t h e  above d e s c r i b e d manner, a M e t r o p o l i t a n Vancouver h o u s i n g s t o c k e s t i m a t e of  190,724 u n i t s was d e r i v e d .  The component t o t a l s by a r e a a r e c o n t a i n e d  i n T a b l e 8.  The  Value D i s t r i b u t i o n o f t h e H o u s i n g  Although  Stock  t h e above p r o c e d u r e measured t h e magnitude o f t h e M e t r o -  p o l i t a n Vancouver h o u s i n g s t o c k , i t i n d i c a t e d n o t h i n g o f i t s c o m p o s i t i o n . In  o r d e r t o g a i n some i n s i g h t i n t o t h e v a l u e d i s t r i b u t i o n o f t h e M e t r o -  p o l i t a n Vancouver h o u s i n g s t o c k , a sample o f t.m.s. d a t a was t a k e n . sample c o m p r i s e d  This  a l l s i n g l e f a m i l y d w e l l i n g s w h i c h were s o l d d u r i n g e i g h t  weeks o f t h e f i r s t , and t h e e n t i r e t h i r d q u a r t e r o f 1969 w i t h i n Vancouver C i t y , N o r t h Vancouver and West V a n c o u v e r .  I n a d d i t i o n , t h e sample i n c l u d e d  a l l s i n g l e f a m i l y d w e l l i n g s s o l d d u r i n g t h e e n t i r e f i r s t and t h i r d q u a r t e r s of  1969 w i t h i n t h e b a l a n c e o f M e t r o p o l i t a n V a n c o u v e r .  I n s t e a d o f a c t u a l s a l e s p r i c e s b e i n g r e c o r d e d , s a l e s p r i c e s were b r o k e n down by v a l u e r a n g e as shown i n T a b l e 9. w i t h i n each v a l u e range was r e c o r d e d . value ranges,  The f r e q u e n c y o f s a l e  I n t h e case o f t h e e i g h t m i d d l e  i t was assumed t h a t t h e mean s a l e s p r i c e w i t h i n each v a l u e  range c o i n c i d e d w i t h t h e midrange.  T h i s a s s u m p t i o n was checked  sample b a s i s and found t o be s u f f i c i e n t l y a c c u r a t e f o r purposes p r o f i l e c o n s t r u c t i o n . The above a s s u m p t i o n t h e case o f t h e extreme v a l u e r a n g e s . falling  on a of value  d i d n o t , however, h o l d i n  Accordingly, actual sales prices  i n t o e i t h e r extreme r a n g e were r e c o r d e d and t h e i r a r i t h m e t i c mean  30.  Table 8 ESTIMATED SINGLE FAMILY DWELLING STOCK WITHIN METROPOLITAN VANCOUVER BY MUNICIPALITY  Municipality  Single Family Dwelling Stock  City of New Westminster  6,740  City of North Vancouver  5,167  City of Port Coquitlam  3,515  City of Port Moody  1,917  City of Vancouver  72,961  Corporation of Burnaby  25,869  District of North Vancouver  13,350  Municipality of Coquitlam  9,486  Municipality of Delta  7,794  Municipality of Richmond  12,960  Municipality of Surrey  22,411  Municipality of West Vancouver Total  Source:  8,564 190,724  The property tax r o l l s and record of water connections for each of the local government units contained within Metropolitan Vancouver, as defined.  Table 9  SAMPLE SALES FREQUENCY DISTRIBUTION BY AREA  Ss  \-Yalue Class  Area  $15000$17500  $15000 • JL  X  It  v  $17500$20000  X  X  #  x  40  $21.25  BN  63  $12.80  41  NW  9  $12.37  5  "  8  "  4  SU  109  $13.28  S8  "  70  "  54  RI  22  $13.33  18  "  33  "  41  PM  7  $14.22  17  "  4  "  5  PQ  5  $12.61  1  "  4  "  COQ  19  $13.03  9  II  12  DA  25  $13.29  29  VC  577  $12.02  24S  NV  75  $11 .10  WV  13 924  All Source:  $16.25  #  29  $18.75  $22500$25000  $20000$22500 #  X  39  $23.75  $25000$27500  #  x  46  $26.25 "  $27500$30000  #  x  50 0  $28.75 "  $30000$32500 #  X  25 1  2  "  .4  27  "  18  16  "  54  " '  41  34  "  11  "  13  "  10  13  "  4  11  15  "  6  "  3  • "  1  "  24  23  "  34  "  21  "  11  59  "  77  72  "  41  320  "  226  247  "  180  43  92  "  58  "  79  $11.10  6  11  "  9  "  17  $12 .23  505  642  "  549 "  "  588  "  "  II  .  " 11  203  117  93  113  81  13  23  25  486  ."  508  "  T e e l a M a r k e t S u r v e y . M e t r o p o l i t a n Vancouver and New W e s t m i n s t e r County Q u a r t e r s 1 and 3, 1969  300  X  18  $33.75  #  X  48  $42.74  "  5  $42.60  8  "  10  $41.65  7  "  20  $41.23  3  "  1  $35.32  "  0  "  1  $40.00  "  13  "  14  $44.88  15  "  27  $41.45  118  "  395  $51.12  71  133  $43.50  29  191  $53.30  845  $49 .12  "  16 "  #  $35000  1  11  8  32 "  $31.25  $32500$35000  "  "  283  "  .32. computed.  A g a i n , the s a l e s f r e q u e n c i e s were r e c o r d e d .  The above d e s c r i b e d t a b l e y i e l d e d t h e a b s o l u t e sample s a l e s f r e q u e n c y by a r e a and v a l u e c l a s s f o r the f i r s t 1969.  and t h i r d q u a r t e r s o f  However, b e f o r e a v a l u e p r o f i l e c o u l d be c o n s t r u c t e d , the above  a b s o l u t e s a l e s f r e q u e n c i e s had  t o be c o n v e r t e d i n t o r e l a t i v e s a l e s  f r e q u e n c i e s by a r e a and v a l u e c l a s s .  T h i s was  a r e a were t o t a l l e d and t h e f r a c t i o n f a l l i n g each a r e a was  computed.  The r e s u l t was  t r i b u t i o n o f the sample by a r e a and  done.  The  s a l e s f o r each  i n t o each v a l u e c l a s s w i t h i n  a r e l a t i v e s a l e s frequency  i s shown i n T a b l e 10.  Finally,  r e l a t i v e s a l e s f r e q u e n c i e s by v a l u e c l a s s and a r e a were m u l t i p l i e d the s t o c k e s t i m a t e s by a r e a g i v e n i n T a b l e 8.  The r e s u l t  disthe by  i s the r e s i d e n -  t i a l p r o p e r t y v a l u e p r o f i l e f o r M e t r o p o l i t a n Vancouver shown i n T a b l e  11.  S e v e r a l a s s u m p t i o n s u n d e r l i e t h e above r e s i d e n t i a l p r o p e r t y v a l u e p r o f i l e and s h o u l d a t t h i s t i m e be made e x p l i c i t . a) That 1969 was  They a r e as  follows:  a " r e p r e s e n t a t i v e " year w i t h r e s p e c t to the v a l u e  d i s t r i b u t i o n of r e s i d e n t i a l p r o p e r t i e s s o l d .  This assumption i s  i m p o r t a n t as t h e sample v a l u e d i s t r i b u t i o n s e r v e s as a b a s i s f o r the d e r i v e d r e s i d e n t i a l p r o p e r t y v a l u e  profile.  b) That t h e p r o b a b i l i t y o f a s i n g l e f a m i l y d w e l l i n g b e i n g s o l d d u r i n g t h e f i r s t and second and  t h i r d q u a r t e r s i s equal t o t h a t o b t a i n i n g d u r i n g the  f o u r t h q u a r t e r s o f any y e a r .  I t w i l l be remembered  t h a t t h e sample upon w h i c h our s u p p l y v a l u e d i s t r i b u t i o n  estimate  i s based c o m p r i s e d a l l r e s i d e n t i a l p r o p e r t i e s t r a d e d w i t h i n M e t r o p o l i t a n Vancouver d u r i n g t h e f i r s t and t h i r d q u a r t e r s o f 1969 .  Table 10 RELATIVE SALES FREQUENCY DISTRIBUTION BY AREA •N  V AU'-lt:  <$15000  $15000$17500  $17500$20000  $20000$22500  $22500$25000  $25000$27500  $27500$30000  $30000$32500  $32500$35000 > $35000  Total  BN  .16  .10  .07  .10  .10  .11  .13  .06  .04  .12  1.00  NW  .23  .13  .20  .10  .05  .10  0  .03  .02  .14  1.00  SU  .27  .21  .17  .13.  .07  .04  .04  .02  .02  .02  1.00  RI  .08  .06  .12  .14  .19  .14  .12  .04  .03  .07  1.00  PM  .09  .22  .05  .06  .17  .13  .17  .05  .04  .01  1.00  PQ  .11  .02  .08  .23  .32  .13  .06  .02  0  .02  1.00  COQ  .10  .05  .07  .13  .13  .19  .12  .06  .07  .08  1.00  DA  .06  .07  .15  .19  .18  .10  .08  .05  .04  .07  1.00  VC  .22  .09  .12  .09  .09  .07  .08  .04  .04  .15  1.00  NV  .09  .05  .11  .07  .09  .11  .13  .10  .08  .16  1.00  WV  .04  .02  .03  .03  .05  .04  .07  .07  .08  .56  1.00  All  .16  .09  .11  .10  .10  .09  .09  .05  .05  •15  1.00  Source:  Table 9  ^"Sortie totals do not sum to 1.00 due to round ing.  1  Table 11 RESIDENTIAL PROPERTY VALUE PROFILE: METROPOLITAN VANCOUVER ( UNITS)  <$15000  $15000$17500  $17500$20000  $20000$22500  $22500$25000  $25000$27500  $27500$30000 3,363  $30000- $32500$32500 $35000  >$35000  Total  2  1,552  1,035  3,104  25,611  0  202  135  944  6,740  896  896  448  448  448  22,185  2,462  1,814  1,555  518  389  907  12,829  115  326  249  326  96  77  19  1,898  281  808  1,125  457  211  70  0  70  3,479  474  664  1,233  1,233  1,802  1,138  569  .664  759  9,485  468  546  1,169  1,481  1,403  780  624  390  312  546  7,719  VC  16,051  6,566  8,755  6,566  6,566  5,107  5,837  2,918  2,918  10,944  72,228  NV  1,666  925  2,036  1,295  1,666  2,036  2,406  1,851  1,481  2,961  18,323  WV  343  171  257  257  428  343  599  599  4,796  8,478  18,121  21,782  19,743  19,702  17,004  16,955  9,213  B.N  4,139  2,587  1,811  2,587  2,587  2,846  NW  1,550  876  1,348  674  337  674  SU  6,051  4,706  3,810  2,913  1,569  Rl  1,037  778  1,555  1,814  PM  172  422  96  PQ  387  70  COQ  949  DA  All  32,813.  685 _ 8,144  25,498 188,975  Sources: Tables 8 and 10 2 Some totals by area do not agree with area housing stock estimates previously derived due to rounding.  35. I f t h e r e i s a d i f f e r e n t i a l p r o b a b i l i t y o f homes b e i n g s o l d d u r i n g the second  and f o u r t h q u a r t e r s as opposed t o t h e f i r s t and t h i r d  q u a r t e r s o f any y e a r , such a d i f f e r e n t i a l p r o b a b i l i t y would o b v i o u s l y d i s t o r t and perhaps v i t i a t e o u r s u p p l y v a l u e  distribu-  tion estimate. c) That t h e s a l e s v e l o c i t y o f s i n g l e f a m i l y d w e l l i n g s w i t h i n p o l i t a n Vancouver i s c o n s t a n t w i t h r e s p e c t t o v a l u e c l a s s .  MetroThe  r e s i d e n t i a l p r o p e r t y v a l u e p r o f i l e was c o n s t r u c t e d by m u l t i p l y i n g t h e r e l a t i v e sample s a l e s f r e q u e n c y d i s t r i b u t i o n by a r e a and v a l u e c l a s s , by t h e e s t i m a t e d r e s i d e n t i a l h o u s i n g s t o c k by a r e a . homes o f d i f f e r e n t v a l u e c l a s s e s p o s s e s s e d  If  different sales veloci-  t i e s , t h e r e s u l t a n t v a l u e p r o f i l e would be h o p e l e s s l y d i s t o r t e d . T h i s i s so b e c a u s e homes c h a r a c t e r i z e d by h i g h s a l e s v e l o c i t i e s would be o v e r r e p r e s e n t e d , and t h o s e h a v i n g l o w s a l e s v e l o c i t i e s would be under r e p r e s e n t e d i n t h e f i n a l p r o p e r t y v a l u e  profile.  P r e l i m i n a r y f i n d i n g s o f a n o t h e r h o u s i n g s t u d y c u r r e n t l y underway at the U n i v e r s i t y o f B r i t i s h Columbia suggest v e l o c i t i e s by v a l u e  that d i f f e r e n t i a l sales  c l a s s may w e l l e x i s t f o r d e t a c h e d h o u s i n g  M e t r o p o l i t a n Vancouver a r e a .  i n the  These f i n d i n g s however, g i v e no adequate  measure o f how s a l e s v e l o c i t y v a r i e s i n e i t h e r magnitude o r d i r e c t i o n w i t h changes i n v a l u e .  I t i s too e a r l y to incorporate the f i n a l  c l u s i o n s o f t h e above s t u d y i n t h e p r e s e n t p a p e r .  con-  T h e r e f o r e , t h e assump-  t i o n t h a t no d i f f e r e n t i a l s a l e s v e l o c i t y e x i s t s w i t h r e s p e c t t o t h e v a l u e o f r e s i d e n t i a l p r o p e r t i e s w i t h i n M e t r o p o l i t a n Vancouver w i l l be m a i n t a i n e d .  36.  The  T u r n o v e r Rate  As mentioned a t the b e g i n n i n g o f t h i s c h a p t e r , the magnitude o f the M e t r o p o l i t a n Vancouver d e t a c h e d h o u s i n g 190,724 u n i t s .  s t o c k was  estimated  The number o f s i n g l e f a m i l y d w e l l i n g s a l e s  i n our t.m.s. sample was  t o be  recorded  5,630, c o m p r i s i n g 3,806 s a l e s w i t h i n Vancouver  C i t y , N o r t h V a n c o u v e r , and West V a n c o u v e r , and p e r i p h e r a l a r e a s o f the M e t r o p o l i s .  1,824  s a l e s w i t h i n the  I t w i l l be remembered t h a t due  to  u n a v a i l a b i l i t y o f c o m p l e t e d a t a , the s a l e s sample p e r t a i n i n g t o Vancouver C i t y , N o r t h Vancouver and West Vancouver c o v e r e d t h a n two  f u l l quarters.  o n l y 20 weeks r a t h e r  Compensating f o r t h i s f a c t , and  assuming t h a t  p r o p e r t y s a l e s a r e e v e n l y d i s t r i b u t e d w i t h r e s p e c t t o t i m e , we  a r r i v e at  an a d j u s t e d s a l e s sample s i z e f o r Vancouver C i t y , N o r t h Vancouver West Vancouver o f 4,567 u n i t s , and sample s i z e o f 6,391 t h e two  units.  consequently,  estimate.  an a d j u s t e d t o t a l s a l e s  U s i n g t h i s a d j u s t e d sample s i z e we  q u a r t e r s a l e s sample c o m p r i s e s 3.35  find  percent of the t o t a l  that  stock  T h i s i n f e r s t h a t the " a v e r a g e " house w i t h i n M e t r o p o l i t a n  Vancouver i s s o l d e v e r y  14.92  years.  T h i s e s t i m a t e conforms w i t h  c o n v e n t i o n a l wisdom w i t h r e s p e c t t o t u r n o v e r r a t e and to  and  the f i r s t  two a s s u m p t i o n s made e x p l i c i t  the  l e n d s some s u p p o r t  i n the previous s e c t i o n .  Table  12 c o n t a i n s t h e f i g u r e s upon w h i c h the above argument i s b a s e d .  The H o u s i n g S u p p l y :  F l o w Concept  There a r e e s s e n t i a l l y two e x i s t s and  concepts  of housing  that which i s a v a i l a b l e f o r purchase.  e x c l u s i v e l y c o n c e r n e d w i t h the  former.  supply:  U n t i l now,  that which we have been  T a b l e 12  ESTIMATED SINGLE FAMILY HOUSING TURNOVER RATE - METROPOLITAN  VANCOUVER Units  Sample S i z e , Q l + 3 o f 1969, p e r i p h e r a l r e g i o n s : .  1,824  Sample S i z e 20 weeks of Q l + 3 o f 1969; V . C . , N.V., A d j u s t e d Sample S i z e , Q l + 3 of 1969; V . C . , N.V.,  W.V.,:  W.V.:  3,806  (3806 x 6/5)  A d j u s t e d T o t a l Sample S i z e , Q 1 + 3 o f 1969  6,391  A d j u s t e d T o t a l Sample S i z e , 1969  Sample as a f r a c t i o n of e s t i m a t e d housing  12,782  stock:  12,782  190^4 Estimated Single  -  0  6  7  0  Family Housing Turnover R a t e : • ^ 7 0  Sources:  4,567  T a b l e s 8 and 9.  '  14.92  yrs  38.  There a r e two p o s s i b l e measures o f " t h a t w h i c h i s a v a i l a b l e f o r p u r c h a s e " i n any p e r i o d , t h e number o f homes l i s t e d f o r s a l e , and t h e number o f homes a c t u a l l y s o l d .  I t c o u l d n o t be a s c e r t a i n e d w h e t h e r homes  l i s t e d b u t n o t s o l d d u r i n g t h e f i r s t and t h i r d q u a r t e r s o f 1969 f a i l e d t o s e l l because they were " u n r e a s o n a b l y " p r i c e d . decided  to ignore property  Therefore,  i t was  l i s t i n g p e r se d u r i n g t h e sample p e r i o d .  C l e a r l y , p r o p e r t i e s p r i c e d f a r above market c o n t r i b u t e n o t h i n g  to the  housing  f l o w , as no r e a s o n a b l e  tions .  On t h e t h e o r y t h a t l i s t i n g s w h i c h a r e s o l d a r e t h o s e w h i c h a r e  "reasonably"  p e r s o n would p u r c h a s e under t h e s e  p r i c e d , i t was d e c i d e d  condi-  t o u t i l i z e as a measure o f h o u s i n g  f l o w those p r o p e r t i e s a c t u a l l y s o l d r a t h e r t h a n t h o s e m e r e l y  listed  d u r i n g t h e f i r s t and t h i r d q u a r t e r s o f 1969 w i t h i n M e t r o p o l i t a n V a n c o u v e r .  By t h e above d e f i n i t i o n , t h e t.m.s. d a t a sample t a k e n measured t h e f l o w o f h o u s i n g w i t h i n M e t r o p o l i t a n Vancouver d u r i n g t h e sample p e r i o d . The  s a l e s c o n t a i n e d w i t h i n t h i s sample were b r o k e n down by a r e a and by  value c l a s s .  I n o r d e r t o d e r i v e a measure o f t h e a n n u a l h o u s i n g  supply  f l o w w i t h i n M e t r o p o l i t a n V a n c o u v e r , s a l e s i n c i d e n c e by v a l u e c l a s s w i t h i n t h e p e r i p h e r a l a r e a s o f t h e M e t r o p o l i s was d o u b l e d w h i l e s a l e s by v a l u e c l a s s w i t h i n Vancouver C i t y , N o r t h was m u l t i p l i e d by a f a c t o r o f 2.2.  incidence  Vancouver, and West Vancouver  T h i s was done t o compensate f o r t h e  f a c t t h a t w h i l e t h e s a l e s sample p e r t a i n i n g t o t h e p e r i p h e r a l a r e a s covered  two f u l l q u a r t e r s , t h a t p e r t a i n i n g t o t h e c e n t r a l a r e a s o f t h e  M e t r o p o l i s covered  o n l y 20 weeks.  a measure o f t h e a n n u a l h o u s i n g estimate  c o m p r i s e s T a b l e 13.  From t h e above p r o c e d u r e was d e r i v e d  f l o w w i t h i n M e t r o p o l i t a n Vancouver.  This  Table 13 METROPOLITAN VANCOUVER HOUSING SUPPLY - ANNUAL FLOW CONCEPT  \ C L  '1SS  <$15000  $15000$17500  $17500$20000  $20000- $22500$22500 $25000  $25000$27500  $27500$30000  $30000$32500  $32500$35000  >$35000  Total  BN  126  82  58  80  78  92  100  50  36  96  798  NW  18  10  16  8  4  8  0  2  2  10  78  SU  218  176  140  108  54  36  32  16  16  20  816  R.i  '44  36  66  82  108  82  68  22  14  40  562  PM  14  34  8  10  26  20  26  8  6  2  154  PQ  10  . 2  8  22  30  12  6  2  0  2  94  COQ  38  18  24  48  46  68  42  22  26  28  360  DA  50  58  118  154  144  82  64  32  30  54  786  VC  1269  546  704  497  543  396  447  257  260  869  5788  NV  165  95  202  128  174  205  249  178  156  293  1845  WV  29  13  24  20  37  29  51  55  64  420  741  1981  1070  1368  1157  1244  1030  1085  644  610  1834  12023  All Source:  Table 9  -  vo  AO.  The L o c a t i o n o f I n e x p e n s i v e  Housing  R e f e r e n c e to T a b l e s 11 and 13 r e v e a l s t h a t r e l a t i v e l y  inexpensive  p r o p e r t i e s a r e c o n c e n t r a t e d i n Vancouver C i t y , B u r n a b y , and S u r r e y . p h y s i c a l i n s p e c t i o n o f t h e h o u s i n g u n i t s c o n t a i n e d i n the sample  A  was  n o t made, and t h e r e f o r e any e x p l a n a t i o n o f t h e above phenomenon i s bound t o be a p r i o r i i n n a t u r e .  However, t h e above p a t t e r n o f c o n c e n t r a t i o n  o f i n e x p e n s i v e p r o p e r t i e s was  expected.  I t was  hypothesized that  Vancouver and B u r n a b y , b e i n g two o f the o l d e s t s e t t l e d a r e a s o f t h e M e t r o p o l i s , and h a v i n g c o m p a r a t i v e l y l a r g e h o u s i n g s t o c k s , (see T a b l e 8 ) , would, p o s s e s s t h e g r e a t e s t p r o p o r t i o n o f e l d e r l y , o b s o l e s c e n t h o u s i n g units.  Because t h e s e u n i t s a r e r e l a t i v e l y u n a t t r a c t i v e i n  comparison  w i t h more r e c e n t l y c o n s t r u c t e d u n i t s , c e t e r i s p a r i b u s , t h e y command a lower p r i c e .  Hence t h e c o n c e n t r a t i o n o f i n e x p e n s i v e h o u s i n g i n Vancouver  and Burnaby comes as no  surprise.  The c o n c e n t r a t i o n o f i n e x p e n s i v e h o u s i n g w i t h i n S u r r e y stems from d i f f e r e n t reasons.  They a r e as  follows:  a) S u r r e y ' s h o u s i n g s t o c k d i f f e r s from t h a t o f o t h e r suburban  areas  i n t h a t a s i g n i f i c a n t number c o n s t i t u t e s t e r e o t y p e d , 3 bedroom, non-basement homes.  Due  to b o t h the absence o f a basement and  t h e c l o s e s i m i l a r i t y between a l a r g e number o f homes  located  t h e r e , t h e average home s a l e s v a l u e i s l o w e r i n S u r r e y t h a n i n the o t h e r  suburbs.  b) An u n u s u a l l y l a r g e number o f S u r r e y p r o p e r t i e s a r e s e r v i c e d s e p t i c tank r a t h e r t h a n by sewer. e f f e c t upon S u r r e y home p r i c e s . l o t s , hence they w i l l  by  T h i s f a c t has a d u a l d e p r e s s i v e F i r s t , home b u y e r s p r e f e r sewered  t y p i c a l l y bid less for properties serviced  by septic tank.  Second, when mortgage funds are scarce, as is  currently, (1970), the case, mortgage companies typically cut the supply of residential mortgage funds on unsewered properties before those serviced by sewer.  In addition, under current  lending regulations, unsewered properties are ineligible for N.H.A. insured mortgage financing. Unsewered properties form a disproportionately large fraction of the Surrey residential housing stock; therefore the reduction in the supply of mortgage funds flowing to the Surrey area has been disproportionately severe.  This dis-  proportionate reduction in mortgage financing has had the effect of further lowering the average home sales value in Surrey, through decreasing effective housing demand, c) Surrey is the area in which low cost condominium developments have been concentrated.  These condominium units, which s e l l for  considerably less than conventional single family dwellings, have had the effect of absorbing the housing demand which would normally be exerted on the Surrey single family dwelling stock.-  One result  has been to lower the price of conventional housing within the area. The Possibility of Seasonal Bias The annual flow estimate of the Metropolitan Vancouver housing supply was derived from a two quarter data sample. Therefore the possibility of seasonal bias within the sample exists.  It w i l l be remembered that the sales  sample upon which the housing flow estimate was based included a l l residential properties traded within Metropolitan Vancouver during the f i r s t and third quarters of 1969.  It is therefore possible that the sales pattern obtaining  42.  d u r i n g t h a t p e r i o d d i d not a c c u r a t e l y r e p r e s e n t the s a l e s p a t t e r n o f t a k e n as a w h o l e , and  consequently  our a n n u a l h o u s i n g  1969  flow estimate i s  seasonally biased. Although our h o u s i n g  t h e above p o s s i b i l i t y e x i s t s , i t s p r o b a b l e e f f e c t upon  flow estimate i s minimal.  This i s true'because,  for a  v a r i e t y o f r e a s o n s , a l a g o f i n d e t e r m i n a t e l e n g t h o c c u r s between ,the time a s a l e i s made and t h e t i m e i t i s r e c o r d e d by t h e T e e l a M a r k e t  Survey.  Because o f the above " a d m i n i s t r a t i v e l a g , " a two q u a r t e r d a t a sample a c t u a l l y " s t r a d d l e s " two q u a r t e r s . t h e d a t a tends t o be dampened.  Hence any s e a s o n a l b i a s p r e s e n t i n  Evidence  supporting t h i s point i s  f u r n i s h e d by t h e e s t i m a t e o f t h e M e t r o p o l i t a n Vancouver h o u s i n g rate previously derived.  Had  turnover  a marked s e a s o n a l b i a s been p r e s e n t i n  t h e d a t a , t h e d e r i v e d r a t e o f t u r n o v e r e s t i m a t e c o u l d n o t have c o r r e s ponded  so c l o s e l y w i t h t h a t g e n e r a l l y a c c e p t e d by t h o s e i n t h e  field.  S e a s o n a l b i a s c o u l d have been p r e c l u d e d by t a k i n g a f u l l  year's  d a t a sample r a t h e r t h a n one  c o m p r i s i n g two  c o s t a s s o c i a t e d w i t h t h e above, and due s e a s o n a l i t y i s thought  t o e x e r t on a two  was  unnecessary.  r e j e c t e d as b e i n g  quarters.  to the minimal  Due  to the e x c e s s i v e  e f f e c t which  q u a r t e r sample, t h i s  procedure  Conclusions  1. The  e x i s t i n g s i n g l e f a m i l y housing  stock w i t h i n Metropolitan  Vancouver i s e s t i m a t e d t o be 190,724 u n i t s . 2. Of the above s t o c k , i t i s e s t i m a t e d t h a t 6.7 • mately  12,780 u n i t s were t r a d e d i n 1969.  percent or approxi-  This flow estimate  i n c l u d e s b o t h t h e t r a d i n g o f e x i s t i n g homes and  the s a l e o f newly  43. constructed units. 3. The above flow estimate infers that the "average" Metropolitan Vancouver single family dwelling unit is sold every 14.92  years.  4. Of the annual housing flow estimate within Metropolitan Vancouver during 1969,  5,578 units or approximately  46.3 percent of the  total sold for less than $22,500. 5. Relatively inexpensive housing was found to be concentrated in Vancouver City, Burnaby, and Surrey.  This concentration within  the former two municipalities is thought to be a result of the large numbers of elderly homes situated there.  The concentration  of inexpensive housing within Surrey results from the following conditions which obtain there: a)  A concentration of stereotyped, 3 bedroom, non-basement homes,  b)  A disproportionate number of properties serviced by septic tank, rather than "sanitary sewer" systems,  c)  A concentration of low-cost condominium developments.  6. Although the possibility of seasonal bias within the underlying sales sample exists, the probable impact of seasonality upon the derived housing flow estimate is minimal.  CHAPTER  III  INCOME REQUIREMENTS FOR HOME PURCHASE  Introduction  The s t a t e d o b j e c t i v e o f t h i s v a l u e d i s t r i b u t i o n o f homes income f a m i l i e s market  the p l a n n i n g  i n M e t r o p o l i t a n Vancouver  is  the  such t h a t  given current,  low  (1970),  Deriving  c) M a t c h i n g  stages  assumed t h a t the above  a v a l u e d i s t r i b u t i o n o f the M e t r o p o l i t a n  supply,  d e f i n e d b o t h i n terms o f s t o c k and o f  the f a m i l y  question  the d e r i v e d f a m i l y  N.H.A. f i n a n c i n g  Vancouver flow.  income d i s t r i b u t i o n o f M e t r o p o l i t a n  d i s t r i b u t i o n of the housing  Vancouver.  income d i s t r i b u t i o n and the v a l u e s u p p l y w i t h i n the c o n t e x t o f  existing  regulations.  The above p r o c e d u r e , i t was question posed.  i t was  by:  Constructing housing  family  to d i s c o v e r whether  can purchase detached h o u s i n g  c o u l d be answered  b)  is  conditions.  During  a)  study  However, a major  f e l t , would f u r n i s h the answer flaw e x i s t e d  to  the  i n the proposed p l a n :  the  income d i s t r i b u t i o n f o r M e t r o p o l i t a n Vancouver proved u n o b t a i n a b l e .  Originally,  i t had been i n t e n d e d t h a t  t r i b u t i o n be d e r i v e d from a random sample o f  the r e q u i r e d income 2,401  personal  dis-  income  tax  returns. percent  A 2,401 sample s i z e e n s u r e d a maximum e r r o r o f o n l y + a t a 95 p e r c e n t  l e v e l of confidence.  p r o v i s i o n s o f The Income Tax A c t p r e c l u d e d taken.  2  However, t h e s e c r e c y  such a random sample b e i n g  When i t became a p p a r e n t t h a t income t a x r e t u r n s c o u l d n o t be  u t i l i z e d , t h e w r i t e r r e s o r t e d t o o t h e r p o t e n t i a l income d a t a  sources.  The d a t a p u b l i s h e d by the Dominion B u r e a u o f S t a t i s t i c s  proved  u s e l e s s f o r p u r p o s e s o f d e r i v i n g t h e M e t r o p o l i t a n Vancouver f a m i l y income d i s t r i b u t i o n f o r the f o l l o w i n g reasons: a) The most r e c e n t l y p u b l i s h e d consequently  income i n f o r m a t i o n p e r t a i n s t o 1961,  the a v a i l a b l e f i g u r e s are s e r i o u s l y out of date.  b) No d i s t r i b u t i o n o f f a m i l y income i s g i v e n f o r t h e M e t r o p o l i s , i n s t e a d a s i n g l e f i g u r e ; " a v e r a g e wage and s a l a r y income o f f a m i l y head" i s f u r n i s h e d . c) The s o l e income d i s t r i b u t i o n g i v e n i s a d i s c r e t e d i s t r i b u t i o n o f i n d i v i d u a l incomes by census t r a c t .  These d i s t r i b u t i o n s  could  n o t , however, be a g g r e g a t e d i n t o a f a m i l y income d i s t r i b u t i o n f o r the m e t r o p o l i s , as t h e number o f wage e a r n e r s  p e r f a m i l y was  unknown. d) Even i f a g g r e g a t i o n  had been p o s s i b l e , t h e d e r i v e d f a m i l y income  d i s t r i b u t i o n w o u l d have been s u s p e c t . n i n e y e a r s o l d , and t h e r e f o r e s h i f t s  The u n d e r l y i n g d a t a a r e i n p o p u l a t i o n d e n s i t y and  r e l a t i v e e a r n i n g power w h i c h have o c c u r r e d w i t h i n M e t r o p o l i t a n Vancouver s i n c e 1961 w o u l d have gone u n d e t e c t e d .  Consequently,  the r e s u l t a n t income d i s t r i b u t i o n w o u l d have been o f l i m i t e d value.  46.  F i n a l l y , Taxation ment was c o n s u l t e d .  Although  information concerning gross  investment  Statistics,  p u b l i s h e d by the Income Tax Depart-  t h e above s o u r c e  aggregate taxable  contained  income, g r o s s  a wealth o f  d e d u c t i o n s , and  income e t c . , no i n f o r m a t i o n p e r t a i n i n g t o t h e d i s t r i b u t i o n  o f f a m i l y income w i t h i n M e t r o p o l i t a n Vancouver was f u r n i s h e d .  Due obvious  to the t o t a l  l a c k o f adequate f a m i l y income d a t a ,  that the procedure o u t l i n e d at the beginning  unworkable.  of this  o f N.H.A. f i n a n c i n g r e g u l a t i o n s , i t was d e c i d e d  value p r o f i l e o f the housing  supply with  housing  change, t h e g o a l o f t h i s  a r r i v i n g a t an e s t i m a t e  purchase standard  t o match t h e  t h e income r e q u i r e d t o f i n a n c e  s u p p l y under c u r r e n t N.H.A. f i n a n c i n g r e g u l a t i o n s .  o f t h e above p r o c e d u r a l than  Instead  and t h e M e t r o p o l i t a n Vancouver f a m i l y income d i s t r i b u t i o n w i t h i n  the c o n t e x t  this  c h a p t e r was  An a l t e r n a t i v e p r o c e d u r e was t h e r e f o r e f o r m u l a t e d .  o f matching t h e v a l u e p r o f i l e o f t h e M e t r o p o l i t a n Vancouver supply  i t became  o f the a b i l i t y  study  As a consequence  changed.  Rather  o f low income f a m i l i e s t o  detached d w e l l i n g s w i t h i n M e t r o p o l i t a n Vancouver under  c u r r e n t market c o n d i t i o n s as o r i g i n a l l y  planned,  the goal o f t h i s  study  became t h e d e r i v a t i o n o f t h e f a m i l y income d i s t r i b u t i o n Which must o b t a i n w i t h i n M e t r o p o l i t a n Vancouver i f home p u r c h a s e i s t o be e f f e c t e d by low income f a m i l i e s under p r e s e n t m a r k e t . c o n d i t i o n s . paucity o f data, actually exists  t h e q u e s t i o n o f whether t h e n e c e s s a r y cannot be answered a t t h i s  some f u t u r e w r i t e r u s i n g 1971  Although  Census o f Canada.  time,  due t o a  income  distribution  i t might be answered by  income i n f o r m a t i o n p o s s i b l y c o n t a i n e d  i n the  47. T h i s c h a p t e r c o m p r i s e s an e x a m i n a t i o n  o f N.H.A. f i n a n c i n g r e g u -  l a t i o n s and t h e income r e q u i r e m e n t s w h i c h they housing  u n i t s contained w i t h i n the f i r s t  M e t r o p o l i t a n Vancouver h o u s i n g  imply must e x i s t i f t h e  four value classes o f the derived  supply value p r o f i l e are financed a t various  rates of interest.  C u r r e n t N.H.A. F i n a n c i n g  The  Regulations  c u r r e n t r e g u l a t i o n s o b t a i n i n g w i t h r e s p e c t t o t h e mortgage  f i n a n c i n g o f s i n g l e f a m i l y d w e l l i n g s by an approved l e n d e r under t h e N.H.A. f o r e c l o s u r e i n s u r a n c e  scheme a r e as f o l l o w s :  a) W i t h r e s p e c t t o e x i s t i n g homes, a maximum l o a n / v a l u e r a t i o o f .95 obtains.  T h i s r a t i o i s a p p l i e d t o t h e v a l u e o f t h e e x i s t i n g home  up t o and i n c l u d i n g a maximum l o a n o f $18,000. b) W i t h r e s p e c t t o new homes, t h e maximum l o a n / v a l u e r a t i o g r a n t e d i s .95 o f t h e f i r s t  $20,000 and .80 o f t h e b a l a n c e up t o and i n c l u d i n g  a maximum l o a n o f $25,000. c) To q u a l i f y f o r N.H.A. i n s u r e d f i n a n c i n g , t h e d w e l l i n g must be s e r v i c e d by a " s a n i t a r y sewer"; a s e p t i c t a n k s y s t e m i s u n a c c e p t a b l e . d) I r r e s p e c t i v e o f whether o r n o t t h e p r o p e r t y  i n q u e s t i o n h a s been  newly c o n s t r u c t e d , a maximum g r o s s d e b t s e r v i c e r a t i o o f .27 o b t a i n s . When d e f i n i n g "income" t h e b o r r o w e r i s p e r m i t t e d his  wife's  to include h a l f  income i n a d d i t i o n t o h i s own, i f n e c e s s a r y .  "Debt  Service" includes, i naddition to the amortization o f the f i r s t mortgage l o a n i n t e r e s t and p r i n c i p a l , t h e p r o p e r t y any  second mortgage debt s e r v i c e w h i c h may e x i s t .  t a x l e v y and 1  •^•The above i n f o r m a t i o n r e g a r d i n g c u r r e n t N.H.A. f i n a n c i n g r e g u l a t i o n s was g l e a n e d d u r i n g an i n t e r v i e w w i t h a C.M.H.C. l o a n o f f i c e r a t t h e B.C. r e g i o n a l o f f i c e o f C.M.H.C. d u r i n g A p r i l , 1970.  48.  The 46 p e r c e n t  f i n d i n g s o f the previous o f the estimated  s o l d f o r l e s s t h a n $22,500.  chapter  reveal that  approximately  1969 M e t r o p o l i t a n Vancouver h o u s i n g  flow  Due t o t h e N.H.A. .27 g r o s s debt s e r v i c e  r a t i o c o n s t r a i n t , $22,500 was s e l e c t e d as t h e v a l u e c e i l i n g towards w h i c h p o t e n t i a l l o w income home p u r c h a s e r s c o u l d r e a s o n a b l y do n o t c u r r e n t l y s e l l The  aspire.  New homes  f o r l e s s t h a n $22,500 w i t h i n M e t r o p o l i t a n  Vancouver.  above c o n s t r a i n t t h e r e f o r e i m p l i e s t h a t i f l o w income r e c i p i e n t s a r e  to purchase anything,  t h e y must p u r c h a s e e x i s t i n g h o u s i n g .  As n o t e d  above, t h e maximum N.H.A. i n s u r e d l o a n a v a i l a b l e f o r t h e p u r c h a s e o f e x i s t i n g h o u s i n g i s $18,000.  T h i s maximum l o a n c o n s t r a i n t i n f e r s  the home b u y e r c a n a r r a n g e , from h i s own r e s o u r c e s , $4,500 when p u r c h a s i n g  an e x i s t i n g home v a l u e d  f o r a downpayment o f  a t $22,500.  downpayment must be d e r i v e d f r o m t h e p e r s o n a l r e s o u r c e s as s e c o n d a r y f i n a n c i n g i s n o t f e a s i b l e .  that  The $4,500  o f the borrower  The t y p i c a l l o w income r e c i p i e n t ,  by d e f i n i t i o n , c o u l d n o t make b o t h f i r s t and second mortgage payments w h i l e simultaneously  s a t i s f y i n g t h e N.H.A. maximum g r o s s  debt s e r v i c e r a t i o o f  .27.  Maximum L o a n / V a l u e R a t i o Maximum Gross Debt S e r v i c e Approximate Current Charge  The  Ratio  N.H.A. I n s u r e d  Conventional  .95  .75  .27  .25  .10125  .10750  Annual I n t e r e s t  above t a b l e makes e x p l i c i t t h e s u b s i d i e s i n h e r e n t  insured f i n a n c i n g .  Due t o t h e N.H.A. commitment t o i n d e m n i f y  i n N.H.A. lenders f o r  49.  losses a r i s i n g typically market.  from f o r e c l o s u r e , the N.H.A. i n s u r e d mortgage r a t e  is.  from % to 3/4 o f one p e r c e n t below t h a t o f the c o n v e n t i o n a l In a d d i t i o n , w h i l e a  .95 l o a n / v a l u e r a t i o c u r r e n t l y e x i s t s  with  r e s p e c t to the purchase o f e x i s t i n g h o u s i n g under N.H.A. i n s u r a n c e , maximum l o a n / v a l u e r a t i o c u r r e n t l y o b t a i n a b l e is  .75.  Any home p u r c h a s e r who borrows  therefore, larger  ceteris paribus,  i n the c o n v e n t i o n a l market  i n the c o n v e n t i o n a l market must  for a larger  and/or a  F i n a l l y , w h i l e a g r o s s debt s e r v i c e r a t i o o f  under N.H.A. i n s u r e d f i n a n c i n g ,  c o n v e n t i o n a l market a specified  is  .25.  the c o r r e s p o n d i n g f i g u r e  The e f f e c t o f t h i s  income, a mortgage l o a n a p p l i c a n t  he were s e r v i c e d by the c o n v e n t i o n a l  For the above r e a s o n s  .  of f i n a n c i n g ,  i t was  f a i l e d ,to q u a l i f y  felt  that  eligible  discussion  is  case  couched i n  p o t e n t i a l low income home  fail  given  to buy a home  inherent i n t h i s  f o r mortgage f i n a n c i n g under t h e N.H.A.  scheme, they would most a s s u r e d l y  i n the  that  than would be the  Due to the s u b s i d i e s if  is  .27  market.  the f o l l o w i n g  o f N.H.A. i n s u r e d f i n a n c i n g .  discrepancy  is  o f g r e a t e r v a l u e under N.H.A. i n s u r e d f i n a n c i n g if  downpayment,  second mortgage than would be the case were he to borrow under  the a e g i s o f N.H.A. obtains  arrange  the  to q u a l i f y  terms form  purchasers  insurance  i n the c o n v e n t i o n a l  2 market. 2 W h i t e , d e s c r i b i n g c o n d i t i o n s w i t h i n the Vancouver r e s i d e n t i a l mortgage market d u r i n g t h e e a r l y 1 9 6 0 ' s , n o t e s t h a t the u r b a n poor a r e d i s c r i m i n a t e d a g a i n s t by mortgage l e n d e r s . He demonstrates the e x i s t e n c e o f an i n v e r s e r e l a t i o n s h i p between income l e v e l and the r a t e o f i n t e r e s t charged on r e s i d e n t i a l mortgage l o a n s . In a d d i t i o n , he d i s c o v e r s t h a t low income f a m i l i e s are t y p i c a l l y o f f e r e d lower l o a n / v a l u e r a t i o s and s h o r t e r a m o r t i z a t i o n p e r i o d s t h a n t h e i r more a f f l u e n t c o u n t e r p a r t s . See P. H. W h i t e , P r o l o g u e to an A n a l y s i s o f the R e s i d e n t i a l Mortgage Market i n Vancouver. Vancouver: The U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1965, (unpublished) pp. 9-14.  50. Income Requirements for Home Purchase As mentioned previously, $22,500 was selected as the value ceiling towards which potential low income home purchasers could reasonably aspire. Reference to Table 11 reveals that four value classes as defined in the derived housing supply value profile exist below $22,500. The mean sales value of each of these value classes was noted.  By applying the current  N.H.A. maximum loan/value ratio and maximum loan constraints to each of the noted mean values, the maximum N.H.A. insured mortgage loans obtainable under current regulations on new and existing properties of the stated values were derived.  Although as previously mentioned, few new properties  currently s e l l within Metropolitan Vancouver for less than $22,500, the maximum N.H.A. insured mortgage loans obtainable on newly constructed property of the stated values was, for purposes of comparison, nevertheless calculated. This schedule comprises Table 14. For each of the maximum mortgage loans derived in the above manner a schedule of monthly payments amortizing both interest and principal at rates of interest ranging from 6.0 to 10.5 percent and for terms of 20, 25 and 35 years was prepared.  These schedules comprise Tables 15 to 19  inclus ive. Using the N.H.A. gross debt service ratio of .27, the above amortization schedules were then converted  into required income schedules.  This was accomplished by dividing the required monthly amortization payment by .27 to arrive at the monthly income required under N.H.A. regulations to service the mortgage loan.  This figure was then multiplied by 12 to derive  51.  Table 14 MAXIMUM N.H.A. INSURED MORTGAGE LOANS BY PROPERTY VALUE AND PROPERTY TYPE  Value Class  Mean Value Within Class  Maximum N.H.A. Insured Mortgage Loan3 Existing New Property Property  < $15,000  $12,230  $11,600  $11,600  $15,000 - $17,500  $16,250  $15,400  $15,400  $17,500 - $20,000  $18,750  $17,800  $17,800  $20,000 - $22,500  $21,250  $18,000  $20,000  In order to simplify calculations, the maximum mortgage loans derived above are to the nearest $100.  Sources:  Table 9, interview held with a C.M.H.C. loan officer at the C.M.H.C. B.C. regional office, A p r i l , 1970.  Table 15MONTHLY PAYMENTS TO AMORTIZE A MORTGAGE OF $11,600  ^\Loan ^Term Rate \ . of Interest^. 6.0% 6.5% 7.0% 7.5% 8.0% 8 .5% 9 .0% 9 .5% 10.0% 10.5%  20 Years $82.62 • $85.90 $89.25 $92.64 $96.09 $99.60 $103.15 $106.75 $110.40 $114.10  25 Years  35 Years  $74.22 $77.70 $81.25 $84.87 $88.54 $92.27 $96.05 $99.88 $103.77 $107.69  $65.57 $69.40 $73.30 $77.27 $81.30 $85.39 $89.53 $93.71 $97.94 $102.20  Table 15(a) ANNUAL INCOME REQUIRED TO SERVICE A MORTGAGE OF $11,600 *\^Loan Term Rate ^-s. of I n t e r e s t ^ 6.0% 6.5% ' 7.0% 7.5% . 8.0% 8.5% 9.0% 9 .5% 10.0% 10.5%  20 Years • $3,672 $3,817 $3,966 $4,117 $4,270 $4,426 $4,584 $4,584 $4,906 $5,071  25 Years $3,298 $3,453 $3,610 ' $3,772 $3,935 $4,100 $4,268 $4,339 $4,611 $4,786  35 Years $2,914 $3,084 $3,257 $3,434 $3,613 $3,795 $3,979 $4,164 $4,352 $4,542  Table 15(a) assumes the existence of a maximum 27 percent gross debt service ratio and ignores the effect of property taxes.  Table 16 MONTHLY PAYMENTS TO AMORTIZE A MORTGAGE OF $15,400 \Loan Term Rate of Interests. 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9 .5% 10.0% 10.5%  20 Years  25 Years  35 Years  $109.68 $114.04 $118.48 $122.99 $127.57 $132.32 $136.36 $141.72 $146.56 $151.47  $ 98.54 $103.16 $107.87 $112.66 $117.54 $122.49 $127.51 $132.60 $137.76 $142.97  $ 87.05 $ 92.13 $ 97.31 $102.58 $107.93 $113 .36 $118.85 $124.41 $130.02 $135.67  Table 16(a) ANNUAL INCOME REQUIRED TO SERVICE A MORTGAGE OF $15,400 \iLoan Term Rate ^ \ ^ of Interest^. v  v  6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9 .0% 9.5% 10.0% 10.5%  20 Years $4,874 $5,068 $5,265 $5,466 $5,669 $5,876 $6,060 $6,298 $6,513 $6,731  25 Years $4,379 $4,584 ' $4,794 $5,007 $5,223 $5,443 $5,667 $5,893 $6,122 $6,354  35 Years $3,869 $4,094 $4,324 $4,559 $4,796 $5,038 $5,282 $5,529 $5,778 $6,029  Table 16(a) assumes the existence of a maximum 27 percent gross debt service ratio and ignores the effect of property taxes.  Table 1 7 MONTHLY PAYMENTS TO AMORTIZE A MORTGAGE \Loan Terra Rate of I n t e r e s t ^ 6.0%  •  2 0 Years  2 5 Years  OF  $17,800  3 5 Years  $126.77:.  $113.89  $100.62  6.57,  $131.81  $119.23  $106.49  7.07o  $136.94  $124.68  7 .57.  $142.16  $130.22  8.07o  $147.45  $135.86  $ 1 2 4 . 7 5  8.57o  $152.83  $141.58  $131.02  9.07o  $158.28  $147.38  $137.37  9.57o  $163.81  $153.27  $143.80  10.07.  $169.40  $159  $150.28  10.57.  $175.07  $165.25  .22  $112.48 "  $118.52  $156.82  Table 17(a) ANNUAL INCOME REQUIRED TO SERVICE A MORTGAGE OF ^^.Loan Term Rate of Interest**^ 6.07. 6.57. 7.07. 7.57. . 8.07. 8.57. 9.07. 9.57. 10.07. 10.57.  $17,800  20 Years  25 Years  35 Years  $5,634 $5,858 $6,086 $6,318 $6,553 $6,792 $7,034 $7,280 $7,528 $7,780  $5,061 $5,299 $5,541 $5,787 $6,038 $6,292 $6,550 $6,811 $7,076 $7,344  $4,472 $4,732 $4,999 $5,269 $5,544 $5,823 $6,105 $6,390 $6,698 $6,969  Table 17(a) assumes the existence of a maximum 27 percent gross debt service ratio and ignores the effect of property taxes.  Table 18 MONTHLY PAYMENTS TO AMORTIZE A MORTGAGE OF $18,000 ^^Loan Term Rate of I n t e r e s t \ 6.0% 6.5% ' 7.0% 7.5% 8.0% 8 .5% 9.0% 9 .5% 10.0% 10.5%  20 Years  25 Years  $128.20 $133.20 $138.48 $143.75 $149.11 $154.55 $160.06 $165.65 $171.30 $177.03  $115.17 $120.57 $126.08 $131.68 $137.38 $143.17 $149.04 $154.99 $161.01 $167.10  35 Years $101.75 $107.69 $113.74 $119 .90 $126.15 $132.50 $138.92 $145.41 $151.97 $158.58  Table 18(a) ANNUAL INCOME REQUIRED TO SERVICE A MORTGAGE OF $18,000 \Loan Term Rate ^-v. of Interest\^ 6.0% 6.5% 7.0% 7 .5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5%  20 Years  25 Years  35 Years  $5,697 $5,924 $6,154 $6,388 $6,626 $6,868 $7,113 $7,361 $7,613 $7,867  $5,118 $5,358 $5,603 $5,852 $6,105 $6,362 $6,623 $6,888 $7,155 $7,426  $4,522 $4,786 $5,055 $5,328 $5,606 $5,888 $6,174 $6,462 $6,754 $7,047  Table 18(a) assumes the existence of a maximum 27 percent gross debt service ratio and ignores the effect of property taxes.  Table 19 MONTHLY PAYMENTS TO AMORTIZE A MORTGAGE OF $20,000 \Loan Term Rate of Interests^ 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9 .5% 10.0% 10.5%  20 Years $142.44 $148.11 $153.87 $159.73 $165.68 $171.72 $177 .84 $184.05 $190.34 $196.70  25 Years  35 Years  $127.97 $133.97 $140.09 $146.32 $152.65 $159.08 $165.60 $172.21 $178.90 $185.67  $113.06 $119.65 $126.38 $133.22 $140.17 $147.22 $154.35 $161.57 $168.85 $176.20  Table 19(a) ANNUAL INCOME REQUIRED TO SERVICE A MORTGAGE OF $20,000 '^^Loan Term Rate \ ^ of In teres t \ ^ 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5%  20 Years  25 Years  35 Years  $6,330 $6,582 $6,838 $7,098 $7,363 $7,631 $7,903 $8,179 $8,459 $8,741  $5,687 $5,954 $6,226 $6,502 $6,784 $7,069 $7,359 $7,653 $7,950 $8,251  $5,024 $5,317 $5,616 $5,920 $6,229 $6,542 $6,859 $7,180 $7,504 $7,830  Table 19(a) assumes the existence of a maximum 27 percent gross debt service ratio and ignores the effect of property taxes.  57.  the r e q u i r e d a n n u a l income. T a b l e s 15(a) t o 19(a) The  The above r e q u i r e d income s c h e d u l e s  comprise  inclusive.  income r e q u i r e m e n t s d e r i v e d above a r e u n d e r s t a t e d .  Pursuant  t o N.H.A. f i n a n c i n g r e g u l a t i o n s , t h e a n n u a l p r o p e r t y t a x l e v y must be i n c l u d e d i n t h e numerator  o f t h e g r o s s debt s e r v i c e r a t i o .  I t was,  however,  d e c i d e d t o o m i t p r o p e r t y t a x c o n s i d e r a t i o n s when c o n s t r u c t i n g t h e s c h e d u l e s o f r e q u i r e d income.  To c a l c u l a t e t h e income r e q u i r e d t o f i n a n c e a s p e c i f i c  home under N.H.A., i t i s m e r e l y n e c e s s a r y t o d i v i d e t h e a n n u a l p r o p e r t y t a x l e v y i n q u e s t i o n by .27, and add t h i s amount t o t h e a n n u a l r e q u i r e m e n t d e r i v e d i n t h e a f o r e m e n t i o n e d manner.  income  F o r example, an a n n u a l  p r o p e r t y t a x l e v y o f $300 w o u l d , under t h e maximum N.H.A. g r o s s debt  ser-  v i c e c o n s t r a i n t , r e q u i r e $1,111 o f a n n u a l income i n a d d i t i o n t o t h e income r e q u i r e d t o s e r v i c e t h e mortgage d e b t .  T h i s $1,111 c o n s t i t u t e s a b l a n k e t  income r e q u i r e m e n t , and i s u n a f f e c t e d by e i t h e r t h e t e r m o f t h e mortgage loan or the rate of interest  charged.  The e f f e c t o f t h e p r o p e r t y t a x l e v y was n o t i n c o r p o r a t e d i n t o t h e d e r i v e d income r e q u i r e m e n t s c h e d u l e s f o r t h e f o l l o w i n g r e a s o n s : a) The T e e l a M a r k e t S u r v e y , from w h i c h t h e s a l e s d a t a were c o l l e c t e d , f u r n i s h e d no i n f o r m a t i o n as t o t h e p r o p e r t y t a x b u r d e n o f t h e properties  sold.  b) I t was n o t f e a s i b l e t o a p p l y some " a v e r a g e " p r o p e r t y t a x b u r d e n t o a l l o f t h e sample p r o p e r t i e s as t h e sample was drawn from t w e l v e different municipalities. assessment  i n both  p r o c e d u r e and f i s c a l r e q u i r e m e n t , t h e r e f o r e any " a v e r a g e "  p r o p e r t y t a x burden necessity,  Each m u n i c i p a l i t y d i f f e r s  imputed t o t h e sample as a whole would b e , o f  inappropriate.  58. FAMILY INCOME DISTRIBUTION REQUIREMENTS Cumulative Distribution  Mean Value Within Class  <$15,000  .16  $12,230  $11,600  $5,611  $15,000-$17,500  .25  $16,250  $15,400  $7,122  $17,500-$20,000  .36  $18,750  $17,800  $8,076  $20,000-$22,500  .46  $21,250  $18,000  $8,155  Value Class  Maximum N.H.A. Hous ing Mortgage Loan Income 3 Obtainable Requirement  The calculated annual income requirements are based upon the amortization of a 25 year N.H.A. insured mortgage loan on an existing property written at 10 percent. It is also assumed that the property in question bears an annual property tax burden of $270. Sources:  Tables 9, 14, 15(a), 16(a), 17(a), 18(a).  As mentioned earlier in this chapter, due to a lack of adequate income data, the ability of low income families to purchase standard detached housing within Metropolitan Vancouver under present market conditions could not be directly measured. As a result, i t was decided to derive the family income distribution which must currently obtain within Metropolitan Vancouver i f the cheaper units contained within the current housing flow are to be financed by low income home purchasers. Reference to the table above reveals that homes in the f i r s t four value classes of the derived Metropolitan Vancouver housing value profile had a cumulative distribution of .46. Assuming that a l l properties f a l l i n g below this cumulative probability bore a uniform annual property tax  59. 4 burden of $270, (a patently a r t i f i c i a l assumption), we derive the income distribution which must currently prevail within Metropolitan Vancouver i f homes in the f i r s t four value classes are to be financed by low income families. The table above can be interpreted in the following manner: If no more than 46 percent of the current Metropolitan Vancouver family income distribution f a l l s below $8,155 per annum, and i f the lower 46 percent of the family income distribution corresponds with the income required to finance the lower 46 percent of the current housing supply, then those families f a l l i n g into the lower 46 percent of the Metropolitan Vancouver family income distribution are financially capable of purchasing the lower 46 percent of the current housing flow provided that: a) they are successful in securing the maximum N.H.A. insured mortgage loan obtainable under current regulations, b) this mortgage loan is written at no more than 10 percent interest per annum, and c) a property tax burden not exceeding $270 per annum prevails upon the relevant properties. .  fc  Two comments should be made on the above statement.  above merely states a necessary financial condition.  F i r s t , the  It says nothing as  4 The figure of $270 was chosen as a hypothetical uniform property tax burden as $270 divided by .27, the N.H.A. gross debt service ratio, equals $1,000. $1,000, under these conditions, represents the income required to finance the property tax levy in addition to that required to service the mortgage.  60. to whether this condition in fact, exists.  As previously mentioned, due  to a lack of adequate income data, the existence of the required Metropolitan Vancouver family income distribution can at present be neither proved nor disproved.  Second, the present existence of such an income distribution  would not necessarily mean that low income recipients would purchase single family dwellings, i t would merely mean that they could, i f they so desired. Reference to Tables 15 to 19 and Tables 15(a) to 19(a) reveals the following facts concerning  inclusive,  the financing of single family  dwellings: a)  The major determinant of the financing cost, and therefore the income required for home purchase, is of course the interest rate charged.  Under current N.H.A. regulations, an insured $18,000  mortgage loan payable over 25 years at a 6 percent annual interest rate requires a monthly amortization payment of $115.17 and an annual income, (neglecting property tax considerations), of $5,118. However, when the interest rate charged is increased to 10 percent, the corresponding figures increase to $161.01 and $7,155 respectively. b) Increasing the mortgage term exerts only a marginal effect.  As  stated above, an $18,000 25 year mortgage loan written at 10 percent requires a monthly amortization payment of $161.01 and an annual income, neglecting property tax considerations, of $7,155. When the mortgage term is increased from 25 to 35 years the corresponding figures are reduced to $151.97 and $6,754 respectively. In other words, by increasing the mortgage term from 25 to 35-  61.  years we lower the required monthly amortization payment by only $9.04 and the required annual income by only $401.  On the other  hand, the borrower remains in debt an additional 10 years.  It is  therefore clear that lengthening the mortgage term from 25 to 35 years w i l l render acceptable only those mortgage applicants who were marginally unacceptable under a 25 year mortgage loan arrangement . c) Under current N.H.A. regulations a maximum loan/value ratio of 95 percent obtains.  Clearly, l i t t l e can be done to further liberalize  this constraint. Assuming that the loan/value constraint were abolished and homeowners were lent 100 percent of home value up to the present loan maximum of $18,000, the effective increase in purchasing power realized by successful mortgage applicants would be insignificant.  Reference to Table 14 reveals that elimination  of the 95 percent loan/value ratio coupled with retention of the $18,000 maximum loan constraint would have resulted in increased loans of $630, $850, and $200 on average value homes within value classes 1, 2, and 3 respectively of the 1969 Metropolitan Vancouver housing supply profile.  Due to the $18,000 maximum loan constraint,  the elimination of the 95 percent loan/value ratio requirement would have exerted no effect in the case of average value homes within the fourth value Cilass . Conclus ions 1.  N.H.A. insured mortgage financing constitutes, from the borrowers viewpoint, a more desirable financing medium than that represented  62. by the conventional market.  N.H.A. insured lending terms are the  more attractive because, in comparison to the conventional market: a) the gross debt service ratio and the loan/value ratio constraints are more liberal, and b) due to the N.H.A. foreclosure insurance scheme, annual interest charges are typically from \ to 3/4 of one percent below the rate prevailing in the conventional market. 2. Under current N.H.A. financing regulations, assuming an annual property tax burden not exceeding $270, and a maximum 25 year mortgage loan written at 10 percent, not more than 46 percent of • the current Metropolitan Vancouver family income distribution can t  f a l l below $8,155 i f the homes contained within the f i r s t four value classes of the 1969 Metropolitan Vancouver housing flow are to be financed by those in the lower 46 percent of the income distribution. 3. The mortgage loan interest rate charged is the main determinant of financing costs and hence, given the other lending constraints, the main determinant of the income required for home purchase. 4. At interest rates in the neighborhood of 10 percent, increasing the mortgage loan term from 25 to 35 years or over, effects only a marginal increase in the e l i g i b i l i t y of mortgage loan applicants. It is questionable i f this marginal increase in loan e l i g i b i l i t y warrants the concomitant increased time period during which the borrower remains in debt.  The present N.H.A. loan/value ratio is already, at 95 percent, close to the maximum possible. Further liberalization of this constraint would exert only a marginal increase in home purchasing ability.  CHAPTER IV  POLICY RECOMMENDATIONS  Introduction The preceding chapter examined current N.H.A. financing regulations and made explicit the income required to finance the lower 46 percent of the 1969 Metropolitan Vancouver housing flow under current market conditions.  Due to a lack of adequate data, the ability of those families in  the lower 46 percent of the current Metropolitan Vancouver family income distribution to finance homes within the lower 46 percent of the current housing flow could not be directly measured.  Nevertheless analysis of  the fragmentary data contained in Appendix I suggests that typical low income recipients cannot purchase standard detached housing within Metropolitan Vancouver under current market conditions. This chapter contains suggestions as to how the above situation can be ameliorated through changes in N.H.A. home financing policy. However, these suggested policy changes are not costless.  Hence in  addition to suggesting policy changes, this chapter also discusses the problems which are likely to be induced by changes in policy. The Present Framework N.H.A. mortgage loan applications with respect to existing properties are winnowed through application of the following requirements:  65. a) a maximum loan/value ratio of .95 b) a maximum loan of $18,000 c) a maximum gross debt service ratio of .27 d) a mortgage term of 25 years with provision for extension to 40 years in special circumstances. The combined findings of Chapter III and Appendix I suggest that the effect of the above winnowing process is to effectively preclude low income recipients purchasing homes, given current market conditions.  It was also  noted in the previous chapter that: a) The rate of interest charged is the main determinant of mortgage loan costs and hence, given the present regulatory framework, of income requirements for home purchase. b) That l i t t l e benefit would accrue to the typical low income mortgage applicant by further relaxing the loan/value ratio requirements or further increasing the mortgage loan term. In view of the above, i f the a b i l i t y of low income recipients to purchase detached housing is to be increased through changes in N.H.A. policy, attention must be directed to the loan constraints heretofore not considered and to the interest rate charged. The $18,000 Mortgage Loan Maximum Under current N.H.A. regulations the maximum loan granted with respect to an existing single family dwelling is $18,000. Because existing homes within Metropolitan Vancouver typically s e l l for more than $18,000, (see Table 10), at f i r s t glance i t would appear to be in the  66. interest of prospective low income home purchasers that this maximum be raised.  Such an action, superficially at least, would seem to benefit  the low income home purchaser by relieving him of the necessity of arranging a sizable downpayment from his own resources.  However, as  pointed out in the previous chapter, the monthly payment necessary to amortize an $18,000 mortgage loan over 25 years at an interest rate of 10 percent is $161.01.  Given the existing 27 percent gross debt service  ratio, and assuming an annual property tax levy of $270, the annual family income required to service the above loan is $8,155.  Given the  current Metropolitan Vancouver family income distribution, any family having an annual income of $8,155 is,.by definition, middle rather than low income.  Further, i f the maximum loan available on existing properties  were raised, the monthly amortization payment and the annual housing income requirement would, ceteris paribus, also rise.  It is clear from  the above, that given the current gross income constraint and current interest rates, any benefit derived from increasing the maximum mortgage loan obtainable on existing detached dwellings would accrue to middle and upper income groups rather than to potential low income home purchasers. The Gross Debt Service Ratio Under current regulations N.H.A. mortgage loan applicants cannot devote more than 27 percent of their income at the time of application to debt service.  "Income" as defined includes, in addition to the gross  income of the loan applicant, 50 percent of the income of his wife. "Debt Service" as defined includes, in addition to the amortization of the f i r s t mortgage loan principal and interest, the annual property tax  67. levy and any second mortgage debt service as may exist. The above gross debt service ratio discriminates against the poor. This discrimination, although inadvertent, is nevertheless  real. Due  to the N.H.A. gross debt service constraint, a low income family i n possession of a down payment which would suffice in the case of a mortgage loan application by a middle or upper income family i s , because of inadequate income, denied a loan.  That the low income mortgage applicant  is willing to devote more than 27 percent of his annual income to debt service is considered  irrelevant. Denied N.H.A. mortgage financing, the  low income family has no choice but to enter the rental market. Ironically, upon entry into this market, the same family may pay considerably more than 27 percent of its annual income in order to secure adequate accommodation.  Further, because i t rents rather than amortizing a mortgage  loan, this family is denied the privilege of building a home equity. In this manner the relative poverty from which i t suffers is perpetuated. The function of the gross debt service ratio is to minimize risk in mortgage lending.  The underlying rationale is that i f borrowers possess  an income sufficiently in excess of their annual housing costs, their a b i l i t y to meet these annual housing costs w i l l be sufficiently great to preclude loan default and consequent mortgage foreclosure.  Because N.H.A.  insured mortgage loans are funded by the private as opposed to the public sector, i t is f e l t that the above gross debt service ratio is necessary to attract private funds into the insured mortgage market.  The above argument,  while intuitively appealing, f a i l s to recognize two facts:  68. a) The government, through the N.H.A. foreclosure insurance scheme, guarantees that private lenders w i l l be recompensed in f u l l for any loss arising from loan default and consequent foreclosure. Additional lender protection in the form of a low maximum gross debt service ratio is therefore  superfluous.  b) The annual rate of foreclosure on N.H.A. insured mortgages during the interval 1954-69 has been minimal.  This fact was recognized by  the government on June 27, 1969 when i t voluntarily reduced the foreclosure insurance premium from 2 percent to 1 percent of i n i t i a l . . . 1 mortgage loan principal. There is no reason to believe that liberalizing the gross debt service ratio  w i l l result in an increased rate of foreclosure of N.H.A.  insured mortgages.  However, liberalization of the above constraint would  mean that given any interest rate, many potential low income home purchasers currently denied N.H.A. mortgage financing on the grounds of inadequate income would qualify.  For example, assuming an interest rate of 10 percent  and an annual property tax levy of $270, and further assuming a-:gross debt service ratio of 35 percent rather than 27 percent, although the monthly payment required to amortize an $18,000 mortgage loan over 25 years would remain unchanged at $161.01, the annual income required for home purchase would shrink from $8,155 to $6,291. Adequate current family income data pertaining to Metropolitan Vancouver is not available:  i t is therefore  impossible to predict how many low income Metropolitan Vancouver families would benefit from the above $1,864 reduction in the annual income requirement for home purchase, but no doubt the number would be substantial. ^Central Mortgage and Housing Corporation, Canadian Housing Statistics, The Queen's Printer, Ottawa: March, 1970, p. xvi.  69.  The Interest Rate As noted previously, the main determinant of mortgage loan costs and hence, given the present N.H.A. regulatory framework, of the income required for home purchase, is the interest rate charged.  Given this  fact, i t is logical to state that the most direct method of assisting low income families in home purchase, other than actually granting cash, is through a system of interest rate subsidy. At present N.H.A. financing is theoretically available to a l l home purchasers in Canada, irrespective of income class.  However, as we have  seen, due to the dual effect of the current 27 percent gross debt service ratio and high interest rates, N.H.A. financing is effectively denied to low income families.  Thus we find ourselves in the anomalous situation in  which a government insured mortgage market characterized by favourable borrowing terms with respect to the conventional market exists, but the benefit of these favourable terms is effectively restricted to the middle and upper income classes. The above situation is absurd for two reasons: a) The home ownership aspirations of low income families who, by definition need the most assistance, are being ignored by the government, while b) The benefits of the N.H.A. insured mortgage market are accruing to middle and upper income groups who, by definition, have the least need for financial assistance.  70. The purpose of this section is to suggest a system of interest rate subsidy which would reverse the above described situation and place the benefit of N.H.A. insured mortgage financing where i t rightfully belongs:  with the low income family.  More specifically, this section  proposes a system of financing subsidy which would enable a l l but the lowest family income groups within Metropolitan Vancouver to qualify for the purchase of those homes contained in the lower 46 percent of the 1969 Metropolitan Vancouver housing flow, given current market conditions. The system proposed is characterized by the following salient features: a) N.H.A. insured mortgage financing is rendered unavailable to middle and upper income groups:  only families designated as "low income"  qualify. b) For those families qualifying, the interest subsidy is not uniform but graduated, the graduation being inversely correlated to family income. Table 20 comprises a schedule of monthly amortization costs per $1,000 borrowed at various rates of interest on a mortgage loan having a term of 25 years.  Table 21 illustrates the home purchasing power which  would be enjoyed by the various income groups given a gross debt service ratio of 35 percent, an annual property tax levy of $270, a 25 year mortgage loan, and an interest subsidy inversely correlated to family income. The interest rate chosen for each income class is that which would enable those in the income class in question to approximate as closely as possible  71.  Table 2 0 SCHEDULE OF MONTHLY AMORTIZATION COSTS PER  Annual Rate of Interest  Monthly Amortization Cost per $ 1 , 0 0 0  $1,000  Annual Rate of Interest  BORROWED'  Monthly Amortization Cost per  % of .11  $ 3 . 5 4  67,  $6.39  17.  $3.77  6i;%  $6.69  ik%  $3.99  77,  $7.00  2%  $4.23  7%%  $7.31  2h%  $4.48  87o  $7.63  3%  $4.73  8%7o  $7.95  3h7o  $4.99  47o  $5.26  4%%  $5.53  107»  $ 8 . 9 4  57o  $5.81  10%7c  $9.27  5%%'  $6.10  Source:  7'  •  $1,000  '  •  •  97»  $8.28  9%7o  $8.61  '  P. M. Hummel and C. L. Seeback, Mathematics of Finance (New York: McGraw-Hill Book Company, Inc.,1 9 5 6 ) , pp. 2 6 7 and 3 3 9 et seq.  "Table 20 assumes a mortgage loan term of 25 years.  Table 21 HOME PURCHASING POWER BY INCOME CLASS  Income Class  Monthly Loan Amortization Cost per $1,000  \ of 1%  $3.54  $1,884  $1,983  of 1%  $3.54  $6,003  $6,315  $79.58  7.0%  $7.00  $11,368  $11,966  $131.25  $108.75  •7.0%  $7.00  $15,536  $16,353  $458.33  $160.42  $137.92  8.5%  $7.95  $17,348  $18,261  $541.66  $189.58  $167.08  $8.94  $18,689  $19,673  Maximum Income Which could be Devoted to Debt Service  $81.33  $29 .17  $6.67  $2,000-$3,000  $125.00  $43.75  $21.25  $3,000-$4,000  $291.66  $102 .08  $4,000-$5,000  $375.00  $5,000-$6,000 $6,000-$7,000 Source:  Maximum Loan Inferred Which can be Maximum Serviced Property Price  Annual Interest Rate Charged  Average Monthly Income  <1$2,000  10  Maximum Income Which could be Devoted to Loan Amortization  h  10%  Table 20.  Table 21 assumes a gross debt service ratio of 35 percent, an annual property tax levy of $270, a 25 year mortgage loan term, and an interest subsidy inversely correlated to annual income.  73. the purchasing power required to buy those homes contained in the f i r s t four value classes of the 1969 Metropolitan Vancouver residential property value profile derived in Chapter III.  In general, i t was attempted to  place families in the position of being able to purchase properties f a l l i n g into the same relative position on the residential property value profile as the families themselves occupied in the income d i s t r i bution . Table 21 was constructed in the following manner: a) Each family income class up to and including the $6,000-$7,000 range was listed, together with the average monthly income received by those in each class . b) Because a gross debt service ratio of 35 percent was hypothesized, each monthly income derived was multiplied by .35 to arrive at the maximum monthly income which could be devoted to debt service. c) An annual property tax levy of $270, or $22.50 per month was hypothesized.  Hence $22.50 was deducted from the maximum monthly  income which could be devoted to debt service to arrive at the maximum monthly income which could be devoted to loan amortization. d) For each income class," the interest rate was selected which would as closely as possible enable those families within the income class to purchase properties contained within the relevant value class of the 1969 residential property value profile. e) The maximum income which could be devoted to loan amortization for each income class was then divided by the monthly loan amortization cost per $1,000 borrowed, inferred by the interest rate chosen, to  74. arrive at the maximum mortgage loan which could be serviced by those families within the income class in question, f) Finally, the maximum mortgage loan which could be serviced was divided by .95, (the existing N.H.A. loan/value ratio), to arrive at the inferred maximum price of property which could be purchased under current market conditions, given the hypothetical financing arrangements. From examination of Table 21, two facts are immediately apparent: a) Even given a gross debt service ratio of 35 percent and an essentially interest-free loan, those families having annual incomes of less than $3,000 w i l l not be helped by the proposed plan.  Table 21  reveals that under the proposed plan the families in the lowest two income classes can afford to borrow $1,983 and $6,315 respectively.  Reference to Table 9 reveals that in 1969  the average  value of homes sold with Metropolitan Vancouver in the price range was  <$15,000  $12,230. Thus i t is clear that even under the  most generous lending terms, families in the extreme low income classes within Metropolitan Vancouver cannot afford to purchase their own homes. This is essentially because their incomes are insufficient to repay, over 25 years, even the principal of a loan sufficiently large to enable them to purchase the cheapest home currently available within Metropolitan Vancouver. b) Given a gross debt service ratio of 35 percent, families having an annual income of $6,500 or more can afford to pay an interest rate of 10 percent and at the same time qualify for the purchase  75. of housing in the $20,000 range.  This infers that families having  annual incomes above $7,000 have no real need for N.H.A. insured mortgage financing and should instead be serviced by the conventional market.  This statement, of course, is made in the context  of current market conditions. Should conventional mortgage interest rates continue to spiral as they have done in the recent past, families having annual incomes in excess of $7,000 could conceivably in the future be denied conventional mortgage financing on grounds of inadequate income. Table 22 illustrates the net effect which the proposed plan exerts on the ability of families having annual incomes in the $3,000-$7,000 range to purchase available inexpensive housing.  Assuming the existence  of a 25 year mortgage loan, a 95 percent loan/value ratio, a 35 percent gross debt service ratio, and a current conventional mortgage interest rate approximating 10.5 percent per annum, the illustrated interest subsidy schedule w i l l enable those families having annual incomes between $3,000 and $7,000 to purchase those homes f a l l i n g into the lower 46 percent of the 1969 Metropolitan Vancouver residential property value profile, given current prices. As indicated at the beginning of this chapter, the proposal contained herein is far from a housing panacea. obvious problems follows.  Discussion of the more  Table 22 RELATIVE ABILITY OF LOW INCOME FAMILIES TO PURCHASE AVAILABLE INEXPENSIVE HOUSING UNDER PROPOSED PLAN GIVEN .CURRENT PRICES  Income Class  Interest Rate Charged Per Annum  Maximum Loan Obtainable Under Proposal  Ceiling Price of Property Which Could be Purchased  Present Price by Value Class of Available Property  Maximum N.H.A. Loans Currently Available on These Properties  Maximum Proposed Loan as a Percentage of Available Loan  $3000$4000  7.0%  $11,368  $11,996  $12,230  $11,600  $4000$5000  7.0%  $15,536  $16,353  $16,250  $15,400  100.8%  $5000$6000  8.5%  $17,348  $18,261  $18,750  $17,800  97.4%  $6000$7000  10.0%  $18,689  $19,673  $21,250  $18,000  103.8%  Source:  Table 14.  98%  77. Interest Subsidy Costs There is l i t t l e doubt that the plan described above, i f implemented, would involve considerable cost.  Table 22 proposes an average  annual interest subsidy of 2.5 percent on an average loan of $14,750. This schedule necessitates an approximate dollar subsidy, over a 25 year term, of $7,242 per mortgage application approved.  Moreover, because of  the configuration of the mortgage loan amortization curve, these costs would not be evenly spread over the 25 year term, but would be concentrated in the i n i t i a l years.  The plan, i f instituted, would therefore  entail relatively heavy startup costs.  Because no reliable estimate  exists of the number of low income families who would apply for mortgage financing were the plan to be effected, no reliable estimate of the probable total dollar cost can be made. Nevertheless,  the cost would  no doubt be substantial. In f i s c a l 1969 Central Mortgage and Housing Corporation spent .  2  $12,600,000 on rental subsidies pertaining to public housing projects. If the proposed interest subsidy plan were implemented, no doubt some families currently living in government subsidized rental housing would be enabled to purchase their own housing.  In so far as this is true,  the cost of the proposed plan would represent a reallocation of governmental resources rather than a net increase in cost. Public housing projects induce the following problems in those communities in which they are located: 2  Ibid ., p . 35 .  78. a) The poor are concentrated in specific areas within the community. Therefore residents of public housing projects are denied the benefits of a heterogenous social environment.  Further, because  poor families suffer from a high incidence of divorce, inadequate education and other social i l l s , the schools adjacent to public housing projects tend to be overwhelmed with "problem children." Although the average school can absorb a limited number of "problem children" with no apparent i l l - e f f e c t s , when this limited number is exceeded, the efficiency of the school declines.  The net  result of large numbers of "problem children" devolving upon a particular school is therefore a decrease in the quality of education which the students of that school receive. education is a prerequisite for success in later l i f e .  A sound Therefore  the inadequate schooling resulting from the concentration of the poor in public housing projects tends to perpetuate poverty in the children of the poor. b) Public housing projects are architecturally distinctive; therefore those living in these projects are easily identifiable as "welfare cases."  Such easy identification precludes the poor from escaping  the stigma attached to those receiving government assistance. c) As mentioned previously, poor people living in rental accommodation, albeit subsidized, are denied the privilege of building a home equity. Because they are denied the opportunity of owning property, the relative poverty from which these people suffer is perpetuated.  79 . Several points should be made with reference to the above argument. F i r s t , no rational person would hold that enabling low income groups to purchase housing w i l l solve the "poverty problem."  However, i f low  income families were enabled to purchase, their homes would be indistinguishable from those of their neighbours.  Hence the problem of social  stigma, inherent in public housing projects, would largely disappear. In addition, the poor would be dispersed throughout, rather than concentrated in specific housing projects within,the community.  Hence the  induced problems pertaining to the education of the young would tend to be ameliorated.  Finally, by definition, those low income families  purchasing homes would become property owners, enjoying the benefits of an equity buildup and the inflationary hedge which their properties would represent.  For the above reasons, although enabling the poor to  purchase housing is no panacea, i t certainly appears a necessary f i r s t step in alleviating the condition of the poor. The above is not, however, a c a l l for the complete abolition of public housing.  Earlier in this chapter i t was demonstrated  that there  are some annual incomes which are simply too small, even given the most generous borrowing terms, to repay a 25 year mortgage loan sufficiently large to purchase the least expensive housing currently available within Metropolitan Vancouver.  With respect to this group, there is perhaps no  alternative to public housing.  However, consideration of that question  is beyond the scope of this study. To sum up:  i f the proposed interest subsidy plan were instituted,  i t would no doubt entail heavy cost, particularly in the early years. Due to a lack of data pertaining to potential demand, i t is impossible to forecast with precision the probable cost entailed. However, in so far as low income families currently accommodated in public housing projects were enabled to purchase, the outlay would represent a reallocation of governmental resources currently devoted to rental subsidies rather than a net new cost.  Due to the social problems induced  by public housing, and the promise which low income home ownership bears for the amelioration of these problems, public funds spent on interest subsidies for the poor could yield a high future social return. Administrative Costs The proposed interest subsidy plan is far from immutable.  Because  specific interest subsidies are determined by both the current level of interest rates and the mortgage applicants' income level, the interest subsidies granted w i l l require periodic adjustment.  Such a requirement  presupposes certain administrative costs. The writer has no reliable estimate of either the internal cost structure of Central Mortgage and Housing Corporation or the volume of mortgage applications which would be induced by institution of the proposed interest subsidy plan.  Therefore no reliable estimate can be  made of the plan's administrative cost.  There is no reason to suppose,  however, that the above cost would prove exorbitant.  The interest  subsidy relevant to each mortgage loan outstanding could be adjusted annually.  Such adjustment;would, given adequate information, be a  81.  routine clerical task.  To ensure that adequate income information is  furnished, low income mortgagors could be required to f i l e a statement of income with C.M.H.C. annually.  False income declarations could be  penalized by revocation of mortgage loan coverage.  The administrators  of the proposed interest subsidy plan would, of course, be intimately familiar with the current residential mortgage interest rate at a l l times. Flow of Mortgage Funds N.H.A. insured mortgage loans are currently funded by the private sector. plan.  This would also be the case under the proposed interest subsidy In fact, funding by the private sector is necessary for the  ultimate success of the plan.  This requirement however poses certain  d i f f i c u l t i e s for the plan's successful implementation. Mortgage lenders are notoriously conservative.  The plan described  calls for a relaxation of the gross debt service ratio from 27 percent to 35 percent.  In addition, under the plan, N.H.A. insured financing  w i l l be restricted to low income families. Therefore, the "quality" of insured mortgage loans, measured in terms of "times debt service covered by income," w i l l decline.  Private lenders are likely to disapprove of  this decline in loan quality, and i f this were the sole consideration, we would expect the supply of private funds flowing into N.H.A. insured mortgages to decrease markedly. tion.  This however, is not the sole considera-  Under the proposed plan the government guarantee to fully indemnify  mortgage lenders from loss arising from foreclosure w i l l remain in effect.  82. Further, the private lender w i l l continue to earn the f u l l rate of return • on his investment.  However, instead of deriving the entire interest  revenue from the mortgagor, he w i l l derive part from the mortgagor and part from C.M.H.C. There is a second and more compelling reason why the supply of private funds flowing to N.H.A. insured mortgages w i l l not disappear upon implementation of the proposed plan.  Mortgage lenders, in order to  minimize risk at any given revenue level, typically diversify their mortgage portfolios.  Mortgage loan portfolios are typically divided into  conventional mortgages, (which are the more lucrative), and N.H.A. insured mortgages, (which are the more secure).  Whether or not the  proposed plan is instituted, mortgage lenders w i l l continue to diversify their holdings in the above manner.  If the plan is implemented, mortgage  lenders w i l l have no choice, given that they wish to diversify their holdings, but to approve the available N.H.A. insured mortgage applications. This is unlikely to cause lenders undue distress however, because, as pointed out previously, lenders w i l l remain protected against loss arising from loan default and consequent mortgage foreclosure. In addition, they w i l l continue to earn the f u l l rate of return on their inves tment. Economic Effects In discussing the probable economic effects of the proposed plan, a distinction must be drawn between short run and long run effects. Ironically, the short run result of implementing the plan is likely to  83. be an increase in the price of inexpensive housing.  This w i l l result  from the housing demand of low income groups, heretofore largely ineffective, being exerted on the limited supply of inexpensive housing available within Metropolitan Vancouver,.  It was estimated in Chapter II  that in 1969, 5,576 units or approximately 46 percent of the total . housing flow sold for less than $22,500. This figure of 5,576 units therefore constitutes an approximation of the number of inexpensive housing units which are annually available for sale within Metropolitan Vancouver.  However, as previously stated, no reliable estimate exists  as to the magnitude of the low income housing demand which would be rendered effective through institution of the proposed plan.  Hence,  although prices of inexpensive housing can be expected to rise upon institution of a system of interest subsidy, because of a lack of reliable data, i t is impossible to forecast the magnitude of this price increase. As stated above, institution of an interest subsidy plan would, in the short run, raise the price of inexpensive housing.  However, the  deleterious effect of this temporary price increase could be mitigated by the awarding of differentially generous interest subsidies. Each interest subsidy granted would be annually reviewed.  Therefore dif-  ferentially high interest subsidy costs incurred as a result of the short-run price increase could be curtailed as the price of inexpensive housing declined to an equilibrium level. Although in the short run, institution of the plan would result in an increase in the price of inexpensive housing, this condition would not obtain in the long run.  In the long run, operation of the f i l t e r  84. process would ensure that any a r t i f i c i a l short run price increase stemming from insufficient supply was impermanent.  This follows from  the fact that i f a low income family buys an existing home, the occupying family must s e l l that home. However, the process does not stop there. The family heretofore occupying the sold house must now buy another. Families, when trading homes, typically trade upwards towards higher quality.  Hence the vendor family w i l l probably purchase a home of higher  quality than the one sold.  Once again a family is displaced by reason  of sale, and once again this family w i l l purchase a home of relatively higher quality.  The end result of this purchasing process is that  "terminal families" purchase new housing.  New construction increases  the available stock of housing which, ceteris paribus, tends to depress the prevailing price of a l l value classes of housing.  The above process  continues u n t i l a l l anomalous price increases stemming from excessive demand being exerted upon limited supplies of particular housing classes are eradicated. Given the efficient operation of the f i l t e r process, we would therefore expect that, although in the short run the price of inexpensive housing would increase as a result of implementing an interest subsidy plan, in the long run these temporary increases in price would disappear. The Quality Question This study has presented a financing scheme under which low income families, currently denied mortgage financing by reason of inadequate income, w i l l be granted housing loans sufficiently large to enable them  85. to purchase the least expensive housing currently available within Metropolitan Vancouver.  However, the goal is not to enable low income  families to secure mortgage financing per se, but to enable them to purchase standard detached dwellings within Metropolitan Vancouver. Therefore the crucial question i s , by making mortgage financing available, have we enabled the urban poor of Metropolitan Vancouver to purchase decent housing? The above question can be restated in the following fashion:  do  the least expensive single family dwellings currently available within Metropolitan Vancouver represent "decent housing"? be directly answered by this study.  This question cannot  The sample upon which the analysis  of the 1969 Metropolitan Vancouver housing supply was based comprised approximately 5,600 properties.  However, due to excessive cost, this  sample was never checked with reference to housing quality.  The units  comprising the sample were merely classified on the basis of sales price. It is therefore possible that these housing units in the lower 46 percent of the 1969 Metropolitan Vancouver housing value profile are "substandard" in nature, and by enabling the urban poor to purchase these units, we have done l i t t l e to better their l o t . In 1961, 8,510 detached dwellings or approximately 5.0 percent of the existing Metropolitan Vancouver detached housing stock was classified 3 as "being in need of major structural repair." It is logical to suppose Dominion Bureau of Statistics, 1961 Census of Canada, Population and Housing Characteristics by Census Tract. Vancouver. Ottawa: The Queen's Printer, 1963, p. 21.  86. that the units so described were concentrated in the lower ranges of the 1961 residential property value distribution.  Assuming that the  above percentage remained unchanged during the interval 1961-69, and further assuming that those units in 1969 requiring major structural repair were exclusive to the lower 46 percent of the 1969 Metropolitan Vancouver housing value distribution, we can infer that 10.9 percent of the lower 46 percent of the 1969 Metropolitan Vancouver housing value profile was in need of major structural repair. If the quality of those housing units comprising the lower 46 percent of the current Metropolitan Vancouver property value profile is indeed as low as the above figure would indicate, the goal of the interest subsidy plan may well be subverted.  However, due to the excessive cost  involved, the question of housing quality within Metropolitan Vancouver was of necessity neglected.  Such a study would provide a suitable topic  for some future researcher. Conclus ions 1. Given the present N.H.A. 27 percent maximum gross debt service ratio and current high interest rates, l i t t l e benefit would accrue to low income home purchasers by increasing the present N.H.A. loan maximum of $18,000 pertaining to the purchase of existing properties. 2. The above mentioned maximum N.H.A. gross debt service ratio of 27 percent discriminates against those low income families aspiring towards home ownership.  Further, this low maximum, given  the government foreclosure insurance scheme, appears unnecessary  87. in order to ensure adequate private funding of N.H.A. mortgages. It is therefore recommended that this maximum ratio be increased from 27 percent to 35 percent. 3. In order to render mortgage financing available to low income families, a system of interest subsidy inversely correlated with annual income should be instituted.  Further, an income ceiling  should be established above which families wishing to purchase housing must be serviced by the conventional market. 4. There exist some families whose incomes are insufficient to repay over 25 years even the principal of the maximum mortgage loan •necessary to purchase the cheapest available housing within Metropolitan Vancouver.  The above is true even assuming the existence  of a 35 percent gross debt service ratio.  It is therefore clear  that the proposed interest subsidy plan does nothing to better the lot of those families in the extreme low ranges of the income distribution.  With respect to the accommodation of the above  .described families, there may be no alternative to public housing. However, this question, being beyond the scope of the present study, remains unanswered. 5. No reliable estimate can be made as to the probable interest subsidy costs of the proposed plan, however they are likely to be considerable.  Further, because of the configuration of the mortgage loan  amortization cost curve, the plan w i l l entail relatively heavy . start-up costs. However, in so far as interest subsidies are paid to low income families previously living in public housing projects,  88. the outlay w i l l represent a reallocation of governmental resources rather than a net new cost. 6. There is no reason to believe that the administrative costs of the proposed interest subsidy plan would prove exorbitant. 7. Upon implementation of the proposed interest subsidy plan, given the government's foreclosure insurance scheme and the desire of mortgage lenders to diversify their holdings, there is no reason to believe that the supply of private funds flowing to N.H.A. insured mortgages would decrease markedly. 8. Implementation of the proposed interest subsidy plan w i l l , in the short run, cause an increase in the price of inexpensive  housing.  However, in the long run, given efficient operation of the f i l t e r process, these anomalous price increases w i l l disappear.  A greater  supply of inexpensive housing within Metropolitan Vancouver w i l l result.  This increase in supply w i l l be purchased by those low  income families whose housing demand has been rendered effective •through receipt of an interest subsidy. 9. The plan proposed enables low income families, given current prices, to purchase the cheapest housing currently available within Metropolitan Vancouver. However, no guarantee exists that the homes comprising the lower 46 percent of the Metropolitan Vancouver property value distribution constitute "decent housing."  This  being true, the intent of the proposed plan, to render standard detached dwellings available for purchase by low income families within Metropolitan Vancouver could certainly be subverted.  V  Due to excessive cost involved, investigation of the quality of the Metropolitan Vancouver housing stock was not undertaken. Such an investigation would however, constitute an excellent topic for some future researcher having an interest in the Metropolitan Vancouver housing market.  89.  APPENDIX I  The  f i n d i n g s o f C h a p t e r I I I i n d i c a t e i t i s n e c e s s a r y t h a t no more  t h a n 46 p e r c e n t o f the 1969  Metropolitan  Vancouver f a m i l y  income d i s -  t r i b u t i o n f a l l b e l o w $8,155 per annum i f the lower 46 p e r c e n t o f the Metropolitan  Vancouver h o u s i n g f l o w  lower 46 p e r c e n t o f the f a m i l y i n C h a p t e r I I I t h a t , due  i s t o be  financed  income d i s t r i b u t i o n .  by  f a m i l i e s i n the  I t was  a l s o noted  t o a l a c k o f adequate income d a t a ,  the  existence  o f t h i s n e c e s s a r y c o n d i t i o n c o u l d n e i t h e r be c o n c l u s i v e l y proved disproved.  The  purpose o f t h i s a p p e n d i x i s t o p r e s e n t the  f a m i l y income d a t a ,  and  through a n a l y s i s of these data,  some t e n t a t i v e c o n c l u s i o n s financial  as t o the e x i s t e n c e  during  the  the e s t i m a t e d 1969  to a r r i v e  at  t h r o u g h o u t Canada i n 1965.  derived.  median non-farm f a m i l y  An  assumed t o have  based upon t h i s  assumption,  C a n a d i a n non-farm f a m i l y income d i s t r i b u t i o n ,  non-farm C a n a d i a n f a m i l i e s had  been $6,474.  shows the non-farm  i n income o f 5 p e r c e n t was  i n t e r v a l 1965-69, and  shown i n T a b l e 23, was  the 1969  available  o f t h e above n e c e s s a r y  D.B.S. d a t a ,  income d i s t r i b u t i o n w h i c h o b t a i n e d  average a n n u a l i n c r e a s e obtained  nor  condition.  T a b l e 23, based on p u b l i s h e d family  1969  T a b l e 23 e s t i m a t e s t h a t 61.9 incomes b e l o w $7,000 i n 1969.  also  percent of Further,  income i n Canada i s e s t i m a t e d t o have  T a b l e 23  DISTRIBUTION OF NON FARM FAMILIES BY INCOME CLASS, CANADA  ^^Income Class Year  <$1000  $1000$1999  $2000$2999  $4000$4999  $5000$5999  $6000$6999  $7000$7999  11.3  12.0  10.8  19.2  12.0  100.0 $6049  $5327  11.3  9.6  17.0  21.1  100.0 $7790  $6474  1965  6.6  8.5  8.9  10.5  1969  5.4  8.2  7.6  9.9  Source:  $10000+ T o t a l  $3000$3999  9 .9  Average Income  Dominion Bureau o f S t a t i s t i c s , Incomes o f Non Farm F a m i l i e s and I n d i v i d u a l s i n Canada, S e l e c t e d Y e a r s , 1951-65. Ottawa: The Queen's P r i n t e r , 1967, p. 29.  Med i a n Income  The above estimates infer that, in Canada during 1969,  61.9  percent of a l l non-farm families had annual incomes of less than $7,000 and that 50 percent had annual incomes below $6,474.  On the basis of  these estimates, i t appears likely that the necessary condition of not more than 46 percent of the Metropolitan Vancouver family income distribution falling below $8,155 per annum does not hold.  Consequently,  it does not appear likely that the families falling into the lower 46 percent of the 1969 Metropolitan Vancouver family income distribution could finance the homes falling in to the lower 46 percent of the 1969 Metropolitan Vancouver housing flow under current market conditions. Indeed,, i f we assume that the family incomes in the $7,000-$9,999 income class shown in Table 23 are evenly distributed, the lower 46 percent of the 1969 Metropolitan Vancouver housing flow could have been financed under current N.H.A. requirements by only those families in the top 30 percent of the' estimated 1969 Canadian non-farm family income distribution.  However, the aforementioned income distributions and  income estimates relate to non-farm Canadian families rather than to families within Metropolitan Vancouver.  The possibility therefore exists  that family incomes within Metropolitan Vancouver are sufficiently far above the national average to vitiate the foregoing argument.  This  possibility w i l l be explored later in this appendix. Additional evidence supporting the contention that families f a l l i n g into the lower 46 percent of the 1969 Metropolitan Vancouver family income distribution could not afford to purchase homes f a l l i n g into the lower 46 percent of the 1969 Metropolitan Vancouver housing  93. flow under current market conditions is supplied by Table 24, extracted from the Economic Council of Canada's Fifth Annual Review.  Table 24 DISTRIBUTION OF NON FARM FAMILY INCOME BEFORE TAX Distribution of Total Income 1951  1961  1965  (Percentage) Lowest Income Fifth of Families  6.1  6.6  6.7  Second Fifth  12.9  13.4  13.4  Third Fifth  17.4  18.2  18.0  Fourth Fifth  22.5  23.4  23.5  Top Fifth  41.1  38.4 '  38.4  A l l Families  Source:  100.0  100.0  100.0  Economic Council of Canada Fifth Annual Review: The Challenge of Growth and Change, Ottawa: The Queen's Printer, 1968, p. 107.  Table 24 reveals that in 1965 throughout Canada, families falling into the lower 60 percent of the income distribution shared only 38.1 percent of total income.  Table 24 further reveals that this asymmetric  income distribution has been remarkably stable over the 14 year period 1951-1965.  Given a condition of marked asymmetry, i t is clear that  those families in the lower ranges of the income distribution are at a  94. severe disadvantage when competing with those in the upper ranges for the purchase of an expensive good, such as a detached dwelling.  This  is especially true when purchase is governed by rigid regulations such as those of N.H.A. There is no reason to believe that the aforementioned asymmetry has decreased during the period 1965-69.  Further, there is no reason  why this asymmetry should not characterize Metropolitan Vancouver in addition to the nation as a whole.  Consequently, there is serious doubt  as to the ability of low income families to purchase standard detached, housing within Metropolitan Vancouver under current market conditions. Table 25 comprises the most direct measure of the 1969 family income distribution which obtained within Metropolitan Vancouver. However, Table 25 reports disposable rather than gross income.  If we  assume that disposable income averaged 80 percent of gross income within Metropolitan Vancouver during 1969, and that the effect of transfer payments was accounted for in the construction of the table, Table 25 reveals that 71.3 percent of Metropolitan Vancouver families received gross incomes of less than $10,000 in 1969. In light of the previously discussed asymmetry of the underlying income distribution, i t is unlikely that less than 46 percent of Metropolitan Vancouver families received incomes below $8,155 in 1969 i f 71.3 percent received an income of less that $10,000. From examination of Table 25 i t might appear that because the average 1969 Metropolitan Vancouver family disposable income was $8,180,  95.  Table 25 DISTRIBUTION OF FAMILY DISPOSABLE INCOME METROPOLITAN VANCOUVER 1969 (Percentage)  0-$2999  $3000-$4999  $5000-$7999  $8000-$9999  9.9  22.0  41.2  14.2  Source:  $10000+  12.7  Total  Average Income  100.0 $8,180  Sales Management: The Marketing Magazine, Vol. 102, No. June 10, 1969, p. E44.  12,  that the "average" Metropolitan Vancouver family satisfied the minimum $8,155 gross income constraint required to finance those homes within the lower 46 percent of the 1969 Metropolitan Vancouver housing supply. This condition is however, more apparent than real.  As Table 24 shows,  the Canadian family income distribution is markedly asymmetric, therefore any figure purporting to show "average" income is of limited value.  A  more meaningful figure, given asymmetry, would be median family income; the income below which exactly 50 percent of Metropolitan Vancouver families f a l l . Management:  Unfortunately this figure is not published by Sales  The Marketing Magazine.  The income data examined in this appendix are necessarily far from ideal.  As stated in Chapter III, adequate data showing the current  96. f a m i l y income d i s t r i b u t i o n w i t h i n M e t r o p o l i t a n Vancouver a r e s i m p l y n o t available.  However, t h e d a t a examined, a l t h o u g h f r a g m e n t a r y , a l l  indicate  t h a t low income r e c i p i e n t s t y p i c a l l y cannot p u r c h a s e s t a n d a r d d e t a c h e d h o u s i n g w i t h i n M e t r o p o l i t a n Vancouver under c u r r e n t market  conditions.  CONCLUSIONS  The current value distribution of detached housing within Metropolitan Vancouver is such that, given current conditions, home purchase cannot be effected by a l l families.  Due to their relatively weak  purchasing power, low income families, as expected, are in the most disadvantageous position.  Although, due to a lack of adequate data,  this relative disadvantage could not be directly proven, a l l available evidence emphasizes i t s existence. To deny the urban poor the privilege of home ownership within a flourishing local economy is both inequitable and costly.  The inequity  is obvious and requires no further explanation; however, why is denial of home purchase to low income families costly?  The fundamental reason  stems from the self-perpetuating nature of poverty.  If we continue to  segregate low income families in public housing projects and effectively remove them from the mainstream of community l i f e , we w i l l certainly be faced with a greater "poverty problem" in the future.  The alternative  is, of course, to assist low income families to purchase their homes. The financing scheme suggested in Chapter IV demonstrates how home purchase among low income families may be f a c i l i t a t e d .  The scheme  comprises alteration of existing N.H.A. home financing regulations coupled with the granting, to eligible applicants, of a mortgage interest subsidy inversely correlated to annual income.  Although far from a panacea, this  scheme promises to at least weaken the pervasive effects of urban poverty.  GLOSSARY OF ABBREVIATIONS  Burnaby New Westminster Surrey Richmond Port Moody Port Coquitlam Coquitlam Delta Vancouver City North Vancouver West Vancouver  BIBLIOGRAPHY Canada. Dominion Bureau of Statistics. Incomes of Non-Farm Families and Individuals in Canada, Selected Years, 1951-65. Ottawa: The Queen's Printer, 1967. . 1961 Census of Canada. Population and Housing Characteristics by Census Tract. Vancouver. Ottawa: The Queen's Printer, 1963. Central Mortgage and Housing Corporation. Ottawa: The Queen's Printer, 1970.  Canadian Housing Statistics.  Economic Council of Canada. Fifth Annual Review: The Challenge of Growth and Change. Ottawa: The Queen's Printer, 1968. Financial Publishing Company. Monthly Amortized Mortgage Payments. Boston: The Financial Publishing Company, 1965. Greater Vancouver Real Estate Board. Multiple Listing Sales Data pertaining to Metropolitan Vancouver during quarters 1 and 3 of 1969. (unpublished). Hummel, P. M. and Seebeck, C. L. Mathematics of Finance. McGraw-Hill Book Company Inc., 1956.  New York:  Teela Publications Inc. Teela Market Survey: Metropolitan Vancouver and New Westminster County. Toronto: Teela Publications Inc., 1969. White, P. H. Prologue to an Analysis of the Residential Mortgage Market in Vancouver. Vancouver: The University of British Columbia, 1965. (unpublished).  

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