Rents dwarf minimum wage in every province. Rising interest rates aren’t helping – National

Pressure from rising interest rates and a shortage of affordable housing are holding back renters living on the minimum wage in nearly every region across Canada, a new report finds.

An analysis released on Tuesday by the Canadian Center for Policy Alternatives (CCPA) defined the Canadian housing market as “rental wages,” the hourly wages a full-time worker needs to pay for a one- or two-bedroom home. I am evaluating. 30 percent of their income.

The CCPA report found that the rent required to live comfortably in each province of Canada far exceeds the minimum wage in that jurisdiction.

The rent required to live in a one-bedroom apartment in Ontario is $25.96 an hour, but rises to $29.90 for a two-bedroom apartment. The state minimum wage is $15.50, one of the highest in the country.

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BC and Alberta have similar results, but Quebec and Newfoundland and Labrador have the smallest gaps between rent and minimum wage. The Northern Territories are not included in the analysis.

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At a more granular level, CCPA says, 93% of neighborhoods with sufficient reliable data to include in the study do not have minimum wages that match market rental wages.

Perhaps unsurprisingly, minimum wage workers can’t afford Toronto and Vancouver in particular. Rent in these cities is more than double her minimum wage, meaning two full-time workers can’t afford to live together in an average one-bedroom apartment in a city.

CCPA senior economist and one of the report’s authors, David McDonald, said that for single parents working on minimum wage in some of Canada’s most expensive housing markets, renting a two-bedroom apartment is It is very out of reach and states that the whole family is forced to live. single bed house.

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In such cases, households devastated by unaffordable rents either try to spend much of their income on monthly payments and cut other expenses, or live farther out of the city and into more affordable housing far from the downtown core. They will either be forced to move to cheaper areas, he said. — or you can go out of town entirely.

“Before, in some cities, there were areas where rent was more affordable,” McDonald told Global News.

“It’s just a huge divergence, and it’s incredibly difficult for people earning minimum wage in this country to actually buy basic rental housing.”

Growing imbalance between supply and demand due to rising interest rates

The CCPA analysis is based on October 2022 average rents and wages. Since then, rents have soared in many Canadian cities as the Bank of Canada has raised interest rates.

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Rents have risen “significantly” in most major Canadian cities over the past year, pushing the market to “crisis levels,” says economist and Smart Prosperity Institute’s Sustainable Communities Initiative. Mike Moffat, founding director of the PLACE Center, explains.

He said higher interest rates would directly lead to higher mortgage payments for new and existing homeowners, while also squeezing monthly cash flows for landlords and making it more difficult for renters to enter the property market. and that both increase demand for housing. An already tight rental market.

Average hourly wages have trended higher for most of 2023, outpacing inflation in the first five months of the year, but have slowed in recent months as higher interest rates take hold and the economy slows.

The Bank of Canada paused its rate hike cycle in early 2023, but recently resumed with another two-quarter point hike in the policy rate in June and July.

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Rising interest rates will also make the business case for building new homes more difficult, which will only make tenants’ pain worse, Moffat said.

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“Higher interest rates have the pressure effect of increasing demand but reducing housing supply, which in turn pushes rents higher,” he said.

Moffat argues that pressure should be addressed with more government support to help struggling renters keep their homes.

In this vein, B.C. introduced a $400 tax credit for low- and middle-income renters in the 2023 Budget, and the federal government introduced a one-off Canadian Housing Benefit for low-income households from December. Added superimposition of .

Moffat believes some of the solutions should target areas where demand is greatest. He points to Canadian university and college campuses, where international students coming to study are gradually increasing pressure on their respective cities’ rental markets, and more housing can be built to ease the pressure. mentioned as a place.

McDonald said the CCPA report advocates raising the minimum wage in many parts of the country, but raising wages to match rents is unrealistic in the most expensive markets.

The issue of rising rent affordability, he argues, isn’t just about wages, it’s about how the Canadian rental market is structured.

“Part of the story is about wages. Are you building it or not,” he says.

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Government can play a more active role

Both Moffat and McDonald noted that the 1970s and 80s provided a framework for how governments could step up to build more affordable housing.

For example, in Ontario, the property tax on private rental apartments is double the property tax on single-family homes.

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Moffat said the tax hike is intended to deter unwanted private sector behavior, but the government desperately needs new dedicated rental properties. He said 40 years ago there was a series of federal tax incentives to help developers start building new apartments, and he wants to redevelop.

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“A lot of the bottleneck in building exclusive rental properties is feasibility—that is, they are very expensive to build,” Moffat said. “Part of the reason the construction costs are high is because of government fees.” He cites high development costs as another concern when building units.

Relying on the private market to build affordable housing will not succeed in the face of rising interest rates, McDonald said, arguing that builders will have to wait for good market conditions to shovel in the ground. It added that even Canadians will not solve the rent affordability crisis.

Rising interest rates are “what’s driving the train right now,” he said.

“And this train is headed for a drastic cut in housing investment. This is why government intervention is needed here.”

If interest rates eventually come down (some big bank economists have set a cut in the second quarter of 2024), both Moffat and McDonald believe the pressure on renters will likely ease to some degree. .

But McDonald points out that lower interest rates don’t necessarily translate into lower rents.

“These high prices have been entrenched for some time,” he said.

“The long-term outlook is that we are not building affordable rental housing at all.

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