Wealth gap widening in Canada as middle class loses momentum

The wealth gap in Canada has widened significantly, with middle-income families feeling the squeeze due to inflation, higher interest rates, and lower property prices. According to a recent study by TD Economics, the income gap is now the widest it has been since 2015.

Toronto Dominion economist Maria Solovieva emphasized the importance of these middle-income families to the economy, noting that their spending habits have been a key driver of economic growth. However, with their financial constraints increasing, consumer spending is expected to slow down.

While overall household net worth has increased, the gains have not been evenly distributed. Higher-income households saw a 6% increase in income, while lower-income groups barely saw any growth. Real estate, a significant source of wealth for lower-income groups, lost value, leading to increased mortgage debts.

Middle-income earners, in particular, have become more indebted as their earnings failed to keep up with inflation. This could have a significant impact on the economy, as spending by higher earners will likely be needed to sustain economic growth.

As the economy grapples with these challenges, the housing supply deficit in Canada has reached unprecedented levels. The working-age population has grown significantly, but housing starts have remained stagnant, leading to a severe imbalance. It may take years to address this issue, leaving Canadian households to deal with continued housing cost inflation.

In conclusion, the widening wealth gap and housing supply deficit pose significant challenges to the Canadian economy. Middle-income families are facing financial constraints, while higher earners may need to drive consumer spending to sustain economic resilience. Addressing these issues will be crucial for ensuring long-term economic stability and growth.