Part 2 - In depth: Here's how badly home price growth has outstripped average weekly earnings in Canadian provinces
August 8, 2019
Erik Fertsman
Asset price inflation has eaten into Canadian wages like locust eating plants. In part 1 of this article, I showed you how Canadian real estate prices have massively outstripped national average weekly earnings, even for the wealthiest income earners. Now, we can take a look at the disparities unfolding across provinces.
Home price inflation in Canada has stoked many theories on its origins and what to do about it. Part of the problem is not just the fuel
that has ignited this massive run up in prices, but also the affordability aspect of the equation. And that's a conversation about wages, their growth rates, and whether or not it's enough money for one's expenses.
Getting neck deep in the data is one of the ways to really get a grasp on what's affecting affordability for Canadians. To keep things simple, for now, we're strictly focusing on home prices and their growth rates, all while setting aside other things like food, transportation, and other essential living expenses. Eventually, we'll get to all those things.
National average weekly earnings for May of this year was reported at $1,031 CAD by Statistics Canada, and here's how this number and its growth rate over nearly 20 years stacks up against national home price growth over the same period:
As I've shown previously, this wage statistic is but an aggregated figure that can only provide us with so much insight; wages vary above and below this figure, considerably. The highest paid workers in Canada, as of May, are company managers and those who work in the resource sector. They earn between $1,500 and $2,300 per week. However, over the last decade they've seen their wages go negative during a period where national home prices never experienced a single month of declines.
Meanwhile, the lowest paid workers are those in food and accommodation services, and arts, entertainment, and recreation. These folks bring home between $400 and $600 per week. How these people survive on these wages is not easy to understand. It's also harder to believe they actually earn that much when home price and rent growth, on a national scale, have not dipped into negative territory (not even once) to provide some well-needed relief.
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Provincial wage averages compared to the national average
Canada is a huge country, and aside from the large variation in wages between different categories of the labor market across the nation, provinces have their own wage discrepancies between one another.
Below, I've mapped out a select few provincial average weekly earnings, including overtime for all employment categories, alongside the national average. I've included the provinces for which housing market data is more available and standarized. Take a look:
If we were to strictly observe this data set and try to guess which provinces have higher home prices, I'd say it's Alberta and Ontario. The lowest prices I'd expect to find in Nova Scotia and Manitoba. Quebec and British Columbia, one would think, is somewhere in between. Interestingly, only Alberta and Ontario have average wages that rival the national average. And this makes sense, since Alberta is a resource-based economy, and Ontario holds most of Canada's manufacturing and a huge population and service sector.
Each province can be further broken down into Statistic Canada's classified businesses. Due to limited space here, however, we'll have to cover them another time.
Provincial wage and home price growth compared
Here's where our guess work hits reality. Below, I've compiled wage and home price data for the six provinces noted in the previous chart. Each interactive graphic contains the year-over-year growth rate for average weekly earnings and home prices.
The first chart holds the data for British Columbia, take a look:
Even though BC's average weekly earnings fall short of the national average, home prices in places like Vancouver are the nation's highest. The data above shows us just how far home price growth in BC has outpaced the province's wage growth over the last 17 years... it's incredible. Out of 17 years of data, home price growth outpaced wages for a total of 15 years.
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BC's neighbor and Canada's resource rich (or cursed) province is also interesting. It should be noted how commodity prices, particularly oil, have wreaked havoc on the province's state and personal finances. Canadian oil has had a number of logistical challenges, and so issues with transportation and refining has forced the government to intervene in the resource industry. Keeping this backdrop in mind, here are the numbers:
Before February 2008, home price inflation largely outpaced wage growth. So, effectively, for over 6 years home prices were outrunning income earners. After correcting from a massive blow-off top, price growth steadily returned to a high of 10 percent. During the same period, wages nearly contracted 3 times (in 2009, in 2012, and again, in 2013).
Between April 2015 and November 2016, both wage and home price growth contracted. Things have been volatile, but if you pay attention to wage growth compared to other provinces, Alberta has experienced some of the higher rates, ranging as high as 7 and 8 percent. In other provinces, as you'll see below, wage growth has had an upper limit of 5 percent. Since last year, home price growth has been contracting, meanwhile, wages have struggled to recover. When compared with BC, however, things look more in line with wage growth, but workers still had a tough time catching a break.
That being said, nowhere have workers been chasing home prices harder than in Ontario:
Ontario has experienced the brunt of asset price inflation, clearly. Even before 2008, home prices were outpacing wages. After 2008, home prices quickly recovered and continued their price rampage, exceeding 10 percent growth between 2016 and 2017! In 2018, price growth briefly contracted, but quickly recovered to, again, outpace wage growth. As of May, wages have again outpaced home prices, but for how long?
Manitoba has operated some successful immigration settlement programs, and so has managed to capture and maintain a growing population. But as you can see, wages have had a troubled relationship with home prices in this province, as well. Only more recently, in 2014, has home price growth come more in line with wage growth.
Meanwhile, in Quebec, where wages are fairly low compared to the national average, home prices have consistently outpaced wage growth. Quebec has a bit of a troubled past with the rest of Canada and the federal government. They are more social-leaning when it comes to government policy, and so one would expect there to be a bit more support for wages.
Instead, we see more volatile wage growth, and a labor market that doesn't seem very tuned relative to home prices. Looking at this data, especially the recent years where home price growth is taking off again, it wouldn't be surprising to see this become more of a national issue as the Quebecois press for added support from the federal government.
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Finally, we have what many consider to be the most affordable province to buy a home:
Geographically, Nova Scotia and it's largest population center, the city of Halifax, are quite far from the other provinces covered above. It's, at least, a 10 hour drive to Quebec, and Toronto is no less than a 17 hour car ride. However, home prices have still managed to outpace wages, similarly to Quebec and Manitoba. Only in 2013 did home price growth come more in line with wages, but home price growth trends are beginning to surpass wages again.
So, at the end of it all, average weekly earnings relative to the national average don't really tell you much about home prices. What's more, the national wage and home price growth chart (the first chart I showed you above) is quite accurate about what's happening in pretty much every province. The thing that worries me the most is, when home prices correct, what will happen to the Canadian economy?
If unemployment starts ticking up, surely that will affect average weekly earnings. Canada didn't have a labor market disruption in 2008 like the US did. Just look at wage growth at the national and provincial levels; they kept humming along during that period. What's more, the IMF says a home price crash would force the banks to add risk
(therefore, costs) to new mortgages and those eventually looking to refinance their variable and fixed contracts. I guess we'll have to wait and see to find out.
Cover image source: Marc-Olivier Jodoin
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