House Price and Income Inequality in Canada

Key highlights

There is a negative relationship between the house price and the Gini coefficients. We see how an increase of 1% in the median sale house price leads to a reduction in the Gini coefficient. It’s about 6% for the nominal income and about 4.5% for the residual income.

This implies that income inequality improves as result of price increase.

House pricing negatively affecting income inequality doesn’t imply that house price escalation is a catchall solution for income inequality.

We need to research this further to explain the relationship.

One theory is that high-skilled workers are likely to:

• flow into high productivity areas
• increase income level in the region
• generate fierce competition for scarce land

This upward pressure on house prices further prevent low-skilled workers from moving into the area. This results in less income ranges and therefore an improved income inequality measures (lowering Gini coefficients) for the area.

The findings from this study serves to start a discussion among policy makers on the contradicting objectives of different policies at play.

This report is part of the Research Insight series. Read the full report House Price and Income Inequality in Canada: The Instrumental Variable Approach (PDF).

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