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Real estate is seen in downtown Vancouver, Oct. 16, 2012.

Rafal Gerszak/The Globe and Mail

Vancouver has again ranked second in an international listing of the world's most unaffordable markets, but the city's affordability has improved while Toronto's worsened.

The ranking comes from Demographia, a U.S.-based urban policy consulting firm that opposes government policies containing urban sprawl (such as smart growth and densification plans), and argues that they lead to higher house prices by decreasing the supply of land. It released its ninth annual international housing affordability survey on Monday, which compares markets in Canada, Australia, Hong Kong, Ireland, New Zealand, the U.K. and the U.S. based on data up to September, 2012.

The survey ranks cities by taking median house prices and dividing them by gross before-tax annual median household income, to measure affordability. (The authors argue that it's a better measure than those that incorporate mortgage rates, because interest rates can vary over the term of a mortgage while the price paid for the house does not).

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It found that Detroit, where the economy is depressed, was the most affordable major market. All 20 major markets that fell into the "affordable" category were American.

On the flip side, Hong Kong was the most unaffordable major market, followed by Vancouver and Sydney.

A measure of 5.1 or greater places a city in the seriously unaffordable category. This time around Vancouver saw its measure fall from 10.6 to 9.5. "It's still dreadful," said Wendell Cox, a co-author of the survey, adding that it needs to drop much further.

Calgary saw its measure rise from 3.9 to 4.3. Toronto saw its measure rise from 5.1 to 5.9. Mr. Cox, who attributes Toronto's rise to provincial smart growth policies, said the city had a measure of 3.9 in 2004.

Indeed, he said that Canada ranked the most affordable of the six countries that are surveyed back in 2004, but has seen the greatest deterioration in affordability since then.

While the U.S. and Ireland saw house prices crash around 2008, Canadian prices have for the most part maintained an upward trajectory.

"Canada's deteriorating housing affordability was led by large house price increases relative to incomes in Toronto (50 per cent), Montreal (65 per cent) and Vancouver (80 per cent) since 2004," the Demographia report says. It argues that the recent adoption of more stringent urban containment regulations in Montreal could retard housing affordability in that city even more in the future.

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"As housing affordability has deteriorated (globally), there has been a tendency on the part of housing industry and financial market analysts to 'cheer on' abnormally high house price increases as if housing were a commodity, like gold," the report says. "Housing is much different. It is a basic necessity and adequate, comfortable housing is necessary for a decent standard of living. … The genuine measure of a housing market's performance is the extent to which it remains affordable in a well functioning metropolitan economy," it argues.

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