Is Housing Affordable in Canada?

Hope for Housing

CBC News recently released an article titled It's next to impossible to pay the rent working full time for minimum wage, new report calculates. In this post, I will analyse the evidence to see why the data referenced by the CBC does not corroborate their click-bait title and conclusions.

The Problem with Averages

First off, they link rental information from the Canada Mortgage and Housing Corporation (CMHC), which provides access to annual data of average apartment and townhouse prices throughout metropolitan centres in Canada (limited to populations 10,000+). There are several issues with providing only average values. One large problem is that averages are susceptible to skewing from outliers; a small number of very expensive apartments can significantly inflate the averages. A more instructive measure of centre is the median, as its value is robust even with the existence of outliers. Furthermore, they include no measure of spread, or variability from the mean. Our analysis very much depends on whether the residence prices are clustered quite close to this average, or if there is a significant amount of deviation. In all likelihood, there are plenty of living quarters in any given neighbourhood that are under the posted average value.

Canadian Saving

Another flaw in this article is the assumption that housing should account for at most 30% of one's income. In today's luxury consumer economy, an outrageous portion of people's spending goes toward completely unnecessary products and services, and this 30% number seems to be low enough to allow such excessive expenditures. Of course, spending a large portion of income on housing can greatly impact one's ability to save, but with an average savings rate of about 1.1% right now, a lack of ability to save seems par for the course for most Canadians. The US Census Bureau even admits "a precise definition of housing affordability is at best ambiguous". Instead, I claim that housing can safely account for as much as 50% of net income if people are willing and able to be financially responsible. For example, owning a car can be considered a luxury for a minimum-wage worker. Walking, cycling, and transit are methods of transport that are far underutilized in today's society, and they are extremely cheap alternatives to driving. Eating out is another costly habit that can add many hundreds of dollars to people's spending. Also consider shopping at thrift stores, which can be a fruitful and inexpensive way to get certain goods. There are plenty of articles that describe myriad ways of reducing spending and building better savings habits.

Let's take a look at an example. In Ontario, the minimum wage is $14.00 per hour. A person who works 40 hours per week for 50 weeks per year makes $28,000, and after taxes, EI, and CPP, takes home $22,833 every year. This yields a monthly income of $1902.75, and using the more realistically allowable 50% rule, that means such a worker can afford to pay $950 toward housing. Using the data from the CMHC, we find that a single minimum-wage worker makes enough to afford the average apartment/townhouse in about 25% of neighbourhoods in Ontario. In big cities like Toronto it is quite clear that many sacrifices will have to be made in order to be the sole provider for a family if working minimum wage. Such big cities have a notoriously high cost of living, so I would recommend any struggling low-wage workers to seriously consider living elsewhere. If we remove Toronto neighbourhoods, the percentage of affordable metropolitan centres (with respect to the average price) rises to about 35%. This number ought to be surprising. In Ontario (ex-Toronto), a single minimum-wage earner can afford the average apartment/townhouse in more than 1 in 3 neighbourhoods! There will always be rich neighbourhoods, but it turns out there are a relative abundance of places that are affordable even for the lowest-income earners.

So... Next to Impossible?

It is safe to say that single minimum-wage workers have plenty of struggles. It cannot be expected that a person with low-income should be able to live in any sort of lavish lifestyle. That said, it is impossible to conclude, from the provided data, that "it is next to impossible to pay rent" for this demographic. Personal anecdotes can certainly point to a variety of injustices, but it is entirely possible for a person to live within their means in one of many affordable neighbourhoods in Canada.