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Robert McGarveyCanada is a modern success story; with a functioning democracy, a tolerant, multi-ethnic society and an economy that’s the envy of the world. So how can it be that so many of our citizens can’t afford to put a roof over their heads?

It’s shocking to learn that many working Canadians are unable to gain a foothold on the property ladder.

What’s going on?

According to a recent study (covering six provinces) conducted by a coalition of affordable housing groups and the Vancouver City Savings Credit Union, Canada’s housing crisis is bad and about to get worse – much worse.

The study determined that increasing numbers of Canadian families are in distress. Shockingly, more than one in five Canadian families are spending more than half their gross income on shelter costs, while (more than) 40 percent of renters are in ‘core need’ (paying more than 30 percent of gross monthly income on accommodation). Ironically, this problem is more acute in suburban centres than it is in the superheated inner core of major cities.

It is common in academic circles to blame the federal government for the problem. The feds have, in recent years, cut back on investment in affordable housing programs. More dangerously, Canada’s existing stock of affordable housing (roughly 620,000 units) is at the end of their contractual lives and risk falling into disrepair or being converted into high-priced condos.

But, the truth of the matter is, governments are not the originating source of the problem. And their efforts, while necessary, are only addressing the most obvious symptoms of a deep-seated disease in modern [popup url=”” height=”600″ width=”600″ scrollbars=”0″]capitalism[/popup]. Ever since the ‘70s and the rise of monetarist-inspired economics with its ‘free market’ dogmas, Western wage earners has been losing ground to global capital.

MIT economist Peter Temin believes these dogmas have created a Dual Economy. There’s one economy for the upper third of society. These people own capital, their own businesses and/or homes and other forms of capital. Or they have professional qualifications that guarantee them an upper middle-class lifestyle. These folks can afford to buy houses, educate their children at the best schools and lead the good life.

For the remaining two thirds the situation is quite different. They tend to live paycheck to paycheck and are slowly being priced out of home ownership. Their children have little hope of rising up the ladder into the elite classes. Distressingly, as real estate prices continue to outpace the economy in general, these families are falling – in increasing numbers – down the property ladder; many are being forced into ‘core need’.

Ironically, this was not a problem in the past. From 1948 (when records first starting being kept) until the early ‘70s, productivity and wages tended to grow in lock step. In other words rising wages in Western developed economies like Canada were keeping pace with the growing post war economy. Middle class home ownership was common and affordable on one family income.

From 1973 onward wage growth has slowed almost to a crawl while productivity continues its steady rise. What does all this mean? It means inequality is structural and the affordable housing crisis is expected to become more acute in future.

How do imbalances in capitalism create a problem in housing?

If we think of our economic productivity as the ‘value’ of labour and wages as the ‘cost’ of labour, it’s clear that since the ‘70s there’s been a massive transfer of value from labour to the owners of capital. This transfer is disadvantaging wage-earners by keeping wage growth well below its true value. But that’s not all: this additional value is not being consumed and spread evenly throughout the economy. It’s accumulating as surplus and plowing into assets; creating unsustainable bubbles in the property and stock markets, thereby compounding the affordable housing problem.

These kinds of structural flaws in our economy weren’t supposed to happen in Canada. After all, we’re the ‘rich’. Economists describe Canada as part of the ‘developed’ world; other poorer nations are classified as ‘developing’ – hoping, one supposes, to become as ‘rich’ as the industrialized West.

We got to our present state of prosperity in Canada by being innovative, fair and inclusive. It’s now time to dust off these traditional values and correct these imbalances in modern capitalism before it’s too late.

Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.

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