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The Progressive Economics Forum

Poverty and BC’s high cost of housing

BC Stats put out a release on poverty lines as they relate to BC, with an important finding: BC’s dubious position as having the highest poverty rates in Canada may in fact be worse than the statistics show. This finding is buried in the piece and the title, “Low Income Cut-Offs a Poor Measure of Poverty”, does not give much of a hint. In fact, I thought “here we go again” and sure enough the piece starts badly:

For over 40 years, Statistics Canada has produced a statistic called Low Income Cut-Offs (LICOs), and for almost as many years, that statistic has been improperly cited as a measure of poverty in Canada. This, despite the fact that Statistics Canada has continually emphasized that it is inappropriate to equate LICOs with poverty lines.

This type of statement has bugged me for years. How can a statistical agency develop a measure of poverty, call it “low income”, and then have the audacity to point the finger at anyone who dares call it a poverty line. The logical retort is to ask them why they do not then develop a “real” poverty line. Statscan’s position is something like, you cannot talk about the numbers of people who are poor because we refuse to measure them.

But the piece gets better. The author reviews a simplified methodology of how the LICOs are calculated and how that can be influenced by how well-off people are at different points in time. That is, overall, people today spend a lot less of their income on the basics, and the LICOs are just an arbitrary cut-off relative to that amount. This is an important point, although other attempts to measure poverty don’t really change the percentages that much.

The punchline goes like this:

Based on LICOs, British Columbia had the highest incidence of low income in the country in 2007, but these LICOs are based on national expenditure figures. … To see how this can be problematic, one need look no further than the difference in the price of housing by province. British Columbia has by far the highest housing prices, on average, in the country. In 2008, the average house price in BC was almost 50% higher than the Canadian average. The problem is exacerbated even further when urban areas are compared. … While the difference in rents are not quite as dramatic, they are still significantly higher in Vancouver compared to most other cities with greater than 500,000 population across the country. Given that the cost of shelter comprises by far the largest portion of spending on food, shelter and clothing, this renders LICOs a dubious means of regional comparison, let alone as a measure of poverty.

I’m not sure I agree with that last clause, since the costs of food and clothing are not much different across the country. If housing is what matters, my takeaway from that discussion is that BC’s poverty problem must be even worse because of our high costs of housing. The author may really just be making a methodological point that provincial numbers should be based on provincial not national data.

This precipitates a general question about “what is poverty?” that inevitably leads to absolute measures based on minimum consumption of necessities. The author makes a pitch for the Market-Basket Measure (developed outside of Statscan by the federal department of Human Resources Development) although this one too holds up the finding that BC has the highest poverty rate in the country.

The MBM is indeed a useful measure, but it would be a loss not to consider relative position in society as an aspect of poverty. In fact, the grandfather of economics, Adam Smith, clearly argues for a relative definition of poverty: “By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but what ever the customs of the country renders it indecent for creditable people, even the lowest order, to be without.”

Adam Smith, it should be noted, was not a right-wing ideologue. He would not have worn the Fraser Institute’s “Adam Smith tie”, which is sort of a burkha for free market fundamentalists. The Fraser, it should be noted, is in the shadows of this discussion, having promoted a “thin gruel” absolute measure of poverty for many years. The development of the MBM was a response to them, and after all of that effort, poverty based on the MBM is not much different than based on the much-maligned LICO.

Enjoy and share:

Comments

Comment from David
Time: December 7, 2009, 7:43 pm

I don’t think relative income is the same thing as poverty. You can have a large variance in incomes in a society, but if people at the bottom can still afford necessities, to me that’s not poverty.

I think an absolute measure is a lot more appropriate. If you can’t afford a roof over your head, groceries, decent clothes and basic transportation, you’re impoverished in my mind. If you spend 90% of your income on those necessities and 10% on “luxuries,” even if the rest of the population only spends 40% on necessities, I’d say you’re not impoverished.

I’m not sure if Adam Smith has a stronger argument outside of the quote you present, but I’d say it’s not inconsistent with using an absolute poverty line, as long as the line can change with context. In other words, what constitutes a roof over one’s head in Vancouver is obviously going to be a little more rigorous than what would constitute a roof in, say, Mozambique. And what constitutes proper clothing now may cost a little more than what passed as proper clothing 50 years ago. It’s like CPI — you just have to adjust the basket of goods every so often.

Income inequality is an interesting data set to look at, but it’s not poverty. Poverty is when you can’t afford to make ends meet. That’s an absolute concept. It’s not relative.

Comment from asp
Time: December 7, 2009, 7:45 pm

It doesn’t matter what a house costs, it matters what it rents for. Low income people don’t buy real estate, they rent a roof over their heads.

And are rents here really that unaffordable? I don’t recall where, but I seem to remember seeing some recent stats indicating that rents in Metro Vancouver have not kept pace with inflation, in spite of the rent control boogeyman. Rents are determined by ability to pay, and as incomes have not been keeping pace with inflation, it makes sense that rents would not either.

Comment from Marc Lee
Time: December 8, 2009, 9:01 am

asp, re-read the quote. And rents in Vancouver have gone up well past the rate of inflation for many years now.

David, I think poverty is about more than just the minimums for survival but about social inclusion. You may have a full belly and roof over your head but if you don’t get a present from Santa and all the other kids do, then you are poor (assuming you worship the religion of Santa, of course).

Comment from Econometron
Time: December 8, 2009, 12:31 pm

Mr. Lee,

Allow me to state the obvious: “poverty” in your world will always exist, unless of course the state redistributes income to the point of absolute equalization. As an economist, surely you would agree that such extreme forms of redistribution produce disasterous effects for people’s incentives to work and seek ways to improve their lot in life. So why support relative measures of poverty, apart from your clear preference for egalitarianism? It seems you are simply taking an ideological position and asking everyone else to follow.

Many thanks for your continued blogging.

Comment from Brandon L
Time: December 8, 2009, 1:37 pm

BC where I live is an example of the ill effect illusionary price gains, & long standing deficits. Not mention the winter olympics that will take time to pay for; like Ottawa city. Young BC talent will leave, they dont have to be saddled with higher taxes, to other provinces & countries.

People seem to forget that people emigrated here because we had less taxes & regulation & debt, like the US then nazi Germany, facist Italy & Spain, imperial Japanese, communist Russia and socialist Europe etc and Im seeing the hard workers leaving just as hard workers came here for the same reasons.

I know married couple moving to thailand mainly because when they retire don’t want the taxes. The wife works as paramedic & husband works on a oil rig. If responsible hard workers leave. BC has its problems & its not because of conservatives.

Comment from Rod Smelser
Time: December 8, 2009, 1:39 pm

I don’t notice any inclination on the part of anyone in public life to discuss what changes in municipal government structure, zoning or transportation policies would be necessary to bring about a significant downward adjustment in the market price of housing in the Metro Vancouver region, or in other over-valued BC markets.

The hard political fact is that no one, regardless of political stripe or philosophy, is willing to say or do anything which would result in a downward adjustment in the non-taxable capital gains people have in their principal residence.

Comment from asp
Time: December 8, 2009, 2:08 pm

“… rents in Vancouver have gone up well past the rate of inflation for many years now.”

This is common knowledge, but I have not seen the stats showing this to be true. So I decided to see what I could find in the way of stats. I found a Rental Market report from CMHC for 2008.

It shows that an average 2 bedroom apartment rented for around $850 in 1997 and $1124 in 2008.

I plugged $850 into the inflation calculator on the Bank of Canada site and it returned a value of $1074 in 2008 dollars. So yes, that is higher than inflation, but not by much, certainly not “well past the rate of inflation”.

I would love to see the stats for a much wider set of places, not just average 2 bedroom apartments.

Comment from David
Time: December 8, 2009, 2:48 pm

Marc, I see your point. I agree that people in poverty could still have a certain level of luxuries (by which I mean items which are “more than just the minimums for survival”) and still be poor/impoverished. But I think you can define some absolute level of luxuries that are sufficient to not feel like a total social outcast, and that it’s more appropriate to measure poverty in terms of absolute measures.

Take a poor school on the east side of Vancouver. Many of those kids’ families probably can’t afford proper food, such that some schools have hot meal programs to ensure kids get breakfast. Even though they’re too poor to afford three meals a day, those kids would not be impoverished by a relative measure since in their group of peers, they are all fairly equally poor.

If you look at Southlands, meanwhile, most households have stables with horses. If you own a house there without horses, you’re relatively way worse off than your peers. But I don’t think we’d argue that a horseless Southlands family is impoverished.

Granted, I’m talking about neighbourhood levels and we generally measure poverty on a larger scale, but I think the principle still holds. To me, absolute standards are a far better measure of poverty than relative ones.

Comment from Marc Lee
Time: December 8, 2009, 4:30 pm

Hi all,

Thanks for the comments. A few thoughts:

Econometron, I don’t advocate for perfect equality of outcomes, although I would like to see: a very high degree of equality of opportunity as it pertains to education; a labour market that allows a person earning the minimum wage to reach above the poverty line if they work full-year, full-time; and income transfers that ensure those who cannot work full-year, full-time are not destitute.

Another relative measure is the Low Income Measure, which is half the median income. By this measure all poverty could be wiped out if no one earned less than half the median. The cost of doing so is actually not that large, interestingly, though easier said than done.

asp, Royal Lepage has a great online database with historical housing stats including rents.
http://www.royallepage.ca/CMSTemplates/AskRLP/Buying/HousePricingSearch.aspx

It is a bit cumbersome, and I can email you my historical data file, which is up to date only until 4Q2007, but for example, a west side standard condo rented for $2200 in 4Q2007, up from $1600 in 2004 and $1000 in 2000. Renting a detached bungalow house in those same time frames was $3500 in late 2007, $2400 in 2004 and $1200 in 2000.

On that basis (and granted, the data are imperfect in coverage), I would say “well past the rate of inflation” is accurate. Not sure if that is true for 2008 and 2009, though, as there do not seem to be data on the Royal Lepage site.

Comment from asp
Time: December 8, 2009, 8:10 pm

re: Royal Lepage historical housing stats including rents.

My impression is that Royal Lepage only lists high end rentals, I don’t think they are representative of the rental market as a whole. I could be wrong, but I would prefer a more objective source of statistics.

Comment from asp
Time: December 8, 2009, 10:10 pm

re re: Royal Lepage Stats

Vancouver West condos rents are not really relevant in a discussion on poverty and cost of living. Vancouver East may be a better market, or perhaps Surrey. Even then, condos are the high end of the apartment rental market, not the typical accommodation of someone close to living in poverty.

Surrey 1993 – $ 600
Surrey 2008 – $1000

Vancouver East 1993 – $ 740
Vancouver East 2008 – no data

Vancouver West 1993 – $1100
Vancouver West 2008 – $2200

Note that these are estimated rents rather then what someone actually paid. I am paying $900 a month for a 1 bedroom apartment in the cool area of Vancouver East. However, one persons experience does not make a stat so I searched on craiglist and see lots of 1 bedroom apartments in the West End of Vancouver for around $1000 a month.

Again, I am having trouble seeing the Royal Lepage “stats” as objective.

The problem is that real, accurate stats are really, really hard to find, if they even exist.

Comment from Econometron
Time: December 9, 2009, 8:46 am

Mr. Lee,

You claim not to advocate perfect equality of outcomes, but your policy stance suggests otherwise. Perhaps I’m seeking consistency in your arguments that simply isn’t there.

Let me ask you: aren’t relative measures of poverty and equality of opportunity two very distinct issues? Herein lies the problem with relative poverty measures; they tell us nothing about equality of opportunity. Maybe the discussion should be about how best to measure poverty using an absolute measure? Some estimates are already available so more productively we could have a critical discussion about them, instead of relative ones. Agree?

As a side note, please recognize that if the minimum wage was raised 100 percent or income transfers doubled, poverty would persist according to your relative measure. You mention the “poverty line” but there is no such thing in your world since the “line” is a moving target when measured relatively. A point of clarification: even using Low Income Measure, poverty could never be wiped out mathematically – those earning below the median would always be considered poor.

I said I’m looking for argument consistency but on second thought I think I’m after realism. Any thoughts or help on this issue would be greatly appreciated.

Comment from Marc Lee
Time: December 9, 2009, 10:21 am

asp, I hear you on the lack of good data — too true for so many things. I would caution on drawing comparisons too far back as rents were very stable for a while during the 1990s, but have take off since 2000, which was my initial point.

But this is a sideline anyway — rents/housing costs are a lot more expensive in BC (and the big urban areas therein) and this should be reflected in our understanding of poverty. That’s what the original article is saying.

Econometron, perhaps I added a whole other dimension to the discussion by throwing in equality of opportunity, so we can save that for another discussion. As for the LIM, as I commented above, poverty could technically be wiped out (on this measure anyway) if no one earned less than half the median. Period. It does not require perfect equality of outcomes.

I prefer to look at a wide variety of indicators (absolute and relative) and see what the story is; I do not advocate for “one true measure” (nor was my post designed to be a knee-jerk defence of the LICO) so I don’t think I can give you the answer you seek.

But any progress on reducing poverty would be welcome, and would do much towards improving our overall standard of living since an extra dollar at the bottom would have much greater impact on life satisfaction than taking away a dollar at the top.

There is a good discussion of these general issues in a recent CCPA paper on the notion of a Guaranteed Annual Income:
http://www.policyalternatives.ca/publications/reports/possibilities-and-prospects

Comment from From one who knows
Time: December 13, 2009, 12:15 pm

Poverty is, when you have to choose between heat or food. Hydro is cut by, laundry is done in cold water, clothes are hung to dry, only one light on at a time. In the north, we spend more money for heat, and hydro. The furnace is set on 15 for day, 12 for over night. Poverty, is when you have to sell your car, because you can’t afford the gas, nor the insurance and, need the money to catch up on utility bills. Groceries, are now so high, you buy no meat, no cereal, at $6.00 a box, you can’t have any, there are many foods you have to do without. then, there are bills, such as, water, sewer and garbage, house insurance. Then there is the tax man. A senior has no write offs so, you get nailed for income tax as well. You pay much more, for those insurances and taxes, than you do for food. When the HST, is imposed, I will lose my home. However, rents are much higher than my mortgage, and, the only place I have to live, is, on the street. I doubt Harper, will increase the OAP, nor, will Campbell increase the $8.00 an hour, that doesn’t put any money in his wallet,so that is ignored. Those low income families will also be living in the streets. the, affluent citizens have no idea, how difficult life is for the poor. Campbell, says, he will pay a rebate quarterly, for low income residents. He doesn’t even know, with the HST, those citizens will run out of money, in a week, they will be homeless, by the end of one month. Children and all. This is a very relevant measure of poverty. There are no jobs, people are losing their homes, have used their savings, run out of E.I. Layoffs have been, stupendous, and, we people are told we have a 12% HST,loaded on us who don’t even have the basics. And, big mouthed citizens, should not try to tell low income families, that,they are not in poverty. Tell, the young mother, down the street, living on $8.00 an hour, with 2 children, means, she isn’t in poverty? I, assume, these people, who are critical, don’t have to worry about the HST, putting them on the street.

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