Rising home prices are often treated as a sign of prosperity, but they also drive a wedge between the rich and the poor.
In its Vital Signs 2010 report, Community Foundations of Canada has asked the question: “How much ‘house’ can Canadians afford?” Well, it all depends on your income, your down payment and mortgage interest rates, as well as the cost of the house.
And today, the average price for a house is 4.1 times the annual median family income, up from 3.1 times in 1995.
Broad averages like these hide many diverse stories. Some people can afford to spend $1 million on a house, others can’t make next month’s rent.
Benjamin Tal of CIBC Economics[i] says that the most vulnerable groups are those who live on less than $50,000 a year. If they own a house, and not many of them do, he estimates that they are paying 51% of their gross income on mortgage payments plus hydro and property taxes. In contrast, people with incomes over $50,000 pay an average of 24% of gross income.
The Community Foundation of Ottawa has demonstrated the wedge between rich and poor in its Vital Signs 2010[ii] report. Ottawa, like many other cities large and small, has a serious shortage of affordable housing, specifically apartments with rent geared to income.
For a family of four on social assistance (Ontario Works), for example, monthly assistance amounts to $1,844. This is not enough to cover the average monthly rent for a 3 bedroom apartment ($1,257) plus a nutritious food basket ($735). The family therefore has to choose between lower quality housing and being able to cover costs of food, transit and other necessities.
A lot of working Canadians face the same dilemma. Almost half of the people on low income in Ottawa do not receive Ontario Works benefits – they are the working poor. Their wages, even when they work 49 weeks a year, don’t cover basic shelter, food and necessities. Many depend on the food bank to get through the month.
These are untenable choices for families. The underlying problem is that Ottawa has a waiting list of 10,000 families looking for affordable housing but has only built an average of 164 new units per year over the past decade.
Real estate developers don’t build affordable housing because it is not a profitable business. Governments have reduced their contributions to this kind of housing, and not-for-profits, which are ready and able to build, don’t have access to capital.
This puts Canadians to a test. Do we let this gap between rich and poor continue to grow? Or can we get creative? Surely financial innovation plus a social conscience can free up resources to build more stable, decent and affordable housing.
Tom Carter[iii] Canada Research Chair at the University of Winnipeg, says that good housing plays a stabilizing and facilitating role in the community. It improves:
- Physical and mental health
- Educational attainment
- Family life and social interaction
- Income security
- Labour force attachment
- Integration of immigrants, and
- Community development
Sounds like a good investment to me.
Judith Maxwell is the former Chair of the Economic Council of Canada, and Founding President of Canadian Policy Research Networks.
[i] Benjamin Tal, Consumer Watch Canada, “Assessing Vulnerabilities in the Canadian Housing Market,” CIBC Economics, May 25, 2010.
[ii] Community Foundation of Ottawa, Ottawa’s Vital Signs, 2010.
[iii] Tom Carter and Chesya Polevychok, Housing is Good Social Policy, Canadian Policy Research Networks, 2004.