Canada’s family wealth gains look “fragile”

Don Curren / Wall Street Journal

If you divide Canadian families up into fifths in terms of net worth, the lowest quintile had net assets of about 1,300 Canadian dollars ($1,170) in 1999.

In 2012, it was actually below that; the overall worth of the lowest 20% of families declined 15.4% to C$1,100 by 2012, according to the “Survey of Financial Security” from Statistics Canada.

It’s a stark indication Canada is not immune the drift toward economic inequality in evidence in many other economies around the world.

“All in all, [the Statistics Canada report is] further disturbing evidence that economic inequality remains a serious concern,” said a blog posting from the left-leaning Broadbent Institute.

Income inequality is more frequently used as a metric when assessing economic inequality. But net worth, the wealth a family has when its debts are subtracted from its assets, also provides insight.

It’s important to note that, unlike the bottom 20%, Canadians in the four other quintiles did reasonably well in those 13 years.

The median net worth of Canadian families was C$243,800 in 2012, up 44.5% from 2005, and almost 80% more than the 1999 median of C$137,000, after adjusting for inflation.

Some analysts say the report undermines the idea Canada’s middle class is under siege, and that’s supported by the fact that the three middle quintiles all enjoyed gains of more than 75% since 1999.

But there is a catch. Much of the gain in wealth was driven by the increase in housing prices. If they drop, as many expect, that could erode much of the gains.

“Housing prices went up faster than any other form of wealth, including financial wealth, [and] housing wealth is more equally distributed,” said Andrew Jackson, senior policy adviser to the Broadbent Institute.

As in 1999 and 2005, the principal residence was the largest asset for Canadian households in 2012. Their median value was C$300,000, up 83.2% from 1999 and 46.6% more than in 2005.

Housing prices fluctuate, but debt is generally fixed. When the housing market collapsed in the U.S., many American households that had high net worth on paper watched it being eradicated as slumping housing prices left them with a sharply reduced asset position, or indebted overall.

“The experience of the U.S. tells us that housing values can fall, and housing debts will remain,” Mr. Jackson said.

If Canada’s housing market is subject to a sharp correction, as some analysts forecast, the value of Canadian families’ principal asset will decline without an offsetting decline in debt.

That fact points to the “fragility” of Canadians’ recent gains in wealth, Mr. Jackson said.