We don’t only have a housing affordability crisis in Canada: We are in the midst of an equity crisis, where an ever-larger slice of economic returns is distributed to an ever-smaller slice of wealthy Canadians. This growth in economic inequality has directly contributed to the run-up in housing prices and has then been made worse by that same increase. All of this has been fuelled by decades of monetary and tax policy that have privileged residential real estate.
In the past four decades, both income and wealth increases have been realized primarily by the most affluent Canadians, with much of that wealth generated in housing. Money flowing into the housing market enriched homeowners, leaving them with extra capital which many reinvested into the housing market. Statistics Canada reported that in 2020, over 30 per cent of condos in B.C. were owned by investors (most of them B.C. residents).
This increase in home prices is only a problem if incomes don’t at least somewhat keep pace. Spoiler alert: They have not. Not even close.
Between 1990 and 2022, housing prices in Vancouver increased by an average of six per cent a year, based on Teranet data. The rewards for working have not increased at anything close to this rate, at least for middle-income earners. According to StatCan, median and average incomes in Vancouver increased by a measly average of 0.5 per cent and 0.7 per cent per year (adjusted for inflation), respectively, over that same period.
These decades have been even bleaker for lower income workers. In 1982, three-quarters of working Canadians were making more than $15,000, with one-quarter of workers making less (in inflation-adjusted, 2024 dollars), according to Bank of Canada figures. At the time, the poverty line was $14,655.
By 2019, someone in the first quartile would have had to triple their income to make enough to put them above the poverty line. Meanwhile, during that same period the real income of individuals in the top 99.5 per cent more than doubled.
It’s worth noting, too, that all of this income was taxed, while much of the gains in real estate have gone untaxed. Notwithstanding the recent, much maligned changes to the capital gains tax, capital gains in Canadians’ principal residences remain exempt from the capital gains tax.
So middle- and lower-class incomes have stagnated, even as an enormous amount of property wealth has been created, mostly for the very rich, but also for many middle-class homeowners. At the time of the 2021 census, 66.5 per cent of Canadians were living in houses they owned. For many middle-class homeowners, their homes have been the major driver of their wealth, and just as importantly, their sense of their own wealth. This may explain why every level of government has been so slow to deal with the housing issue. Making housing more affordable is another way of saying cheaper. If homes were to abruptly depreciate, that would be disastrous politically and economically. Thus, the inflationary monetary policy adopted by almost every western democracy throughout COVID-19. Monetary policy only turned contractionary when other prices started to increase, including the price of labour.
The good news is the policies that will help are fairly well understood, and they will help address both housing and inequity. A crucial part of the solution to the housing crisis is building more non-profit and government housing. Cities that have taken this path are among the most successful in balancing economic growth and economic equity. Canada used to build tens of thousands of these units every year, and there’s no reason we can’t do that again.
These investments in housing could and should be financed by a tax shift whereby the wealthy individuals and institutions who have benefited the most from the run up in housing prices are asked to contribute to the solution. There have been a variety of suggestions for accomplishing this, including: A tax on the windfall profits recent upzonings have created, a progressive property tax or a more general wealth tax. Politically, this might be difficult, but less difficult, ultimately, than living in a country where millions of Canadians can’t afford to meet their basic needs.
Ari Goelman is an instructor and researcher at Kwantlen Polytechnic University.
