I was reading CBC news online the other day and an article caught my eye. The title was “70% of pre-tax income needed to buy home in Vancouver“. I had to take a double take because it said 70% of PRE-TAX income. I mean, after taxes, what does that leave you with? Another question is, how did these people get qualified in the first place? In my article, Qualifying for a Mortgage, banks require that your household expenses not exceed 32% of your gross income!

For our specific situation, we will have a Gross Debt Service Ratio (GDS) of around 17%-18% for our new home, and I’m already feeling the pinch! ;)

What I also found interesting about the article were the pre-tax income required stats for other parts of the country. 43% in Toronto, 40% in Calgary, 35.4% in Montreal and 30.5% in Ottawa.

I think it would be interesting to see some GDS stats and city of some of the home owner readers if you don’t mind posting them in the comments.

You can read snippets of the article below:

… If you can live on 30 per cent of your pre-tax household income, RBC Economics says you can afford to own a home in Vancouver.

… shows you’ll need most of the other 70 per cent just to pay the mortgage, utilities and taxes on a two-storey home in one of the country’s hottest real estate markets. The survey also shows that two-storey homes are comparatively more affordable in Vancouver, thanks to levelling prices. But the same can’t be said for the city’s bungalow, townhouse or condo markets.

… prices in those markets continue to rise as buyers focus on smaller properties as their only affordable option. And despite moderating prices for single detached homes, the survey reveals home ownership in Vancouver remains dramatically more expensive than anywhere else in Canada. RBC’s numbers show 43 per cent of pre-tax income is needed to meet mortgage payments, utilities and property taxes in Toronto, 40 per cent in Calgary, 35.4 per cent in Montreal and just 30.5 per cent in Ottawa.


  1. AJ - IAmFacingMillions.com on July 4, 2007 at 5:07 am

    Wow, I’m shocked. I’m in the U.S. rather than in Canada and here I believe it’s customary to accept to about 50% of pre-tax income. I think that is probably a pinch for most people who are not well disciplined. I’m going through the process of buying a townhouse right now and am trying to stay as far below that number as I possibly can.

  2. FourPillars on July 4, 2007 at 7:41 am

    I live in Toronto and our GDS is around 25%. This figure is a bit arbitrary however because the mortgage amount is dependant on the amortization term.


  3. FrugalTrader on July 4, 2007 at 7:51 am

    AJ, what part of the U.S are you from? Wht are housing prices like?

    FP, Toronto is expensive! I have a lot of family in Toronto, and the prices that they pay are crazy. Nice houses though. :)

  4. The Financial Blogger on July 4, 2007 at 9:12 am

    I live on Montreal’ south sore and my mortgage payment represents 19% of our income. My TDSR is around 35%. I feel comfortable with it as I’m making extra payments on my HELOC. There is still room for other expenses then.

    Most young people in Vancouver get their parents help to put a decent cash down on their first home. Where can you go with a 30K cash down when the smallest houses are starting at 400K?

  5. FrugalTrader on July 4, 2007 at 9:14 am

    FB, is the South Montreal an expensive area? What are the starting prices like for a 2 story with garage?

  6. Investoid on July 4, 2007 at 10:24 am

    There are many blogs out there discussing the craziness of Vancouver house prices (this one is pretty good – http://langley-financial-planning.blogspot.com/). If only you can live off your taxes, eh? Then living in Vancouver would be an ideal situation :-)

    The rental prices in Vancouver aren’t commensurate with the ownership costs, thus making Vancouver a great place to rent and not own. This phenomenon might correct itself over time, but with demographic trends, the Olympics, etc., etc. it may not for awhile. At some point people will ask themselves though “why the heck am I spending so much on a place I could rent for 1/2 – 1/3 the amount?”. At that point all thoughts of capital appreciation are out the window and a crash or soft landing ensues.

  7. Matteh on July 4, 2007 at 10:45 am

    I live in Milton (bedroom community outside of Toronto) and my mortgage + taxes + utilities comes in around 22% of my household net income (after tax dollars). I couldn’t imagine living in Vancouver and having to put up with that real estate market.

  8. FinancialJungle.com on July 4, 2007 at 1:46 pm

    Sold my home and became a renter in Dec 2006. If I remember correctly, when I first bought 4 years ago, the affordability index was only 50%.

  9. Warren on July 4, 2007 at 1:54 pm

    I own a rental apartment in Vancouver (purchased 7 years ago), and rent my own residence. It makes no sense to buy. If I were to re-buy my own apartment now my mortgage would double, and my rental income would only cover 50% instead of 100%.

    My landlord has not raised the rent on my own place in 4 years, it would be insane of me to purchase the same place I live in. Instead I save my money and wait for the inevitable drop.

  10. Soultrance on July 4, 2007 at 2:03 pm

    I live in Vancouver with my wife, I’m 23 and we’re just getting our start into life as a couple. I make reasonable money, my wife not so much at the moment and the prospects of every being able to buy a house in this city are pretty scary.

    Maybe once I get my student loans and credit line paid off we’ll be able to start saving and, who knows, maybe 20 years down the line we’ll be able to afford a 450 sqft condo in the BAD part of Surrey. :P


  11. Qubikal on July 4, 2007 at 2:20 pm

    We bought the typical “Vancouver special 2 story house” 2 years ago. If you have the equity up front for the down payment, it becomes a great investment because you have the mortgage helper suites that you can rent out below. Of course, it’s very tough to come up with the down payment of 25% if you want to avoid the CMHC fees.

    On a before tax basis, the rent that is collected $ is close to 1/2 your mortgage payment, which helps out very nicely.

    Without the rent money, my GDS is about 36% – which means that i’m living very poorly… with the rent money, the GDS is at 24% or so…

  12. FrugalTrader on July 4, 2007 at 2:25 pm

    Seems to be quite the few readers from Vancouver! How much is a typical condo in downtown Vancouver?

  13. The Financial Blogger on July 4, 2007 at 2:27 pm

    FT, Montreal south sore is one of the cheapest area around Montreal. To give you an idea, back in November, I paid 255K for a 28X29 2002 cottage with attached garage, outground pool, land is 6000 sqf. One of my neighbour is selling for 309K right now.

    I work with Western market right now and the same house would probably sell over 700k in Surrey BC per example. This is just crazy !

  14. Warren on July 4, 2007 at 2:30 pm

    Well I think its a hot topic in Vancouver so you get a lot of input from around here. :)

    Typical downtown prices start at around $550/sf and go up to $1000/sf for the best quality places in the most desirable neighbourhoods. So for a decently big 1000sf place you’re looking at $550k-$1m.

  15. FrugalTrader on July 4, 2007 at 2:32 pm

    Those are some sick prices Warren. Even if I could afford to buy @ those prices, I wouldn’t just for principles sake. :)

  16. canadiandollars on July 4, 2007 at 2:42 pm

    sorry but what’s the income they’re talking about. It’s not mentioned in the article. Without that vital piece of information, IMO the article is hack journalism at best.

  17. Warren on July 4, 2007 at 2:42 pm

    Exactly. To provide specific details on what I mentioned earlier, I could re-buy my current rental property for around $260k (its a very small studio), and have a mortgage of $1700 or so. But I could only get $950 in rental income, so why not rent that same place and bank/invest the $750? Its madness! :)

  18. FinancialJungle.com on July 4, 2007 at 3:17 pm

    The specific details isn’t essential as long as the methodology used to collect the data is consistent for all cities and all time frames. The trend is clear that Vancouver is becoming less affordable than other Canadian cities, and relative to itself in the past.

  19. Qubikal on July 4, 2007 at 6:05 pm

    It’s not just the housing prices that are increasing that’s the problem… it’s really the increase in housing prices relative to non-increase in wages!!

    I don’t have the stats, but housing prices in Edmonton and Calgary over the last two years have increase more significantly than Vancouver; but the average salary in the oil industry has also gone up to support the housing increases.

  20. ThickenMyWallet on July 4, 2007 at 6:32 pm

    Can someone in Vancouver explain why this is happening? I was under the impression that population growth was modest but not crazy.

    For years, Vancouver was called Hong-couver for the large Hong Kong ex-pat community. Now the city has Hong Kong style real estate prices!

  21. Warren on July 4, 2007 at 6:40 pm

    There are many explanations, but income growth is low, population growth is moderate (far less than the 90s and the Hong Kong influx of people and money), so I’m going to say psychology, speculation, marketing, hype over the Olympics. The real fundamentals aren’t supporting the boom, and will probably lead to a bigger bust.

  22. Gates VP on July 4, 2007 at 7:23 pm

    Hey Qubikal and some others, I’m a new Edmontonian (last 6 months) and I can tell you that the housing prices are kind of crazy.

    And you’re right about the oil money, but only somewhat. You see, we’re undergoing some massive growing pains right now. The Edmonton rental market is getting out of a decades-long slump and now apartments everywhere are full and the renters are jacking up the prices. One bedroom apartments in non-prime locations are going for 1000+ / month.

    So even though every McWorker is bringing in $10/hour, they’re not doing much better than than those in Manitoba bringing in $8/hour and renting for $600/month. So wage increases are matching housing prices increases (and vice-versa) creating a kind of parity.

    So Edmontonians home buyers are a little less crazy than Vancouverites home buyers, but the situation is still a little out of hand. Making 80k here instead of 65k in say Saskatchewan, doesn’t really justify the difference between the 300k Edmonton home vs. the 100k SK home. In fact, given the serious issues with build quality over the last few years in Edmonton, that SK home is probably a safer bet.

    As to those Vancouverites? Well, they’re making a serious “lifestyle” decision to own a Vancouver home, b/c there is little inherent value to a Vancouver home that makes it worth 4 times as much :)

  23. nobleea on July 4, 2007 at 7:38 pm

    Prices in Edmonton are going to slow down soon for most areas. There’s 3-4 times the amount of inventory for sale than there was a few months ago. Even now, some new condo developments are including buyers incentives to try and sell some units (like a free 46″ TV or hardwood) because they just aren’t selling (at least not at the inflated prices they were asking). I notice a lot more For Sale signs out these days. Rents should sort themselves out because renting is usually a financial decision. Buying a home is usually only partly driven by financial considerations.

    Edmonton has been historically cheap and most of the price run up was a realignment to match the big city status. But speculators and emotions are running it up higher than it should be.

    I also see a lot of ads for Saskatchewan extolling the virtues and cheap land.

  24. nobleea on July 4, 2007 at 7:43 pm

    PS, my GDS is a shade over 18% in Edmonton (condo), but I bought a few months before the big runup last year.

    Depending on the area and type of housing, it’s $320-$600/sqft here.

  25. moneygardener on July 4, 2007 at 7:55 pm

    My GDS = 12% – Brantford, Ontario

  26. bootsie on July 4, 2007 at 8:03 pm

    Our GDS is ~10% (where does all our money go?!?! ;)). We live in Windsor, ON.

  27. lrempel on July 5, 2007 at 5:23 pm

    My husband and I purchased a house in Richmond (suburb of Vancouver) in Feb 2006. We purchased it joint with my husband’s aunt because there was no way we could afford to buy a house ourselves. The house is ~2400sqft (and almost 40yrs old) and we purchased it for $533K (our portion was $266500). It could easily sell now for $600K+. Currently, our GDS is 26%, so I can’t imagine if we owned the whole place (GDS of 52%!!).

  28. mjw2005 on July 21, 2007 at 9:55 pm

    We live in Vancouver. We are a working-class family and bring in an annual income of around $95,000 a year. I have run the numbers and there is just no way we can afford to buy any house in Vancouver and probably most condo’s in Vancouver and still save for Retirement or have any sort of life as almost all our income would be sucked into basic living and paying a monster mortgage.

    Instead I have adopted the strategy of renting in a very nice downtown location for about $900.00 a month and saving and investing the difference that I would be paying in a mortage. Maybe one day there will be a market correction…that is when I will buy….

    Why are prices so high….well it is not the wages…the average working person I would say earns from $35,000 – $65,000…I think it is because Vancouver is a nice place to live and I see a lot of wealthy foreign buyers buying up properties as a summer place or a secondary property. Vancouver prices are still reasonable when compared to New York or London. The only problem is that the average workers wages are stuck at levels more in-line with places like Winnipeg or Hamilton…

  29. Gates VP on July 23, 2007 at 8:17 pm

    Hey nobleea;

    renting is usually a financial decision. Buying a home is usually only partly driven by financial considerations.

    Couldn’t have put it better.

    I’m seeing the same stuff in Edmonton, tons of new places, but I knew that it had to happen b/c the economy was going to burst. I don’t think that prices are going to suppress back down to 5 years ago, but they will drop 5% off January’s highs. We’ll see how long the madness lasts though. We may have solved the “home crisis” for this upcoming year, but the real issue here is getting rents that are affordable for “the masses”. Starting Tim Horton’s at $11/hour doesn’t do anything when the rents all cost 1000+.

    With house prices where they are, rent will either go down (and be a bargain) or businesses will be forced to jack up prices ($2 for an XL double-double) to keep up with wage increases.

    It sounds like Saskatchewan is already growing pretty strong, it’s definitely being advertised as a bargain, and Edmontonians who bought in the last few years just won the housing lottery, but only if they’re willing to move elsewhere and cash in their gains :)

  30. […] 70% of Gross Income Needed for Vancouver Homes! (29 comments) […]

  31. Andrew on August 9, 2007 at 3:32 pm

    My wife and I live in Vancouver, and are currently scouting to buy a home. We’re very fortunate in that we have zero debt. On the other hand, we’re self-employed freelancers in the film/TV biz (writers), so our household income, well, let’s just say it tends to “sway”. It always shapes up to a decent haul at the end of the year, but sometimes nobody’s making a dime between contracts. Not for the faint of heart!

    Our criteria is to try and pay the same mortgage-only amount that we’re already paying in rent ($1600 for the main floor of a house in central Vancouver). Doing this does seem quite feasable if we were to find a bungalow or small 2-level that has a basement suite rental (the vacancy rate here is quite low) in up-and-coming central neighborhoods. Decently-maintained homes like that, in those neighborhoods, are asking, very roughly, $580K – $715K.

    I think it’s important to keep in mind that as an investor-slash-proud homeowner, one isn’t about to buy just anywhere in “Vancouver”, or in any city for that matter, but of course one tries to find the best potential value by buying in relatively underpriced micro locations that are likely to grow and become more desireable. My sense is that locations that are already very (okay, insanely) expensive–can you say, “Kitsilano”?–are in a way riskier. I mean, I’ve seen houses a few blocks west of Main that are comparable to ones a few blocks east of Main, yet their asking price is $100K more! Which side of the street would you buy on? I also have a sense that the condo market has pretty much reached a glut-level supply, and is looking vulnerable to a correction.

    On the other hand, a great screenwriter once said about making successful movies, “Nobody knows anything”, and I think that’s probably applicable to making pronouncements about Vancouver real estate. I think a more accurate comparison than NY or London is San Francisco: we’re a peninsula, the climate’s mild, the growing season’s long, the outdoor pursuits are endless, the natural environment is stunning. Our realtor tells us that Albertans are investing in houses here, which is adding to demand. Who really knows what effect the Olympics will have on the market–the only thing certain is we’ll get a lot of new rec. facilities out of it.

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