Thursday, December 29, 2005

How We Got Robbed Part 1

All living creatures have a hierarchy of needs. For us humans the primary needs - without which you can easily die - are food, water, shelter, medical care, and heating and clothing in cold climates. We have a second order of needs, such as basic furniture, utensils, transportation. While uncomfortable, it won't kill you to walk to the store, patch your old jeans or use a packing crate for a table, but the secondary order makes life livable, more than just a bare survival level of existence. The third level is what one might call common luxuries - refined foods, designer clothing, computers and other electronic gadgets. These luxuries are for pleasure and are not basic needs. No one ever died because they didn't have a TV, a VCR or an SUV.

The greatest first order expense is housing and this has increased far more than any other item. The cost of food has been stable or declined somewhat. (1) Heating has gotten more expensive due to the rise in gas and petroleum prices. The possible destruction of medicare threatens to cause medical expenses to rise. The largest second order expense is transportation, which has also risen rapidly. Many other second order goods have declined in price. Common luxuries, on the other hand, have dramatically fallen in price. We have a bizarre situation where you can buy a TV for $50 from Wallmart, but the rent for the apartment you watch it in in costs $1000, the inverse of life in 1965.

From 1935 to 1960 rent and transportation costs rose at a slower rate than other consumer items. (2) This changed over the next three decades. In 1969 the average household spent 15.4% on rent, 12.3% on transportation, (3) by 2001 the average household spent 20% on shelter and 13.5% on transportation. (4) This situation is much worse since in the 1960's most households were single income, whereas today the vast majority are double income. If you examine the 2001 figures in terms of individual income alone, housing costs would rise to 36% and transportation to 26%. The second income is being gobbled up in housing and transportation costs. If households paid rent and transportation at the same rate and manner as the 1960's they would save more than $11,000 per year!

Let's compare rent and income over the last 45 years or so. In 1961 the average income in Canada was $78 per week and average rent was $65. In 1971 the average income was $138 per week and the average rent was $110. By 1996 average income was $555 per week and the average rent was $657. What this means for the renter is that in 1961 it took slightly more than 3 days work to pay the rent, in 1971 it took 4 days and in 1996 it took 6 days, a situation undoubtedly worse in 2005. (5)

For the people at the bottom it is unbelievably bad. In 1971 the average Canadian minimum wage was $1.36 per hour, or 81 hours to pay an average rent. The minimum wage earner of 1996 would have to shell out 100 hours. But this isn't the only problem. While minimum wages don't vary from city to city, rents do. Rents in Vancouver or Toronto are well above the national average. Furthermore, there were many inexpensive rental units in the past. Back when an average rent was $65, the poor could find places for $25. The equivalent does not exist today.

1. I think food should be more expensive, but that's a matter for another column!
2. Historical Statistics of Canada, p. 304
3. The 2001 shelter figure includes mortgage payments not just rent. Figures from Statscan web site.
4. Canada Year Book 1976
5. Canada Year Book 1965, 1976, 1999


Blogger Mr. Beer N. Hockey said...

You reckon unhealthy housing costs are a result of urban areas getting crowded as the penguin show at the zoo or greedy speculation?

All I know is that there are lots of twin income working class families areound here living in houses worth .5 - 1 million dollars. And I found a price on a house on a street 20 miles out of the City of London where I lived in England 30 years ago. Nice small 4 bedroom place worth over $700,000 Cdn. Holy crap!

5:43 PM  
Blogger Kevin Carson said...

I think George probably had the explanation: all the increase in social wealth makes land more valuable, so any increased income from productivity gains disappears down the land-rent rathole.

8:51 AM  

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