AUGUST THE DUNNING REPORT: DIMENSIONS OF CORE HOUSING NEED IN CANADA Second Edition

Transcription

1 AUGUST 2009 THE DUNNING REPORT: DIMENSIONS OF CORE HOUSING NEED IN Second Edition

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3 Table of Contents PAGE Background 2 Summary 3 Trends 1991 to 2006, and Beyond 6 The Dimensions of Core Housing Need 8 Types of Housing Problems 9 By Housing Tenure 9 By Geography 10 By Age Group 11 By Type of Household 11 For Immigrants versus Non-Immigrants 13 By Labour Force Status 14 By Source of Income 15 Aboriginal Households 16 Population in Core Need Households 17 Households in Chronic Core Need 18 Looking Ahead 19 Implications 21 About Will Dunning Inc. 22 Appendix Provincial/Territorial Core Housing Need Indicators A-1 List of Tables TABLE PAGE 1 2-Step Process for Assessing Core Housing Need in Core Housing Need in Canada by Type of Housing Problem and Housing Tenure Core Housing Need in Canada, By Housing Tenure Average Affordability Gaps by Type of Housing Problem and Housing Tenure Core Housing Need Indicators by Province and Territory Core Housing Need Indicators by Age Group Core Housing Need Indicators by Type of Household Core Housing Need Indicators by Age Group For Lone Parent Families and Non-Family Households Core Housing Need Indicators for Immigrants, by Period of Immigration Core Housing Need Indicators by Labour Force Status of Primary Household Maintainer Incidences of Core Housing Need by Age Group and Labour Force Status of the Primary Household Maintainer Core Housing Need Indicators by Major Source of Income Incidences of Core Housing Need by Age Group and Major Source of Income Core Housing Need Indicators by Province or Territory, Aboriginals versus Non-Aboriginals Population (In 1,000s) in Core Housing Need by Age Group Households By Age in Canada Projected % Distribution by Census Period A Scenario for the Evolution of Core Housing Need in Canada 20

4 A household is said to be in core housing need if its housing falls below at least one of the adequacy, suitability, or affordability standards and it would have to spend 30% or more of its before-tax income to pay the median rent of alternative local housing that is acceptable (meets all three standards). Background The housing agency of Canada s federal government (Canada Mortgage and Housing Corporation, or CMHC ) provides estimates of the extent of housing problems in Canada. Using the concept of core housing need CMHC estimates that as of 2006, just under 1.5 million (1,494,395) Canadian households were in core housing need. This amounts to 12.7% of Canadian households. To date CMHC has published two research highlights 1 that summarize the core need data for 2006 and highlight changes compared to prior Censuses. This report has been produced by Will Dunning Inc. at the request of the Co-operative Housing Federation of Canada. It provides further dimensioning of the core housing need problem in Canada. The first edition of this report was published in July 2007, also written by Will Dunning Inc., for CHF Canada. This report utilizes custom tabulations of core need data that were obtained from CMHC. For various subsets of Canadian households, the tabulations provide more detail on the numbers of households in core need as well as the dollar extent of the core need problem (this is the total gap between the amounts that the core need households can afford to pay for housing versus the amounts that they would need to pay for acceptable housing). 1 The publications, on the Geography of Core Housing Need and The Adequacy, Suitability, and Affordability of Canadian Housing, are available at the CMHC website, under: Research Highlights, Socio- Economic Highlights, What is Core Housing Need? CMHC describes Core Housing Need as follows. The term acceptable housing refers to housing that is in adequate condition, of suitable size, and affordable. Adequate dwellings are those reported by their residents as not requiring any major repairs. Suitable dwellings have enough bedrooms for the size and make-up of resident households, according to National Occupancy Standard (NOS) requirements. Affordable dwellings cost less than 30% of before-tax household income. A household is said to be in core housing need if its housing falls below at least one of the adequacy, suitability, or affordability standards and it would have to spend 30% or more of its before-tax income to pay the median rent of alternative local housing that is acceptable (meets all three standards). Housing conditions cannot be assessed for some households. For example, some households report shelter costs that exceed their income, or incomes of zero or less. In addition, shelter costs are not collected by the census for households on-reserve, for Aboriginals off-reserve whose housing costs are paid through band housing arrangements, or for farm households, since carrying costs for farm residences are not always separable from expenses related to other farm structures. About 670,000 households were excluded from the analysis. Since housing affordability cannot be assessed for these households, they were excluded from the estimates of total households and households in core housing need. The core need data does not include housing difficulties that might be faced by these 670,000 excluded households (neither the numbers of households in need nor the associated housing affordability gaps). 2

5 Summary As of 2006, million Canadian households were in core housing need, representing 12.7% of Canadian households. The number of households in core need was essentially unchanged compared to Since there were fewer households in Canada in 2001, the percentage of households in core need had been higher in 2001, at 13.7%. The total affordability gap for these households was $4.66 billion per year in The affordability gap was about $3,121 per year per core need household. The total affordability gap was 5.6% higher than in 2001, when it was $4.42 billion. The average affordability gap in 2001 was $2,972. The reduced incidence rate for 2006 was largely due to a combination of strong economic growth, which boosted incomes, with slower growth of housing costs. The incidence of core housing need varies across the different dimensions of the population: Housing need is much more common for renters (27.2% were in core housing need) than for home owners (6.3%). Renters accounted for 65.7% of all core housing need. Across the provinces and territories, core housing need is most prevalent in the three territories. Among the ten provinces, the incidence of need is greatest in British Columbia, Ontario, and Newfoundland and Labrador. By age group, core need is least prevalent in the middle of the age distribution. The incidence of need is higher for young adults and the elderly. The average affordability gaps are smaller for older age groups than they are for younger ages. The Housing Affordability Gap For this report, CMHC has provided data that can be used to calculate housing affordability gaps. The data provided by CMHC shows income gaps: how much income each household has versus how much income is needed to pay for housing that meets all three standards of acceptable housing (costing less 30% of income, as well as being adequate and suitable ). The calculations are: For each household, there is a type of dwelling unit required and an associated shelter cost for adequate market housing within the community. This cost is converted to a required income based on a 30% cost ratio (for example, if the monthly shelter cost is $650, the required income would be $26,000). If the household is in core need, then its actual income is less than the required income. The difference is an income gap. The income gaps are converted to affordability gaps or shelter cost gaps, by multiplying the income gaps by a factor of 0.3 (the shelter cost ratio). Lone parent families experience a very high incidence of core need (at 26., or more than double the rate for all households). The rate of core need is extremely high for lone parent families headed by young adults. As of 2006, million Canadian households were in core housing need, representing 12.7% of Canadian households. 3

6 Households whose primary household maintainer is employed have a core need incidence of 8.6%, much lower than the rates of 25.7% for households with an unemployed maintainer and 20.2% for households whose maintainer is not in the labour force. CMHC research (published in Canadian Housing Observer, 2008) indicates that about one-third of households in core housing need were in need chronically (all three years of a three-year period). also have a high incidence (21.). Among non-family households, the incidences of core need are highest for older age groups. Immigrants are more likely to be in core housing need (at 18.2%) than are non-immigrants (11.0%). Among immigrants, the incidence of core need is highest for households who have arrived most recently (at 35.4%). Households whose primary household maintainer is employed have a core need incidence of 8.6%, much lower than the rates of 25.7% for households with an unemployed maintainer and 20.2% for households whose maintainer is not in the labour force. Younger households, whose primary maintainers are under the age of 54, and are not in the labour force have very high rates of core need (exceeding 3). Similarly, households whose major source of income is employment have an average incidence of core need of 6.3%, while those whose major source of income is government transfers have an incidence of almost 40%. For households with a maintainer under 55 years and the major source of income is government transfers, the incidence of core need exceeds 60%. Aboriginal households are substantially more likely to be in core need (at 20.4%) versus non-aboriginals (12.4%). Rates for Aboriginals exceed those for non-aboriginals in every province and territory of Canada except for Prince Edward Island. The points above relate to percentages of households. Looking at the total population, 10.9% of Canadians are in households that are in core need. The rates are highest for children and the elderly. Over 750,000 children (under the age of 15) are in core need households. The most recent available data on the incidence and dollar magnitude of core housing need are from The data from earlier Census dates shows that the incidence rose during 1991 to 1996 but then fell during 1996 to CMHC research (published in Canadian Housing Observer, 2008) indicates that about one-third of households in core housing need were in need chronically (all three years of a three-year period). Other households in need were in that situation for less than the full three-year period. Based on current economic trends, it is possible that the incidence of core housing need fell further during 2006 to 2008, due to the continuation of good economic conditions. Most recently, however, the rapid onset of a severe economic recession is resulting in increasing unemployment. More Canadians will struggle to meet their housing costs. As was shown above, households with an unemployed maintainer are three times more likely to be in core housing need (25.7%) compared to households whose maintainer is employed (8.6%). Based on current forecasts for the economy and employment, by 2011 the percentage of adults in Canada who are employed may be similar to or lower than the rate seen in 2000 and Therefore the incidence of core need may return to or exceed the rate for 2001 (13.7%). Combining a rise in the incidence of need with growth in the number of households, there may be 1.7 to 1.8 million Canadian households in core housing need by 2011, versus about 1.5 million in both 2001 and

7 Looking further ahead, two factors that will affect the longterm evolution of core housing need have been considered: immigration and the aging of the population. Canada s high level of immigration is a potentially important factor. There are two countervailing aspects: firstly, high annual inflows will add high proportions of households who are in core need; secondly, as immigrants become increasingly settled in the years after their arrivals, their rates of core need will tend to fall. A simple simulation suggests that these two aspects will be roughly offsetting, and that immigration might result in a very small increase in the future incidence of core housing need. Demographic trends imply that over time the population will be more concentrated in the older age groups that have above-average incidences of core need, and there will be comparatively fewer households in the youngest age groups (which have high incidences) and in the middle of the age range (for which incidences are low). By 2031, the overall incidence of core need might not change very much, but there would be a change in the age distribution of housing need: 39% of core need would be for households aged 65 or older, versus a share of 24. in Since the affordability gaps are below average for older age groups, the average (per household) affordability gap would fall, by a projected 4. during 2006 to It is possible that in the future, seniors will have lower incidences of housing need than the current generations, as the consequence of increased education and higher life-time earnings, as well as increased pension coverage and other assets. This might result in a slightly lower overall incidence of core housing need, in which case seniors would represent a slightly lower share of overall housing need than is suggested. A simulation, which is based on changes in the age structure of the population, and does not include any changes in housing costs or incomes, suggests that the total affordability gap in Canada might rise by about 29% (to $6.0 billion in 2006 dollars) by This would be less than growth for the total number of households (32%). The average affordability gap, expressed as dollars per total household, was $396 in 2006; by 2031 it would fall to $388 (in 2006 dollars). The implication of these findings is that, while the total housing need problem in Canada is quite large, Canada as a society can afford to address these problems. The $4.66 billion core need problem should be viewed relative to a $1.6 trillion national economy. The housing affordability gap amounts to about $1 per day per Canadian household. The changes projected above (the falling per capita cost) suggest that Canada will become even more able to afford to address these housing problems. In addition, real growth (in excess of inflation) of incomes will further increase the ability of our society to fund the necessary housing programs. A fundamental program design question is whether programs should increase the supply of housing, or whether they should be solely concerned with providing the financial means for needy households to solve their problems in the market. This study does not intend to or pretend to address that question. However, it does observe that if financial transfers expand the ability of households to pay for housing that would increase total demand in the housing market. This can be expected to result in higher housing costs (which would raise program costs as well as causing further rises in affordability problems). Therefore, the design of any comprehensive housing assistance program ought to include the expansion of housing supply, in addition to housing allowances or rent supplements. While the total housing need problem in Canada is quite large, Canada as a society can afford to address these problems. The $4.66 billion core need problem should be viewed relative to a $1.6 trillion national economy. 5

8 Trends 1991 to 2006, and Beyond CMHC s published reports provide estimates of core housing need for four Census periods. The incidence of need rose from 13.6% in 1991 to 15.6% in 1996, but then fell in 2001 (13.7%) and 2006 (12.7%). These changes in housing needs can be broadly understood as the consequence of changes in economic conditions in Canada, particularly changes in the employment situation. The chart shows the percentage of Canadian adults who are employed (the employment rate scaled on the left side), and contrasts it with the incidences of core need (scaled on the right side). EMP RATE % Employment Rate vs Core Need 6 64% 63% 62% 6 60% 59% 5 57% 56% Emp-rate Core Need 1 16% 14% 12% 10% 6% 4% 2% 0% CORE NEED % The employment rate was lower in 1995 and 1996 than it had been five years earlier, resulting in an increased incidence of core housing need in After the mid-1990s, however, the employment rate improved almost continuously. The greatest improvement occurred during the second half of the 1990s, resulting in a very substantial reduction in the incidence of core housing need in 2001 as compared to The employment rate continued to rise during the first half of this decade, although at a less rapid rate, which resulted in further improvement in the incidence of need. By 2006, the incidence of core need was at the lowest level in the available data, which corresponded to a record high level for the employment rate. 6

9 The strong employment situation in Canada influenced the reductions in core need, by increasing incomes. During 2000 to 2005 growth rates of median incomes 3 were: For couple families 19. (these include couples with or without children). For male-led lone parent families 26.. For female-led lone parent families 28.4%. For one-person households 21.. These growth rates exceeded overall inflation, which was 14.4% 4 during the same period. Income growth also exceeded increases of housing costs: the average gross rent in Canada (including rent plus utilities paid by the tenants) increased by 12.3%; monthly costs for home owners increased by 19.. In consequence, the incidences of core need fell: For tenants from 28.3% in 2001 to 27.2% in For home owners from 6.6% in 2001 to 6.3% in Subsequent to 2006: The employment rate continued to improve until 2008, and we can reasonably expect that this resulted in further improvements in the housing need situation. More recently, the Canadian economy has entered a severe downturn, starting in the fourth quarter of As reported in 2001 and 2006 Census Profiles for Canada. 4 As measured by the all-items Consumer price Index. Nine months later (as of June 2009) the employment rate has fallen by 2.0 percentage points and has returned to the 2002 level. Based on recent forecasts from Canada s major banks, it appears likely that the employment rate will fall further during both 2009 and 2010, and might average about 61.0% in 2010 (versus an average of 63.6% in 2008). While incomes grew more rapidly than inflation until 2008, during 2009 and 2010, rising unemployment will cause household incomes to be considerably weaker. At the same time, a recessionary economy can be expected to result in slower growth of housing costs (house prices and rents), which will tend to limit the increase in housing affordability problems. Past experience suggests that the negative consequences of weak incomes will outweigh the positive effects from housing costs. On this basis, it is very reasonable to expect that the housing need situation in Canada will deteriorate sharply, reversing the improvements that were seen during 1996 to Once data are available for 2011, the incidence of core housing need will likely match or exceed the rate for 2001 (13.7%), and would be higher than the 2006 rate of 12.7%. In addition, there has been further growth in the number of households. A demographic projection suggests that in 2011 about 12.6 million households will be included in the core need analysis, an increase of about 825,000 since Combining the change in incidence of need with growth in the number of households, by 2011, there may be 1.7 to 1.8 million Canadian households in core housing need by 2011, versus about 1.5 million in both 2001 and It is very reasonable to expect that the housing need situation in Canada will deteriorate sharply, reversing the improvements that were seen during 1996 to A demographic projection suggests that in 2011 about 12.6 million households will be included in the core need analysis, an increase of about 825,000 since

10 In 2006, just under 1.5 million households in Canada, out of about 11.8 million households, were in core housing need. The Dimensions of Core Housing Need In 2006, just under 1.5 million households in Canada, out of about 11.8 million households, were in core housing need 5. The tabulations obtained from CMHC provide an estimate of the gap between the total amount that the households can afford to pay for housing versus the total amount that they would have to pay for acceptable housing. For households in core need, that gap totals $4.66 billion per year as of The prior Dimensions report, which was based on 2001 data, showed a total gap of $6.99 billion for The lower estimate for 2006 is due to a change in the methodology used by CMHC. With this revised methodology, the affordability gap for 2001 is now estimated at $4.42 billion. This section provides more detail on core housing need, in varying dimensions: type of housing problem, housing tenure, geography, age group, type of household, immigration status, employment status, source of income, and for Aboriginal versus non-aboriginal households. It also reports on CMHC research which shows that about one-third of households in core need are in chronic need. 5 The number of households used in the analysis (11.77 million) is less than the total number of households in Canada (12.44 million). A substantial number of households (670,000) are excluded from CMHC s analysis, because they reported no income or negative income, housing costs exceeded income, housing costs were zero or not reported, were on-reserve, housing costs are paid through band housing arrangements, or they are farm households. The core need data does not portray housing problems faced by these 670,000 excluded households. 6 This is based on an assumption that households can afford to pay 30% of their income for housing. The cost of obtaining acceptable housing is assumed to be equal to the median rent for acceptable housing, for the required type of unit, within the household s community. Measuring Core Housing Need Estimates of core housing need are developed through a two-step procedure. The first step determines whether households housing is acceptable (satisfies all three criteria of adequacy, suitability, and affordability). As shown in the table below, all three housing standards were met for about 8.18 million (69.) out of about million households; for about 3.59 million households (30.) one or more standards were not met. The second step looks further at the households for which one or more housing standards are not met, to test whether the household has sufficient income so that it could afford to pay for acceptable housing in its community. Any household whose income meets or surpasses the core need income threshold is deemed to be not in core need. After considering incomes (and the ability to pay for housing), just under 1.5 million Canadian households were in core housing need in Table 1 2-Step Process for Assessing Core Housing Need in 2006 NUMBER OF HOUSEHOLDS Households 11,766,145 Above all 3 housing standards 8,177,025 Below one or more standards 3,589,120 Income above threshold (not in core need) Income below threshold (in core need) 2,094,725 1,494,395 % OF TOTAL HOUSEHOLDS % 8

11 Types of Housing Problems Table 2 looks at the distribution of types of housing problems for core need households. By far, the most common problem is housing affordability. As is shown in Table 2, for 72% of core need households, affordability (paying 30% or more of their income for shelter) is the only problem. An additional 1 of core need households have an affordability problem plus a suitability and/or adequacy problem. In combination, therefore, 90% of core need households have an affordability problem. On the other hand, suitability and adequacy problems are less common: 1 of core need households have a suitability problem (alone or in combination with other problems) and 1 have adequacy problems. Table 2 Core Housing Need in Canada by Type of Housing Problem and Housing Tenure 2006 By Housing Tenure As can be seen in Table 3, renters are much more likely to be in core housing need than are homeowners: the number of renter households in core need (just under 1 million) is almost double the number of home owners in core need (about 500,000). In terms of incidence (the percentage of households in core need, by group), renters are 4 times more likely to be in core need than are owners, at 27.2% versus 6.3%. Correspondingly, renters account for 6 of the total affordability gap (at $3.03 billion out of the $4.66 billion total) and owners account for 3 of the gap. For renters the average affordability gap per household (about $3,090 per year) is slightly (3%) lower than it is for owners (about $3,180). For 72% of core need households, affordability (paying 30% or more of their income for shelter) is the only problem. TENURE Below one standard Affordability Suitability Adequacy Below multiple standards OWNED 2 3% RENTED 46% 4% 2% TOTAL 72% Table 3 Core Housing Need in Canada, By Housing Tenure TENURE Households Number in Core Housing Need % in Core Housing Need OWNED 8,158, , % RENTED 3,608, , % TOTAL 11,766,145 1,494, % Renters are much more likely to be in core housing need than are homeowners. Affordability and suitability 2% 6% Affordability Gap ($ Billions) $1.63 $3.03 $4.66 Affordability and adequacy Suitability and adequacy Affordability, suitability, and adequacy 3% 0% 0% Average Affordability Gap Per Core Need Household (Per Year) $3,180 $3,090 $3,121 Core Need Households 34.3% 65.7% 100.0% 9

12 The largest affordability gaps are for households that have suitability (over-crowding) problems. Table 4 summarizes the affordability gaps for core need households. As can be seen, core need households for whom there is just one problem (of affordability) have an affordability gap that is below average (but is still substantial at $2,831 per household per year). The largest affordability gaps are for households that have suitability (over-crowding) problems (alone or in combination with other problems the average affordability gap is $4,421 per year for these households). For households that have adequacy problems (alone or in combination with other problems) the average affordability gap is $3,393 per year. Table 4 Average Affordability Gaps by Type of Housing Problem and Housing Tenure TENURE Below one standard Affordability Suitability Adequacy Below multiple standards Affordability and suitability Affordability and adequacy Suitability and adequacy Affordability, suitability, and adequacy Core Need Households OWNED -$3,053 -$3,575 -$3,078 -$4,502 -$3,296 -$3,942 -$4,053 -$3,180 RENTED -$2,711 -$3,357 -$3,599 -$5,108 -$3,071 -$4,233 -$5,195 -$3,090 TOTAL -$2,831 -$3,404 -$3,286 -$4,972 -$3,148 -$4,169 -$4,997 -$3,121 By Geography Table 5 looks at the provinces and territories. While 12.7% of Canadian households were in core housing need in 2006, rates vary across the country. The highest rate was found in Nunavut; the lowest rate was in Alberta. Out of the total affordability gap of $4.66 billion, close to one-half ($2.18 billion) was in Ontario, 17% was in British Columbia, and 13% was in Quebec. Average affordability gaps (per household) were below the national figure in 5 of the 10 provinces, and above average in five provinces plus all three territories. Table 5 Core Housing Need Indicators by Province and Territory PROVINCES AND TERRITORIES Newfoundland and Labrador Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon Northwest Territories Nunavut Canada % IN CORE NEED 14.2% 12.6% % 10.6% % % 16.3% % 12.7% AFFORDABILITY GAP $ BILLIONS -$0.11 -$0.02 -$0.11 -$0.07 -$0.63 -$2.18 -$0.17 -$0.16 -$0.36 -$0.80 -$0.01 -$0.02 -$0.04 -$4.66 AFFORDABILITY GAP PER CORE NEED HOUSEHOLD -$4,164 -$2,584 -$2,413 -$2,294 -$1,936 -$3,473 -$3,578 -$3,963 -$3,000 -$3,604 -$5,445 -$8,034 -$13,348 -$3,121 10

13 By Age Group The data on core housing need by age group (Table 6) shows that the highest incidence rate is for the youngest age group (15 to 24 years) for which the incidence is 21.3%, two-thirds higher than the rate for all age groups. The incidence is also well above average for the oldest age group (75 years and over, with a rate of 16.). However, because there are relatively few households in the 15 to 24 age group, its contribution to the total affordability gap is relatively small (about $270 million per year, or 6% of the total). Average affordability gaps (per core need household) are largest for households in the family formation age ranges and lowest for the oldest age groups. This is because older households have fewer members and therefore their required housing is smaller and less expensive than for younger groups. Table 6 Core Housing Need Indicators by Age Group AGE OF PRIMARY HOUSEHOLD MAINTAINER All Ages % IN CORE NEED 21.3% % % % HOUSEHOLDS IN CORE NEED 83, , , , , , ,975 1,494,395 AFFORDABILITY GAP $ BILLIONS -$0.27 -$0.74 -$1.12 -$1.00 -$0.71 -$0.40 -$0.43 -$4.66 AFFORDABILITY GAP PER CORE NEED HOUSEHOLD -$3,208 -$3,369 -$3,576 -$3,498 -$3,178 -$2,374 -$2,135 -$3,121 By Type of Household As is shown in Table 7, the incidence of core housing need is much higher for non-family households 7 (at 21.) than it is for family households (9.2%). On the other hand, the average affordability gap for non-family households is considerably less than the figures for the various categories of families. Combining these factors, non-family households account for 40% of the total affordability gap, larger than this group s 30% share of total households. Lone parent families have a very high incidence of core housing need. This group accounts for 2 of the total affordability gap, but it represents only 10% of households. Table 7 Core Housing Need Indicators by Type of Household Family Households Lone-parent % IN CORE NEED 9.2% HOUSEHOLDS IN CORE NEED 760, , , ,685 Multiple-family 8.4% 18,175 Non-Family Households ,670 All Households 12.7% 1,494,395 AFFORDABILITY GAP $ BILLIONS -$2.81 -$0.43 -$1.01 -$1.28 -$0.08 -$1.86 -$4.66 AFFORDABILITY GAP PER CORE NEED HOUSEHOLD -$3,692 -$2,718 -$3,789 -$4,044 -$4,619 -$2,529 -$3,121 The highest incidence rate is for the youngest age group (15 to 24 years) for which the incidence is 21.3%, twothirds higher than the rate for all age groups. 7 are defined as follows: consists either of one person living alone or of two or more persons who share a dwelling, but do not constitute a family. 11

14 For the two household types with the highest incidences of core housing need (lone parent families and non-family households), there are interesting variations among the different age groups, which are illustrated in Table 8. Considering lone parent families: The incidence is extremely high for the youngest age group (at 62.6% for those whose maintainer is aged 15 to 24). However, there are few households in this group just 1. of all households in core need. Consequently, this sub-group accounts for 2.2% of the total affordability gap. Incidence rates fall for the older age groups of lone parent families. Because there are large numbers of lone parent families in the 25 to 54 age groups, combined with their high incidence rates, those three sub-groups account for a high percentage (21.) of the total affordability gap, which is triple their 7.2% share of total households. For non-family households: The incidence rate is high for the youngest age group, but for the next age group (25 to 34) the incidence rate of 13.4% is not much above the 12.7% average rate for all Canadian households. However, the rates rise for each of the subsequent age groups, and in the late working age groups and retirement ages (55 years and over) the incidences of core housing need are high, at about double the national average. in the three oldest age groups account for 21.6% of the total affordability gap, although they account for 14. of total households. Table 8 Core Housing Need Indicators by Age Group For Lone Parent Families and Non-Family Households AGE OF PRIMARY HOUSEHOLD MAINTAINER All Ages LONE PARENT FAMILIES % IN CORE NEED 62.6% % 20.2% 16.6% % OF TOTAL AFFORDABILITY GAP 2.2% % 2.0% % 27. NON-FAMILY HOUSEHOLDS % IN CORE NEED 16.6% 13.4% 17.4% % % 21. % OF TOTAL AFFORDABILITY GAP % % 8.6% 5.6% 7.3% 39. For the other categories of households (couple families with or without children and multiple family households) there are fewer variations across the age groups although the youngest age groups generally have incidences above the rates for older households. For these household types, incidences of core need are low, and their shares of the total affordability gap are lower than their shares of total households. 12

15 For Immigrants versus Non-Immigrants For immigrants, the incidences of core housing need vary, depending on the length of time that has elapsed since they immigrated. Table 9 provides the data. For those who immigrated prior to 1981, the incidence (12.) is slightly above the rate for non-immigrants (11.0%). However, the incidences rise for each of the later periods of immigration, and the rates are higher than average for all periods of immigration subsequent to Even for immigrants who arrived from 10 to 15 years prior to the 2006 Census (that is, during 1991 to 1995), the incidence (22.9%) is more than double the rate for non-immigrants (11.0%). For the most recent immigrants the rate (35.4%) is more than triple the rate for non-immigrants. Table 9 Core Housing Need Indicators for Immigrants, by Period of Immigration PERIOD OF IMMIGRATION Non-immigrant Non-permanent resident Immigrant Prior to to to to 2000 % IN CORE NEED HOUSEHOLDS IN CORE NEED AFFORDABILITY GAP $ BILLIONS AFFORDABILITY GAP PER CORE NEED HOUSEHOLD -$2, to % 95,450 -$0.40 -$4,147 All Households 11.0% % % 22.9% 24.0% 12.7% 995,705 18, , ,840 82,480 67,495 64,155 1,494,395 -$2.85 -$0.07 -$1.74 -$0.51 -$0.31 -$0.27 -$0.26 -$4.66 -$3,932 -$3,622 -$2,969 -$3,745 -$3,955 -$4,070 -$3,121 Moreover, for immigrants, especially recent ones, average affordability gaps are considerably above average. On average, the affordability gap (per core need household) for immigrants is 26% higher than the rate for non-immigrants. The consequence of high incidences of core need and large affordability gaps is that immigrant households account for a disproportionate share of the total affordability gap in Canada: while immigrants are 22. of households in Canada they account for 37.3% of the total affordability gap. The disproportions are greatest for the most recent periods of immigration. Those who arrived during 2001 to 2006 are 2.3% of households but account for 8. of the affordability gap. For those who arrived five to ten years prior to the Census (during 1996 to 2000) the share of the total gap 5.6%) far exceeds their share of total households (2.3%). Based on the pattern in the data, it may be that this high disproportion for recent immigrants is a temporary phenomenon (albeit, a temporary one that may have quite a long duration). Based on the pattern, it is quite likely that as immigrants become more settled their incidences (and possibly their average affordability gaps) will fall, which would tend to contribute to a reduction in the overall extent of core housing need and the magnitude of the affordability gap. On the other hand, with immigration into Canada increasing, immigrants will represent a rising share of households (the simulation discussed below suggests the share might rise from 22. in 2006 to 24.4% in 2011 and 26. in 2016). It seems reasonable to expect that there will be large additions to the pool of immigrant households in core housing need. It is unclear which effect will dominate. For the most recent immigrants the rate (35.4%) is more than triple the rate for non-immigrants. The consequence of high incidences of core need and large affordability gaps is that immigrant households account for a disproportionate share of the total affordability gap in Canada: while immigrants are 22. of households in Canada they account for 37.3% of the total affordability gap. With immigration into Canada increasing, immigrants will represent a rising share of households. 13

16 A back-of-the-envelope calculation, which assumes that immigrants will achieve rapid improvements in their situations 8, suggests that: For immigrants the overall incidence would change very little (from 18.2% in 2006 to 17.9% in both 2011 and 2016). The average incidence for immigrants would remain well above the rate for non-immigrants (11.0%). Consequently, the overall incidence of core housing need would increase slightly from the 2006 rate (12.7%) to 12. in 2011 and 12.9% in The average affordability gap for all immigrants would be essentially unchanged (about $3,600 at each date, in 2006 dollars). The average gap for immigrants would remain well above the figure for non-immigrants (under $2,900). The overall average affordability gap (immigrants and non-immigrants combined) would increase slightly, to $3,144 in 2016 (in 2006 dollars) versus $3,121 in The total affordability gap for all of Canada would rise at about the same rate as the number of households. 8 The methodology is as follows: For newly arrived immigrants, the percentage in core need and the average gap is assumed to be the same as for immigrants who arrived during 2001 to The numbers of immigrant households arriving during is assumed to be 1 higher than the number who arrived during 2001 to 2006, with a further 1 increase for For all cohorts of immigrants (including those arriving prior to and after the 2006 Census), the incidences of need and average affordability gaps are assumed to fall during and , to match those of the previously arriving cohorts. For each of the immigrant cohorts who arrived in 1996 or later, the number of households is assumed to increase modestly ( in total) during each Census period, due to rising household formation rates. This simulation ignores any changes in the age distribution of the population or changes in real incomes or housing costs. By Labour Force Status Whether a person is employed is clearly a very good predictor of core housing need (as it is for many socio-economic variables). As is shown in Table 10, households that are headed by an employed person have a much lower incidence of core housing need (8.6%) compared to households headed by a person who is unemployed (25.7%) or not in the labour force (that is, a person who is not employed or looking for work), for which the rate is 20.2%. Households headed by an employed person account for about one-half (45.6%) of the total affordability gap, but they account for a larger share of total households (66.). On the other hand: Households headed by an unemployed person account for just 3. of households, but 7.6% of the affordability gap. Households headed by a person who is not in the labour force are 30. of households, but 46.7% of the gap. Table 10 Core Housing Need Indicators by Labour Force Status of Primary Household Maintainer LABOUR FORCE STATUS Not in Labour Force In the Labour Force Unemployed Employed Full-time Part-time All Households % IN CORE NEED 20.2% 9.4% 25.7% 8.6% 7.4% 18.0% 12.7% HOUSEHOLDS IN CORE NEED 732, ,640 94, , , ,065 1,494,395 AFFORDABILITY GAP $ BILLIONS -$2.18 -$2.48 -$0.35 -$2.13 -$1.56 -$0.44 -$4.66 AFFORDABILITY GAP PER CORE NEED HOUSEHOLD -$2,975 -$3,261 -$3,758 -$3,191 -$3,125 -$3,389 -$3,121 14

17 In general, affordability gaps do not vary by much across these categories of labour force status. There is a belowaverage gap for households whose head is not in the labour force. However, this is because many of these households are retired; they have smaller household sizes and therefore have lower housing needs. Controlling for age, the difference in the average gaps between the categories is reduced. Looking across the labour force activity categories and dividing into age groups, differences in the incidences of core need become even more marked, as is obvious in Table 11. Clearly, the creation of suitable employment opportunities (and in preparing people to take up those opportunities) will be a key factor in reducing core housing need in future. Table 11 Incidences of Core Housing Need by Age Group and Labour Force Status of the Primary Household Maintainer AGE OF PRIMARY HOUSEHOLD MAINTAINER All Ages NOT IN THE LABOUR FORCE 39.0% % 36.4% 19.6% 13.7% 16.9% 20.2% UNEMPLOYED 31.2% % % % 25.7% EMPLOYED % 7.0% 6.2% 6.0% 8.3% 8.6% By Source of Income A slightly different view (in Table 12) looks at core housing need by the households sources of income. This finds that households whose major income source is transfers from government have a much higher incidence of core housing need (38.) compared to households whose major source is paid employment (6.3%), other income (5.2%), or selfemployment (18.6%). What s more, households whose major income source is transfers account for more than onehalf (58.) of the total affordability gap, even though they are just 18.6% of total households. Table 12 Core Housing Need Indicators by Major Source of Income MAJOR SOURCE OF INCOME Paid employment Self-employment Income from government Other income % IN CORE NEED 6.3% 18.6% % HOUSEHOLDS IN CORE NEED 480,040 96, ,370 74,100 AFFORDABILITY GAP $ BILLIONS -$1.38 -$0.33 -$2.71 -$0.24 AFFORDABILITY GAP PER CORE NEED HOUSEHOLD -$2,882 -$3,363 -$3,215 -$3,279 All Households 12.7% 1,494,395 -$4.66 -$3,121 The creation of suitable employment opportunities (and in preparing people to take up those opportunities) will be a key factor in reducing core housing need in future. Households whose major income source is transfers from government have a much higher incidence of core housing need. 15

18 For all of Canada, the incidence of core housing need for Aboriginal households (20.4%) is 64% higher than the rate for non-aboriginals (12.4%). Looking at sub-groups by age (in Table 13), the incidence of core housing need is extremely high (in excess of 60%) for households whose major source of income is transfers and have a primary maintainer aged less than 55 years. On the other hand, among households for whom the major source of income is paid employment, and are aged 25 or older, incidences of core housing need are well under 10%. Table 13 Incidences of Core Housing Need by Age Group and Major Source of Income 2006 AGE OF PRIMARY HOUSEHOLD MAINTAINER All Ages PAID EMPLOYMENT 16.0% % 2.2% 1.6% 6.3% The average affordability gap, for all of Canada, is 4 higher for Aboriginals ($4,307 per year) than for non- Aboriginals ($3,052). The average gap is larger for Aboriginals in the three territories and in most provinces, except for PEI and Ontario. In addition, the differences in the gaps between Aboriginals and non-aboriginals are 10% or less in three provinces - New Brunswick, Saskatchewan, and British Columbia. SELF- EMPLOYMENT 25.7% 23.2% 21.6% 18.6% % INCOME FROM GOVERNMENT OTHER INCOME % 64.0% 62.7% 63.4% 61.3% % % 23.9% 26.6% % % 5.2% Aboriginal Households 9 For all of Canada, the incidence of core housing need for Aboriginal households (20.4%) is 64% higher than the rate for non-aboriginals (12.4%). Out of 401,145 Aboriginal households for which the analysis could be completed, 81,815 were in core housing need. The CMHC analysis excludes Aboriginals living on-reserve and therefore the extent of housing problems among Aboriginals is not fully portrayed by the core need data. The incidences of core need among Aboriginals vary widely across the provinces and territories (as seen in Table 14). The incidence of core housing need for Aboriginals is higher than for non-aboriginals in every province and territory, except for Prince Edward Island. Aboriginals account for 7.6% of the total affordability gap, more than double the share of households (3.4%). 9 Estimates exclude Aboriginal households on-reserve, as well as Aboriginals living off-reserve whose housing costs are paid through band housing arrangements. 16

19 Table 14 Core Housing Need Indicators by Province or Territory, Aboriginals versus Non-Aboriginals PROVINCE/TERRITORY Nfld. & Lab. PEI Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon NWT Nunavut Canada INCIDENCE OF CORE HOUSING NEED ABORIGINAL 19.4% 10.6% 16.2% % 18.7% 22.4% 26.2% % 24.7% 26.3% 44.2% 20.4% NON- ABORIGINAL 14.0% 12.7% 12.0% 10.2% % % 14.2% 14.0% 9.0% 12.9% 12.4% AFFORDABILITY GAP PER CORE NEED HOUSEHOLD ABORIGINAL -$5,526 -$1,984 -$2,739 -$2,516 -$4,565 -$3,356 -$4,185 -$3,967 -$3,976 -$3,834 -$6,067 -$8,845 -$13,484 -$4,307 NON- ABORIGINAL -$4,064 -$2,591 -$2,402 -$2,287 -$1,883 -$3,477 -$3,384 -$3,961 -$2,899 -$3,587 -$5,104 -$5,766 -$11,547 -$3,052 Population in Core Need Households As has been noted, just under 1.5 million Canadian households were in core housing need in The tabulations provided by CMHC indicate that these 1.5 million households include a total of 3.21 million people. For households in core housing need, the average size is 2.15 people, compared to the average of 2.51 people for all households. Table 15 shows the distribution of the core need population by age group. It indicates that 10.9% of the population lives in households in core housing need. It also shows that the incidence of core housing need is highest for the youngest and oldest Canadians. Table 15 Population (In 1,000s) in Core Housing Need by Age Group AGE GROUP TOTAL POPULATION 1, , , , , , , ,449.6 POPULATION LIVING IN HOUSEHOLDS IN CORE HOUSING NEEDS % OF POPULATION IN CORE NEED % 11.4% 10.3% % 8.9% , All Ages 1, % 29, , % Incidence of core housing need is highest for the youngest and oldest Canadians. 17

20 Households in Chronic Core Need Research by CMHC 10 has found that households move in and out of core need. During 2002 to 2004, just 4.6% of urban households were in need for all three years. For most households in need it is a temporary situation 6.6% were in need for just one of the three years and 4.2% were in need for two of the three years. Therefore, about one-third of households in core need are in that situation for three years or longer. Among renter households in the unsubsidized rental sector in Canada s urban areas, 67% were never in core housing need during 2002 to % were in need all three years, and 19.3% were in need for one or two of the three years. 10 Published in the 2008 Canadian Housing Observer, Recent Trends in Housing Affordability and Core Housing Need, pages 5 to

21 Looking Ahead This section develops a scenario for the evolution of core housing need in Canada. It is based on demographic change and does not consider the impact of changing economic cycles 11. Furthermore, the simulations do not consider the impacts of any changes that might occur in the realm of government policies and programs. To the extent that new or expanded programs address housing need problems, there would be less growth in need than indicated by the projections. Similarly, a failure to sustain current efforts would cause housing needs to expand by even more than indicated. The simulation relies on Statistics Canada projections of population growth, by province, by age group 12. The scenario shown here is based on a simplifying assumption, that for each age group (by province) the incidence of core housing need and the average affordability gap (in 2006 dollars) will remain at levels. This implicitly assumes that for each age group income levels (and wealth) and housing costs will remain at 2006 levels. 11 An earlier section on Trends discussed the impact of current economic trends, and concluded that the incidence of core need is likely to rise in This section ignores short- and mid-term consequences of economic trends, to focus on longer-term implications of changes in the population. 12 As published in Population Projections for Canada, Provinces and Territories, Statistics Canada Catalogue number XIE. Projection Scenario 3 is used here. 13 It is possible to imagine many other scenarios, including ones in which incomes grow more rapidly than housing costs (especially rents), resulting in falling incidences of need. On the other hand, scenarios could be developed in which higher levels of immigration lead to rising incidences of core need. Therefore, while this scenario is not intended to be seen as definitive, it provides a preliminary indication of possible future trends. The methodology also assumes that household formation rates (by age group by province) will remain at 2006 levels. Therefore, the key factor that drives this scenario is growth in the population (by age group and by province). The population projections indicate that over the coming decades, younger age groups (under 55 years) will account for a falling share of households, and the older age groups will have a rising share, as is shown in Table 16. Since mid-age adults have below average incidences of core housing need, and because the oldest age group has an above-average rate of core need, the result is that the overall incidence of core housing need is projected to rise (very slightly) during the coming decades. As shown in Table 17, from 2006 to 2031, the incidence of core housing need would rise from 12.7% to 13.0%. The number of households in core housing need would rise by 3 during 2006 to 2031, from less than 1.5 million in 2006 to just over 2 million in The growth in the number of core need households (3) would be greater than the increase in the total number of households (32%). The age distribution of core need households will shift over time. In 2006, 24. of core need households had a primary household maintainer aged 65 or older. By 2031, that share will increase to about 39%. However, older age groups on average have smaller affordability gaps (per core need household) than do younger households. Therefore, the average affordability gap (in 2006 dollars) will tend to fall gradually over time. From the figure of $3,121 in 2006, the average gap would fall to $2,981 in 2031, a drop of 4.. In 2006, 24. of core need households had a primary household maintainer aged 65 or older. By 2031, that share will increase to about 39%. 19

22 Table 16 Households By Age in Canada Projected % Distribution by Census Period While the number of households in core housing need and the total affordability problem in Canada are projected to expand during the coming decades, Canada as a society should become better able to afford to address housing needs. AGE OF PRIMARY HOUSEHOLD MAINTAINER % 14.3% % % 10.4% Source: projections by Will Dunning Inc., using data from CMHC and data and projections from Statistics Canada % 18.2% 22.6% 18.9% 12.4% 10.7% % 17.6% 20.3% 20.0% The total affordability gap (in 2006 dollars) would rise by 29% during the 25 years. The total gap would rise by less than the total number of households (which is projected to increase by 32%). The result is that the affordability cost burden (expressed as the average cost per total households, in 2006 dollars) would fall during the projection period, by 2.. Table 17 A Scenario for the Evolution of Core Housing Need in Canada % % % 12.0% 17.2% 17.7% 18.4% 17.9% 14.3% % % % 16.7% Therefore, while the number of households in core housing need and the total affordability problem in Canada are projected to expand during the coming decades, Canada as a society should become better able to afford to address housing needs % of Change Households (Millions) Households in Core Housing Need (Millions) % in Core Need Dollar Gap ($ Billions, in 2006 Dollars) Average Gap (Per Core Need Household) Average Gap (Per Households) % -$4.66 -$3,121 -$ % -$4.96 -$3,105 -$ % -$5.24 -$3,079 -$ $5.52 -$3,048 -$ % -$5.78 -$3,012 -$ % -$6.02 -$2,981 -$388 32% % Source: projections by Will Dunning Inc., using data from CMHC and data and projections from Statistics Canada 20

23 Implications This analysis has identified a large housing affordability gap in Canada, which has been estimated at a total of $4.66 billion as of Considerable improvement has occurred in Canada, in reducing the incidence of core housing need. This improvement has occurred largely as the consequence of a decade of strong economic growth. However, with the onset of a severe economic recession, increasing numbers of Canadians will be unable to obtain adequate and suitable housing at costs that they can afford. Beyond these hopefully short-term negative economic effects, solving housing needs will remain a challenge. Shifting demographics will be a large part of this challenge, as large numbers of Canadians will move into their retirement years, and will have less income with which to pay for housing. In addition, anticipated high levels of immigration into Canada may very well result in an expanding incidence of core housing need in Canada, as immigrants are considerably more likely to be in core need than are non-immigrants, and the average affordability gap (per household) is larger for immigrants than for non-immigrants. This high level of core housing need calls for responses from Canada s federal and provincial governments. While $4.66 billion is an enormous sum of money, in the context of a $1.6 trillion dollar Canadian economy, $4.66 billion is just onethird of a percent - not an insurmountable cost. Sharing this cost across all of Canada s households, the figure of $4.66 billion amounts to about $1 per household per day. Housing assistance can be provided through various means, including housing supply programs and various types of housing allowance and/or housing cost supplement programs, as well as via housing rehabilitation programs (in situations of inadequate dwellings). The housing assistance responses that are used should of course vary depending upon particular circumstances (the types of need, the costs of alternative approaches, and housing market conditions). This report is not intended to address or assess policy and program options, but does make one broad observation. Past research has pointed out that in the absence of sufficient new housing supply, housing allowance programs can stimulate new housing demand which would result in lower vacancies, bringing rising housing costs and therefore rising program costs 14. The extent of demand increases and cost increases will depend upon program parameters, including the number of program beneficiaries, the amounts of assistance provided, as well as local market conditions (among the key factors is whether the private sector responds to the anticipated increase in housing demand and provides appropriate new housing stock). However, with the onset of a severe economic recession, increasing numbers of Canadians will be unable to obtain adequate and suitable housing at costs that they can afford. This high level of core housing need calls for responses from Canada s federal and provincial governments. 14 A brief summary is provided in Housing Allowance Options for Canada, by Meryl Finkel, Carissa Climaco, Jill Khadduri, Marion Steele. Abt Associates Inc., published by CMHC in Pages

24 In conclusion, in order to mitigate the cost increases that result from market impacts, housing program responses should include a mix of solutions. These may include housing allowances or rent supplements, but in the absence of a sufficient expansion of housing supply, programs should also anticipate and accommodate the increase in market demand by developing new housing supplies. About Will Dunning Inc. Will Dunning Inc. is an economic research firm. Based in Toronto, the firm specializes in the economic analysis of housing markets. Research activities include: housing market forecasts, demographic analysis and projections, housing needs studies, and project-specific market feasibility studies. The firm is led by Will Dunning. His more than 25 years of experience includes 12 years as a consultant who specializes in housing market studies, economics, and demographic analysis. Prior to becoming a consultant, Will was with Canada Mortgage and Housing Corporation for about 16 years. This included six years as the senior analyst and manager of CMHC s market analysis function in the Greater Toronto Area. While with CMHC, Will was responsible for all aspects of CMHC s housing surveys and market analysis for the Greater Toronto Area. This included economic, demographic, and housing market analysis. 22

25 Clients of Will Dunning Inc. include: Associations (including Canadian Home Builders Association, Ontario Residential Council of Construction Associations, and the Canadian Association of Accredited Mortgage Professionals). Government departments and agencies (including Ontario Ministry of Municipal Affairs and Housing, and Statistics Canada). Non-profit organizations (including the Agency for Co-operative Housing, the Co-operative Housing Federation of Canada, Social Housing Services Corporation, and Neptis Foundation). The private sector (developers, investors, and financial institutions). The firm s website provides a variety of reports and presentations on housing markets and other topics. 23

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27 APPENDIX Provincial/Territorial Core Housing Need Indicators

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