December 2001
Shelter Costs and Poverty—Part II
by Chris Sarlo
Is rented accommodation out of reach for low-income people in most Canadian cities? Do the poor face such tight rental markets that they are unable to find an apartment in their preferred price range? Is there really a shelter crisis for the economically deprived as many in the social welfare community would have us believe?
Last month, I examined the market for rental accommodation in Canadian urban centres. I presented a table that compared rents and vacancy rates for major cities for the years 1988 and 1998. This data lead to three important conclusions regarding the so-called "crisis of affordability" in the rental market. First, that vacancy rates were not lower in 1998 than they were in 1988 (both, incidentally, years of strong economic growth). In fact, the average vacancy rate among a selection of major Canadian cities covering all parts of the country was about 40 percent higher, at 4.5 percent, in the latter year. While there is clearly great variation among different cities, the data suggest that not all renters face tight markets. The Canada Mortgage and Housing Corporation (CMHC) believes that rental markets with a vacancy rate of 2 percent or higher is sufficient to allow a competitive market with broad choice for apartment seekers.
Second, the data show that average rents are not out of reach for even modest- income households. The 1998 unweighted average cost of a two-bedroom apartment in 18 of Canada's major communities (covering all regions) was $624 per month. This was $7,500 per year. There are significant variations, however. If you lived in Toronto or Vancouver, the average would have been $874 per month, or about $10,500 per year. Outside of those two cities, renters faced an average of only $593 per month, or a bit over $7,000 per year. And these values are just averages. Lower-income folks are likely to be choosing from the bottom half of the rental market (out of necessity), again assuming a fairly competitive market. All things considered, even at the higher end, it would be hard to make the case that rents in the vicinity of $9,000 to $11,000 per year are "out of reach" for poorer households of three or four persons.
Finally, the data from last month's article demonstrated that Toronto is an anomaly that does not reflect the reality of most other cities. Indeed, it showed that Toronto had become even more anomalous since 1988. Rents in all other major cities were, on average, only about 70 percent of Toronto's rents in 1998. Quebec City, Montreal, Winnipeg, and Edmonton had rents that were only about 60 percent of Toronto's rental costs. Clearly, Vancouver would need to be included with Toronto as having exceptionally high costs. The point is that these cities do not reflect the shelter cost reality facing most of the other 25 million Canadians.
These values, however, are merely theoretical in that they represent market rents facing prospective tenants. Perhaps it is the case that low-income people pay more than market rents, either because they are not mobile or well-connected enough to do otherwise, or simply because there is not sufficient choice for them to find "affordable" units. This is certainly the perspective of many social activists and journalists writing on the subject. So, it is an interesting and important question to ask: What do poor people actually pay for shelter?
The Survey of Household Spending (an annual exercise by Statistics Canada) is a good source of information on the topic. In 1998, the most recent year for which the data is available at this writing, the average annual overall shelter costs for households of two or more persons having an annual income of less than $20,000 was $5,794. For single people living on their own with an income of less than $12,000, the average expenditure on shelter was $4,089.
However, these values are overall shelter costs and include both rented and owner-occupied housing. What about the actual spending by just renters? In 1998, the average annual spending on shelter by households of two or more persons having an income of less than $20,000 and who were exclusively renters was $5,634. For single people with an income of less than $12,000, it was $4,084.
But these are only averages. Are there significant numbers of lower-income households paying above average rents? How representative are these rents for most low-income people?
The 1998 Survey of Household Spending reveals that 59 percent of low-income households with two or more persons who rented their accommodation, paid $6,000 or less per year (or $500 or less per month) on rent. Fully 77 percent paid $7,200 or less per year (or $600 or less per month) on rent. For low-income singles who were renters, 56 percent paid $4,200 or less per year (or $350 per month) on rent and fully 80 percent paid $5,400 or less per year (or $450 or less per month) on rent.
Finally, what about actual rents paid in the two most expensive regions of the country, Ontario and BC? For households of two or more people whose annual income was $20,000 or less, 91 percent in Ontario and 90 percent in BC paid less than $10,000 per year in rents. For single people who were low-income (less than $12,000 in annual income), 89 percent in Ontario and 95 percent in BC paid less than $8,400 per year in rents.
There is no question that some of our major cities are expensive places to live and that low-income renters will have some difficulty finding appropriately priced accommodation in a timely manner in a few "tight" rental markets. However, the data on actual rents paid reveals that the majority of low-income people, even those in the most expensive regions, do not end up paying excessive rents. We might want to bear this in mind next time we read of the "crisis" of affordable shelter in Canadian cities.
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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