Study: Measuring housing affordability

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Although the vast majority of Canadian households live in suitable and adequate housing, 1.7 million spent 30% or more of their budget on shelter costs in 2004, according to a new study released today in Perspectives on Labour and Income.

While rental and housing prices undoubtedly affect affordability, their impact will be tempered by many other factors. In 2004, about 14% of households spent 30% or more of their budget on shelter costs. Of these, 12% spent between 30% and 50%, and 2% spent 50% or more.

Traditionally, the concept of affordability has been based on a ratio of housing costs to total household income. A household paying 30% or more of its pre-tax income for housing is considered to have affordability problems.

This study highlights an alternative measure of housing affordability that is based on household expenditure, using data from the Survey of Household Spending.

The study found that people who rented were more likely to experience affordability problems. Although the majority live in affordable housing, 31% of people who rented spent 30% or more of their budget on shelter. This compares with only 6% of people who owned their shelter.

These rental households consisted mostly of individuals living alone, those relying on government assistance, and those in low income.

According to the Canada Mortgage and Housing Corporation, basic shelter costs consist of rent or regular mortgage payments, condo fees, utilities (water, heat and electricity), and property taxes. The average shelter cost in 2004 was $9,400, about 15% of the average household budget.

People living in large metropolitan areas, particularly Toronto and Vancouver, incurred the highest spending on rents.

About one-third of renters in Toronto spent 30% or more of their budget on shelter. On the other hand, about 46% of households in Montréal were renters. But only 28% had shelter affordability problems, slightly less likely than average.

Although shelter costs vary considerably across Canada, household income was the major factor affecting affordability.

Renters with income of less than $19,190 a year were 18 times more likely to be cost-burdened, compared with those in the top one-half of the income distribution. The odds were five times for those with income of between $19,190 and $32,500.

A number of other factors may be at play, including the major source of household income.

Renters with housing affordability problems who had to rely on government transfer payments as their main source of income were almost six times more likely to be cost-burdened compared with wage and salary earners.

Having two earners in the household compared with no earners reduced the odds of affordability problems significantly.

Definitions, data sources and methods: survey number 3508.

The article "Measuring housing affordability" is now available in the November 2006 online edition of Perspectives on Labour and Income, Vol. 7, no. 11 (75-001-XIE, free) from the Publications module of our website.

For further information or to enquire about the concepts, methods or data quality of this release, contact Jacqueline Luffman (613-951-1563, jacqueline.luffman@statcan.gc.ca), Labour and Household Surveys Analysis Division.