Cost of Living and the Canadian Housing Market

The cost of living is defined as “the amount of money that a person needs to live”, which is a person’s ability to afford food, shelter and other essentials needed to survive. If we expand this, it is the amount of money needed for sustaining a quality of life that includes access to basic expenses. The cost of living is very often used as a factor for determining different metrics. The affordability of a city can be characterized by the average cost of living for their residents, the wealth and purchasing power of an individual can be explained by their cost of living and the geographic distribution of people, with respect to economic and social backgrounds, can be predicted by the cost of living. Since cost of living is an expression, when being used for comparison, it is converted into the Cost of Living Index.
The U.S. Bureau of Labor Statistics states that the Cost of Living index is a measure of “the difference in the price of goods and services.” As opposed to the more commonly known Consumer Price index, where the goods and services remain constant and are within a fixed location, the Cost of Living index accounts for price differences between different locations. Essentially, the cost of living affects our day to day lives by determining how difficult it is to spend money on basic expenses. Do we find less money left over after paying rent every month, or can we afford to invest in fuel and maintenance for a personal car? Thus, it accounts for a range of different expenses, the most significant being groceries, healthcare, transportation, utilities and housing.
The right to an adequate standard of housing is a fundamental human right, as defined by the United Nations. The term “adequate standard of housing” encompasses a great deal: it includes affording a home (rent/owned) that is safe and has access to utilities such as electricity, heating and adequate sanitation. At the same time, the cost of affording this adequate standard of housing should not interfere with accessing other basic rights, as outlined above. The Canada Mortgage and Housing Corporation (CMHC) states that no more than 30 per cent of a person’s monthly income should be spent on shelter expenses, which includes housing and utility costs. However, in Canada and a large part of the world, individuals and families spend a significant portion of their income on accessing safe and suitable housing.
The average Canadian spends 45.9 per cent of their income to meet housing costs (which includes taxes, rent/mortgage payments and/or utilities). Unsurprisingly, in Vancouver and the GTA people spend an average of 79.7% and 72% of their income on housing respectively. A report by the CMHC also found the biggest discrepancy in housing supply and demand are in Toronto and Vancouver. This supports the basic theory that the high cost of living and lack of housing supply affect each other. Low supply creates an increased demand, higher demand increases the cost of living and an increased cost of living further marginalizes, and increases the portion of those who cannot access affordable housing. The gap between housing supply and demand can be balanced by implemented policy that reflects the needs of the population.
While housing is only part of the equation, it represents a significant proportion of household income throughout Canada. Therefore, by addressing the issues that decrease housing affordability and accessibility, the cost of living can be brought to a level that is sustainable and affordable for the general population.
By: Rahemeen Ahmed