Monday, July 18, 2011

Ottawa is the cheapest place to live in Canada
Is that a good thing?

I’m torn. Last week we learned that Ottawa is the cheapest place to live in Canada. The Mercer report considered the costs of housing, transport, food, clothing and entertainment. Toronto is the most expensive followed by Vancouver, Montreal, and Calgary. It’s no surprise that the “Big 3” are at the top followed by Calgary, the list almost follows the order of Canada’s largest cities; the only difference being Montreal is Canada’s second largest economic centre.

As a consumer and Ottawa resident I’m excited that our cost of living is lower than other cities, and that things are affordable for families, but we need to look deeper into these kinds of reports asking why we’re the cheapest place to live in Canada.

The economy is governed by supply and demand and if we apply this law we can come to some interesting conclusions based on this report. There are a number of reasons why a city may be cheaper to live in than another, but supply and demand has something to do with it.

Supply and demand say that when demand goes up price also goes up and vice versa, and when supply goes down price goes up. An example of the prior is rents. As more people demand residential units, and are willing to pay more, the more landlords or developers will charge. An example of the latter is salt. At one time salt was extremely valuable because it was so rare (low in supply), but now it’s cheap because it’s so available (high in supply). Equilibrium in the market, where demand meets supply, is based on what consumers are willing to pay for a thing. What does that mean?

Toronto is more expensive, especially when it comes to housing and entertainment, because demand is higher; more people want to live and play in Toronto and they are willing to pay more for that experience. Cities like Toronto and Vancouver have become breeding grounds for international real estate investors. As these investors demand more properties and are willing to pay more, builders will charge more.

So this is why I’m torn. As a resident and consumer I like the fact that Ottawa is cheaper to live in but most likely it’s because demand for all things Ottawa is lower than demand in other cities. We don’t attract as many new residents and national/international investors as other cities so the demand for residential units isn’t as high. Entertainment in Toronto is in high demand due to their number of professional sports teams and theatre companies while we have one serious pro team, an array of amateur and semi-pro teams, and small theatres.

So, some people may read this as Ottawa being the cheapest place to live in Canada; I read this as Ottawa has lower levels of demand than other Canadian cities across the board.

The question I’m asking myself is, “Would I prefer that Ottawa be an economic juggernaut with high levels of demand but a higher cost of living, or would I prefer that Ottawa sustain a lower cost of living but be an economic underachiever?”

To be honest most times I’d prefer the prior. Maybe it’s because I’ve lived in Toronto and have already experienced high cost of living. Maybe it’s because I like to be the best at everything I do and being fifth in line as an economic centre doesn’t jive with me. Maybe it’s because I’m business-minded.

I think that’s why I’m torn. As a resident I love the fact that Ottawa is the cheapest place to live in Canada, but as someone who is business-minded I don’t like what that says about our local economy (although having a low cost of living does have its advantages).

Families with two children and a dog are typically attracted to cities with a low cost of living. Entrepreneurs, which are risk takers by nature, are typically attracted to larger economic centres where they’ll have access to the resources, mentorship and culture required to be successful. They aren’t typically looking for the job security and low cost of living that Ottawa provides.

So I take this announcement with a grain of salt. We are a cheaper place to live which really means demand is lower than in other Canadian cities and people aren’t willing to pay as much for stuff in Ottawa. I still don’t know if this is a reason to celebrate.

Kevin Bourne

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