'It's difficult to attract people without paying them a huge salary to compensate for housing costs,' says CMHC's deputy chief economist
Soaring housing costs in Canada’s biggest cities aren’t just a personal financial burden, they’re now eroding employers’ long-term growth potential.
The housing affordability issue is making it difficult to attract skilled workers, leading to wage inflation, benefits enhancements and labour shortages, resulting in overall productivity and corporate performance.
As Aled ab Iorwerth highlights, when workers can’t afford to live where the best jobs are, businesses struggle to attract and retain talent. That mismatch is already dragging on productivity, and employers will soon feel the consequences if they don’t take housing affordability more seriously.
"There are wider impacts on the overall economy. Housing costs have become such an issue that they’re now [part of the decision-making process] when individuals and households choose where to live," said Canada Mortgage Housing Corporation’s (CMHC) deputy chief economist.
"They may see a very attractive job opportunity in another city, but they can't afford the housing costs, and so they turn that job opportunity down."
The impact is particularly felt in Vancouver and Toronto, where rising costs are forcing people out. The result is fewer skilled workers in places that need them most.
"It's becoming difficult to stay in these cities that they have to move elsewhere," he said. "They may even be turning down jobs, and this is particularly for the young."
That loss of mobility stifles career growth and weakens the workforce over time. As such, employers may soon to need to look at ways to remain competitive by either raising salaries or enhancing their benefits like offering transit rebates to compensate for commuting time or even rent.
That said, employers hoping for a solution through higher wages will hit a wall. Housing prices have outpaced salary growth for years, and without enough new supply, the market remains tight.
"There's demand growth in these cities. Demand is going up, but the supply side is not responding," Iorwerth said. "When you don't have as much supply responsiveness, prices will go up. It's a classic demand and supply story."
Iorwerth pointed to CMHC’s recent report found that a 1 per cent increase in housing prices in a city corresponds to a 1 per cent decline in migration to that city, reinforcing concerns that expensive housing is restricting labour market flexibility.
Essentially, when workers can’t move to where jobs are, businesses struggle to innovate, leading to overall productivity losses.
"People aren’t getting as much skills as they can," he said. "It's creating a long-term damper on the Canadian economy."
Is remote work the solution?
Even with remote work reshaping the labor market, housing costs remain a major obstacle. Some established professionals can relocate to cheaper cities and work from home, but for younger workers, that’s not always an option, as Iorwerth argued they need to gather skills on the job.
"They need coaching, mentoring, and further skills in the job at the workplace," he said. "Some of that can happen remotely, but there are some struggles in that area.”
While remote work offers some flexibility, it does not fully address the issue, particularly for industries that require on-site collaboration.
“In some industries, like entertainment, communications and media, you need that face-to-face interaction to develop new skills whereas this may not be as prevalent as other industries.”
West coast sees migration
Other cities, like Calgary and Edmonton, offer a contrast. Their housing supply has expanded alongside population growth, keeping costs relatively in check. Consequently, businesses in these places are better positioned to attract workers.
“The picture is a little bit different in Alberta because their demand has been going up but the supply has been responding,” said Iorwerth. "Housing costs in Toronto and Vancouver are deterring growth. People are reluctant to move there and it’s difficult to attract people without paying them a huge salary to compensate for housing costs."
Meanwhile, in San Francisco, where housing affordability has reached crisis levels, employers are actively lobbying for more supply, Iorwerth noted.
"They are effectively lobbying for more housing supply to try and curtail these cost increases," Iorwerth noted. "They've been supporting YIMBY (Yes, In My Backyard) movements. It's a long-term effort, but I think employers are facing the reality of how much they have to pay their workers to get them to move to Vancouver or Toronto.”
Commercial to condo?
Some see the overabundance of vacant office space as a possible housing solution, but conversions aren’t as simple as they seem, said Iorwerth.
"There's a lot of engineering stuff with ventilation systems and the geometry of the floors is different with the location of the elevator," he said. "There's a lot of opportunity there, but there may be less of it than people might think. It's certainly an area that should be explored though.”
Iorwerth believes some of these office buildings could be converted into residential units that are maybe not quite as attractive but would otherwise result in being more affordable and cause landlords or employers to consider buying or renting the spaces.
If businesses want to remain competitive, Iorwerth asserted employers will need to do more than just raise salaries or offer remote work options.
"They need to make local governments understand the importance of housing costs and how it’s having an impact on their business," Iorwerth said. "They should really be supporting efforts to increase housing supply and emphasize how important housing affordability is to their workers.”
