Vancouver regularly tops the list of most unaffordable cities to buy a home in Canada. But it can hold its own on the international stage, too.

Urban planning policy experts at Demographia put out an annual list ranking metropolitan markets in eight countries, and the latest snapshot places Vancouver in the number two spot––second only to Hong Kong, which has been the “reigning champ” for nearly a decade. Vancouver placed third for the last three years before this. It’s worth noting that Toronto is the 11th least affordable city in the world, according to the report.

Vancouver’s ascent on the list comes despite government policies targeting foreign buyers and a tightening of federal rules to qualify for a mortgage––which, along with interest rates creeping higher over the last 18 months, have cooled the once red-hot housing market. The problem, however, according to Demographia, is that these measures have hit the ultra-expensive properties but haven’t made as much of a dent on the middle.

For example, the most expensive home in the area belongs to Lululemon founder Chip Wilson. It saw a $5.7 million decrease in its assessment value last year, to $73.1 million, because of the housing market slowdown, which hit pricey detached homes. Vancouver is an outlier in Canada in that one in every four homes is valued at $3 million or more, which are the target of a new provincial tax.

Demographia focuses on the middle-range, as opposed to the average which can be skewed by a large number of super expensive properties. Urban policy analyst Wendell Cox, who compiled Demographia’s report, told VICE it measures housing affordability by looking at the relationship between the median house price and median income, using estimates “based on published data and other publicly-available data from the government such as Statistics Canada and industry reports.”

According to the report, this Price-Income-Ratio (PIR) is like a “periodic health check-up taken by an individual: an abnormally high blood pressure indicates that urgent correcting steps should be taken.” In other words, it’s not supposed to be a full medical diagnosis, but more of a red flag suggesting that “something is wrong in the real estate supply system.”

But Demographia’s methodology doesn’t paint a complete picture. The Canada Mortgage and Housing Corporation (CMHC) told VICE that its analysts describe Vancouver as “overvalued” because of several factors. CMHC assesses many things to gauge affordability, including how accessible “adequate housing” is to most people, meaning homes with costs of less than 30 percent of household income, with enough bedrooms for the number of people who will live there.

RBC, like CMHC, has warned of rampant overvaluation in the Vancouver market. Senior economist Robert Hogue recently wrote a report describing the situation in Vancouver as “affordability at crisis levels.” This doesn’t necessarily mean that people who currently own homes are in trouble with rising interest rates, but rather that the rising cost of home ownership in both Vancouver and Toronto “makes it nearly impossible for some buyers, often young households, to enter these housing markets.”

Economists at RBC and other experts VICE connected with, prefer to look at the cost of ownership (mortgage payments, property taxes and utilities) rather than just home prices to get an accurate read on affordability. Hogue tells VICE “it’s a better measure for all housing markets because part of the reason why house prices have risen since the global financial crisis is that interest rates have fallen, which makes it cheaper to own a house.” By looking at how much it costs to service a mortgage relative to income, this method strips out the distorting impact that ultra-low interest rates have created over the last decade–– the PIR method can make things seem more affordable than they actually are.

Hogue cites the fact that to cover ownership costs for the average home in Vancouver and clear the mortgage stress test, prospective buyers have to make at least $211,000. That’s significantly higher than the qualifying income of $167,000 in Toronto and $154,000 in Victoria. He doesn’t expect “meaningful affordability relief” in the coming months.

Capital Economics housing expert Stephen Brown, on the other hand, sees the light at the end of the affordability tunnel for people hoping to get into the Vancouver market. He’s a senior economist looking at the number of housing units under construction relative to the number of people who live there. By Brown’s calculations, Vancouver is on a path to oversupply––currently building 1.2 new units for every person in the city, and most of the new homes are condos, as opposed to mansions. When there’s more housing available than needed, prices typically come down.

Brown is forecasting “further falls in prices” for the Lower Mainland towards the end of this year. If he’s right, affordability in Vancouver will improve and, maybe, it can give up its number two spot on the list of least affordable places to live on earth.

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