May 2000 Fraser Forum: Shelter Costs and the Poor
It is commonly claimed that the poor are hungry because of the high cost of rental accommodation. From this view, living in poverty means having to spend inordinate amounts on shelter, leaving little for the other necessities of life. Such claims are frequently encountered in news stories about the poor.
Are such claims true? Do Canada's poor spend excessively on shelter? Or is this just another popular myth?
To examine this question, I have employed the basic-needs poverty lines as the appropriate threshold for poverty. Among the various measures used to determine poverty in Canada, the basic-needs lines are the ones that focus on real deprivation, and hence are the lowest. Most other measures are really indicators of inequality and not poverty as the term is generally understood.
I have estimated that in 1996 about 2 million Canadians had incomes that put them below the basic-needs poverty lines. This was roughly 7 percent of the population.
Statistics Canada's Family Expenditure survey (FAMEX) provides useful details about the shelter costs of Canadians, details that are not easily available elsewhere. According to the 1996 FAMEX survey, 80 percent of poor households lived in rented accommodation. However, fully 14 percent were mortgage-free home owners. Overall, whether they were renters or home owners, poor households spent, on average, $5,430 on accommodation in 1996, which is only $453 per month. Poor households spent a further $64 per month, on average, for services (such as water, sewage, fuel, electricity, and rental of heating equipment).
The vast majority of poor households living in rented accommodation spent $4,641 per annum, or about $387 per month, on average, in 1996 on rented quarters (which includes any tenants' maintenance, repairs and insurance premiums). Add to this about $46 monthly, on average, for services, and the average monthly spending by poor households on rental accommodation in 1996 was roughly $433.
This is hardly a huge expenditure and is certainly not sufficient, on average, to crowd out other necessities. But, of course, it is just an average, and averages can conceal a lot. What can be said about most poor renters? It is the case that fully 73 percent of them spent less than $500 per month on rented quarters. And only 8 percent spent more than $667 per month on rented quarters.
These facts about shelter costs and the poor are in conflict with the view, popular in the media, that the poor spend excessively on accommodation. In reality, spending on shelter, and especially on rented shelter, by poor households is really quite modest.
However, it is true that the poor spend a higher proportion of their budget on shelter than the non-poor. Over the years, shelter costs have typically accounted for about one-third of total spending by poor households, whereas for non-poor households, the ratio has been about one-quarter, on average.
Table 1 shows the proportions paid for shelter by all households in Canada, by income levels, for 1996. Except for households with incomes below $5,000, the inverse relationship between income level and ratio of shelter costs to overall consumption is very solid. In other words, except for the very "poorest" households, people tend to spend a lower proportion of income on shelter the higher is their income.
| Income Range | Number of Households | Average Household Size | Average Annual Shelter Cost ($) (Principal Accom.) | Average Annual Consumption ($) | Ratio: Shelter Cost to Consumption |
|---|---|---|---|---|---|
| Less than $5,000 | 64,167 | 1.74 | 7,033 | 23,192 | 0.303 |
| $5,000-$7,500 | 142,780 | 1.18 | 4,194 | 10,483 | 0.400 |
| $7,500-$10,000 | 296,904 | 1.36 | 4,001 | 10,734 | 0.373 |
| $10,000-$12,500 | 390,269 | 1.43 | 4,730 | 13,127 | 0.360 |
| $12,500-$15,000 | 498,457 | 1.64 | 5,416 | 14,720 | 0.368 |
| $15,000-$17,500 | 406,055 | 1.84 | 5,861 | 17,194 | 0.341 |
| $17,500-$20,000 | 383,185 | 2.08 | 5,760 | 19,268 | 0.299 |
| $20,000-$22,500 | 420,746 | 1.96 | 5,968 | 19,286 | 0.309 |
| $22,500-$25,000 | 375,949 | 2.12 | 6,317 | 22,125 | 0.286 |
| $25,000-$27,500 | 358,954 | 2.25 | 6,361 | 23,778 | 0.268 |
| $27,500-$30,000 | 363,713 | 2.15 | 6,493 | 25,009 | 0.260 |
| $30,000-$35,000 | 679,455 | 2.39 | 6,756 | 26,618 | 0.254 |
| $35,000-$40,000 | 716,215 | 2.41 | 7,299 | 28,812 | 0.253 |
| $40,000-$45,000 | 654,424 | 2.70 | 7,704 | 31,686 | 0.243 |
| $45,000-$50,000 | 603,957 | 2.82 | 8,079 | 34,120 | 0.237 |
| $50,000-$55,000 | 604,068 | 2.84 | 8,382 | 36,446 | 0.230 |
| $55,000-$60,000 | 507,349 | 3.03 | 9,139 | 38,453 | 0.238 |
| $60,000-$70,000 | 912,399 | 3.16 | 9,623 | 42,055 | 0.229 |
| $70,000-$80,000 | 755,403 | 3.23 | 9,835 | 45,621 | 0.216 |
| $80,000-$90,000 | 483,996 | 3.30 | 10,792 | 50,187 | 0.215 |
| $90,000-$100,000 | 351,519 | 3.32 | 10,620 | 53,749 | 0.198 |
| Over $100,000 | 952,278 | 3.46 | 12,649 | 69,140 | 0.183 |
|
Averages |
2.38 | 7,410 | 29,809 | 0.249 | |
|
Source: Statistics Canada, Microdata File, Family Expenditures in Canada, 1996. |
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Households with income below $5,000 are really special cases and have been dealt with several times in my previous articles. Suffice it to say that those households are not what they seem. They are often households headed by small business owners who have significant losses to declare against earnings, leaving them with very low (and sometimes negative) reported incomes. They may also be part-year families or households that have substantially understated their true income. Other information about these households, such as their education levels, their consumption levels, and their assets, belies their apparent destitute status.
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