November 2001
Shelter Costs and Poverty, Part I
by Chris Sarlo
For most of us, shelter costs are the second largest expense in the household budget after taxes. Whether we own our homes or rent, shelter costs are high relative to other items of household spending. This is true regardless of the household’s income. For that reason, largely, shelter costs tend to receive considerable attention in any examination of the problems facing the poor.
The great majority of poor households live in rented accommodation. This is the case partly because poor households are made up of inordinately young (and typically more mobile) people, and partly out of necessity. Most of the poor are unlikely to be able to afford the downpayment on a home. The question is: What sort of rental market do the poor face in Canada? Has the market for rental accommodation in urban centres changed over the years? These are important questions because there is a strong perception in Canada that there is a crisis of "affordability" in our cities. What do the numbers tell us?
Table 1 displays the vacancy rates and average rents for both 1988 and 1998 in a selection of Canadian cities including all of the major urban centres and all of the regions of the country. It is important to note that only privately initiated apartments are included, and only those buildings that contain 6 or more apartment units. Smaller apartment blocks (duplexes, triplexes, basement apartments, walkups, studio apartments, and so on) are not in the mix. Nor are any public housing units included. Nevertheless, the table is indicative of the dominant part of the accommodation market facing prospective renters in the recent past.
The years 1988 and 1998 were selected because they are both "boom" years in terms of economic activity, but are far enough apart to make a useful comparison. A booming economy might not translate into tight rental markets. One might expect a significant "substitution" effect as some renters, spurred by higher earnings and a strong economy, opt for owner-occupied housing. As well, the availability of new rental units is affected by changes in both the office and owner occupied markets as well as policy variables such as rent controls and public housing activity.
Overall, rental markets were not tighter in 1998 than they were 10 years earlier. Indeed, the average vacancy was somewhat higher in the later year, particularly in some of our main cities (Toronto, Vancouver, Montreal, Ottawa and Hamilton). The Canada Mortgage and Housing Corporation (CMHC), from which this data is drawn, has long believed that rental markets must have a vacancy rate of 2 percent or more to "ensure a competitive market, keep rents down, and allow sufficient choice for households" (CMHC, 1989). In 1998, the majority of Canadian urban centres did have vacancy rates above 2 percent. However, it is the case that, by 2000, arguably the peak of the current business cycle, rental markets had generally tightened up.
What about rents? The rents in table 1 are expressed in nominal dollars. Over the 10year period represented here, the all-items CPI had increased by 28 percent. Rents in some of our major cities have increased by more than the rate of inflation. For example, the following large cities have had real rent increases over the period: Toronto (17%); Vancouver (12%); Hamilton (12%); Calgary (8%); Ottawa (2%). However, other major Canadian cities have had decreases in real terms: Montreal (25%); Winnipeg (18%); Quebec City (15%); Edmonton (13%). Again, it is a mixed situation. Overall, on an unweighted basis, nominal rents were up about 24 percent, just below the rate of inflation. As well, the actual average rent (again, unweighted) for one-bedroom apartments ($517 per month) and two-bedroom apartments ($624) in 1998 is hardly outrageous. And these are averages. Roughly half of the market rents are below these values. It would be hard to make a case for a "crisis" based on these numbers from the private rental market.
There are a few major cities where rental accommodation is very expensive. Toronto has typically had highcost rental accommodation over the years, followed closely by Vancouver. It is useful, therefore, to compare the other urban areas in the country to Toronto. When the comparison is made, it serves to demonstrate that the Toronto situation, while severe, does not reflect the whole country. Table 1 shows the various rents in the selected cities as a percentage of Toronto rents.
This comparison reveals that not only are Toronto and Vancouver somewhat anomalous, but also that over the ten year period, the difference between Toronto and the other major cities in the country increased. Toronto is more anomalous in 1998 than it was in 1988. Affordability, it appears, is a selective issue.
In my next article, I will present evidence on what poor renters actually pay for rental accommodation, drawn from the latest Statistics Canada surveys. Needless to say, these data will further undermine the "crisis of affordability" thesis.
Reference
Canada Mortgage and Housing Corporation
(CMHC) (1989). Rental Market Survey.
Toronto CMA (October), p. 6.
Chris Sarlo teaches economics at Nipissing University in North Bay, ON. He is the author of Poverty in Canada, published by The Fraser Institute.
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