Income Inequality and Housing Affordability in Vancouver

by Aimee Schalles

A recent study by UBC researchers David Ley and Nicholas Lynch, “Divisions and Disparities:  Social-Spatial Income Polarization in Greater Vancouver, 1970-2005”, highlights Vancouver’s growing income inequality. The study compared 35 years of census data from 1970 to 2005. Researchers noted that during that time the social geography of Vancouver was radically transformed.

Vancouver’s increasing income disparity takes two forms. The first is a growing inequality between rich and poor; the gap between the incomes of rich and poor is increasing. The second is a growing polarization of income; there are now more high income and poor neighbourhoods, and middle class neighbourhoods are now virtually non-existent within Vancouver proper.

Wealthy areas of the city have grown larger through accretion at their borders, and the rich living in those areas have seen their wealth deepen. At the other end of the spectrum, the number of low income neighbourhoods has increased and their income has been stagnant or declining. The most disturbing finding of the study is that this change has been happening along racial lines: the poor and declining neighbourhoods are disproportionately comprised of visible minorities and immigrants.

So what does increasing income inequality mean for housing affordability?  

While the study’s authors make no conclusions about housing affordability, the census data presented indicates that “unaffordability” is rising equally across all income levels. This implicitly indicates that housing affordability has decreased somewhat and has affected all socioeconomic groups equally.

But is this actually the case in Vancouver? 

It is arguable that the census data presented fails to document income inequality’s effect on housing affordability for the poor, and that Ley and Lynch’s research on income polarization should give rise to concern about the polarization of housing affordability.

Traditionally, the golden rule has been that households should spend no more than 30% of their income on housing.  Housing expenditures above the 30% line were deemed unaffordable. This rent-to-income ratio has been used for a litany of purposes by governments and commentators as a measure of affordability.

However, the value of the rent-to-income ratio as an accurate predictor of a household’s ability to pay their rent is questionable. While it is valid to use this ratio to compare trends over time, as the authors of this study have done, the ratio cannot tell us whether or not housing is actually affordable. It is not a valid way of determining or defining housing need as it is an arbitrary figure that does not account for individual factors. It is therefore important to put this data into context.

This is where qualitative observations are useful. A quick glimpse at the study’s diagrams confirms street-level observations about some of Vancouver’s most pressing affordability crises. While at first glance income increases in the downtown area appear to be positive, they may actually reflect increasing gentrification and the concentration of the very poor in the Downtown Eastside. Continuing gentrification has only increased housing pressures since the study period.

Neighbourhoods in the Vancouver Region

 

Notice the difference in these two maps representing average household incomes – one in 1970, and the other in 2005. The very poor have likely been concentrated in the Downtown Eastside, making housing increasingly crowded.

Neighbourhoods in the Vancouver Region

While the effects of income inequality on housing affordability have scarcely been studied in Vancouver, studies conducted elsewhere have shown that income inequality has a negative effect on housing affordability. A study conducted in the United States demonstrated that in cities with tight housing markets like Vancouver’s, the poor suffered when income inequality and polarization increased. The poor experienced greater crowding and may have seen their housing expenditures increase. This sounds a lot like the Downtown Eastside or many immigrant neighbourhoods, doesn’t it?

It is therefore likely that income inequality in Vancouver’s red hot housing market has disproportionately affected housing affordability and quality for the poor, even if this isn’t overtly represented in census data. And as income inequality has most affected visible minorities, it stands to reason that these people are most affected by changes in housing affordability.

Conclusions

Ley and Lynch’s study drew no conclusions on housing affordability, but it begs the question of how income inequality will affect Vancouver’s housing market, and who will be most affected. While it is difficult to conclusively determine the effects of increasing income inequality in Vancouver without further study, on the ground observations indicate that increasing inequality in housing affordability is likely to follow increases in income inequality.