SOURCE: Canadian Centre for Economic Analysis

Canadian Centre for Economic Analysis

May 09, 2016 17:00 ET

Shelter Affordability Isn't Only About Housing Prices

TORONTO, ON --(Marketwired - May 09, 2016) - A lot of commentary around housing in Canada focuses on soaring house prices in cities like Vancouver and Toronto, but research done by the Canadian Centre for Economic Analysis (CANCEA) has shown that we may not be talking about the whole problem.

The report, Understanding Shelter Affordability Issues: Towards a Better Policy Framework in Ontario, introduced the Shelter Consumption Affordability Ratio (SCAR) index, which measures the proportion of income that households devote to their shelter needs (including transportation, utilities, and maintenance) after paying for other necessities, such as health care, food, and child care. Unlike other housing affordability indices, the SCAR index does not measure affordability by simply measuring house prices or mortgage rates. Rather, it presents a much more realistic representation of what people face every day when trying to put roofs over their heads.

Where is shelter least affordable?

Canadian affordability pressures are at an all-time high, with the SCAR index growing quickly since the mid-2000s. Today, after purchasing other necessities, a typical household spends close to 40 cents of every dollar of income it has left over on shelter. However, affordability pressures vary across the country, as shown by new research done by CANCEA.

However, the average household in the Maritime provinces has even less income left over after paying for other necessities: Nova Scotia is the province with the greatest affordability pressure, with the typical household devoting 46 cents of each dollar left over after paying for necessities to shelter costs. British Columbia is the only non-Maritime province whose SCAR index is over 40%, while Alberta and Newfoundland are the only provinces in Canada that feature a SCAR index of 35% or less, implying that shelter affordability is relatively less of a problem on average in these provinces than in the rest of Canada.

"The conversation about shelter affordability seems to focus on soaring house prices in Vancouver and Toronto, but research is showing that there are other regions across Canada that face high affordability pressures, and house prices are not always the biggest problem," says CANCEA President Paul Smetanin. "Expenses for other needs also have to be considered to gain an appreciation of the real financial situation that households face when looking for a place to live. For example, what seems to be driving the squeeze on shelter affordability in Ontario for many households is the cost of childcare."

Why does shelter affordability differ across provinces?

The many factors impacting housing affordability as captured by the SCAR imply that there may not be a one-size-fits-all solution for this problem across Canada. For instance, in British Columbia, the majority of the affordability problem is driven by rent (actual or "imputed" -- that is, paid to yourself). In Quebec and the Maritime provinces, the opposite is true. Quebec features above average affordability pressure from the costs of utilities, transportation, taxes, and other essentials, as well as low income factors. Alberta, with a SCAR of only 31%, has relatively high pressure from rents, transportation, and other essentials. In other words, households face very different types of affordability pressures and there is little relationship between the size of the SCAR in a given province and the type of factors that contribute to it.

The SCAR offers a glimpse into the factors that contribute to shelter affordability and can set the groundwork for future thinking through the appreciation of local needs. In order to reduce the SCAR in any given province, care must be taken to apply evidence thoughtfully. With the exception of transportation costs, which are a driving force of affordability pressure in most provinces, single-issue approaches are unlikely to benefit the many Canadian households facing significant pressure to make ends meet.

ABOUT CANCEA

CANCEA is a state-of-the-art interdisciplinary research organization that is dedicated to objective, independent and evidence based analysis. They have a long history of providing holistic and collaborative understanding of the short and long term risks and returns behind policy decisions and prosperity.

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