The Realities of Housing Costs and Implications for Financial Health
It’s no secret that Toronto’s rents are out of reach for many. Despite a recent cooling in Toronto’s rental market, Rental.ca reports an average rent of $2,013 for a 1-bedroom and $2,655 for a 2-bedroom in September 2020.
None of the participants in this study own their own home. Three explicitly mentioned the purchase of a home as an element of their long-term financial planning. Unsurprisingly, rent and utilities is the greatest expense for eleven of the twelve, with only business expenses surpassing rent and utilities for the twelfth. Rent makes up on average 29% of income when only looking at those that paid rent (as opposed to alternative living arrangements, like living with family). Four individuals paid no rent during the study period. In one case, the participant lived rent free in a property owned by a family member. In three cases, the participant lived at home with their parents and were not asked to pay rent, though they contributed to other household expenses.
Across all participants, cost of rent per month averaged $549.63. When only considering those that paid rent the figure is $989.34. These numbers are considerably lower than those shared by Rental.ca. For those that pay rent and for those that don’t, adaptations were made to reduce costs to be in line with average income. In only two cases did rent resemble the average figures listed for Toronto. Living with roommates well into one’s 30s, splitting rent with a partner, and intergenerational co-habitation were equally common in the study group. One study participant, in their 40s, is the sole income earner for their family through their creative work and commented on the challenges this entailed.
“Rent and things related to the home probably make up 60% of what I bring home and I’m always having to make sure that deals or opportunities are lined up 3 months, 6 months in the future. If things turn sour, I’ve got no safety net other than relying on debt. One deal falls through or one payment later than the 60 days I usually have to wait, and I risk bouncing my cheque. And I’m established. I get sick for any length of time and it’s over”.
Emerging artists dream of owning a home or acknowledge that the ambition is unrealistic. One emerging artist, when asked about their long-term savings plan offered, “I do not currently have one past buying a home in the next two to five years”. There are communities in Canada where rents are more aligned with the revenues described in the study results.
The Importance of Place - The Creative Sector Example
Certain industries are incredibly concentrated in Canada, and the arts and creative industries represented in the study are a prime example. The City of Toronto estimated that, in 2011, the cultural economy contributed approximately $11.3 Billion to the city’s GDP. The Cultural Satellite Account (2010) suggest that overall contribution to GDP of culture was just over $50 Billion across Canada. One in five dollars spent on culture are spent in the City of Toronto. Moving to more affordable locales would address the challenges of affordable rent but would greatly complicate the process of establishing oneself in the creative field. The struggle to pay rent is therefore addressed through episodic work in the gig economy and cost-saving approaches that significantly impact the lifestyles of the study participants.
Another emerging artist spoke of pressures to relocate to Coburg or Port Hope as his sister and her family had done. He saw the cost benefit but was clear that his creative career would have no traction should that move be made. While digital creation and production is making living at a distance more of an option, emerging artists must immerse themselves in the Toronto cultural community not only to make work, but to develop the relationships and connections necessary to carry that work forward.
Pivoting on compensation structure – Opportunity in Mutual Ownership
Another participant works in a field that demands considerable travel. Their apartment in Toronto served as both a home base and a rental property through AirBnB prior to the COVID-19 pandemic. COVID has severely restricted demand for apartment-sharing platforms such as AirBnB. COVID has also restricted travel for work, particularly to the United States, which has forced the participant to find more work locally. The price point that local partners can afford is less than their traditional multinational clients and so the study participant described a pivot to taking an equity position in firms they work with to make up for the lost earning potential brought about by COVID.
The conversation about this change is outlined here:
Participant (P): “Now as of 2020, I want 2% of the company”.
Researcher (R): “And this is with smaller companies? With startups?”
P: “No, no, no, no, not startups. Companies that are showing significant earnings. Like the project that I'm on right now, I'm being underpaid on paper because I want a share, I want to sit at the table”.
R: “And then they can afford you, which means they can grow?”
P: “Yes, I can grow with them”
There are many examples of artists and creators allocating risk and expenses across family or social relationships to pursue their creative ambitions. Housing is a key example of this as participants manage to keep their household expenses under 30% of total expenses even at relatively unstable and low levels of income in an expensive rental market. There are disadvantages to this approach, of course, as physical distance, sharing of resources such as vehicles, and an inability to work out of their homes create barriers to rapidly expanding the business side of their creative practice.
However, it is encouraging to see some attempting similar approaches to distributing cost and reward through the assumption of an equity position in client work. The participant is addressing shortfalls in revenue potential due to travel restrictions by taking lower fees in exchange for an equity position in the firms they support. This approach is uncommon in the creative sector. Why might this be?
The difference seems to come down to levels of formality and structure. Living with family or roommates requires little to no contracting or customization of agreements. Taking an equity position in a partner is a complex process requiring legal assistance outside the reach of most of the participant group. Informal agreements on ownership and intellectual property too often lead to conflict or misunderstanding. Put simply, sharing costs can occur informally and incrementally. Sharing revenue upside seems harder to administer and often requires the support of trained (and expensive) professionals. Moreover, the timelines extend into years, rather than months.
Gaps in Financial Services Access and Opportunities for Innovation
Informal structures can often impact financial access for creative entrepreneurs. In fact, so much of the gig economy and the cultural sector occurs informally that two of the participants didn’t have their own bank account for the duration of the study. Financial services face significant challenges when it comes to these informal and unwritten agreements. Stakeholder accountabilities and expectations, regulatory constraints and widely adopted risk management practice create barriers to access for many creative entrepreneurs.
Creative collaboration on vehicles to bridge this gap at scale is an important opportunity. This would not only change to capacity of the financial system to service a significant economic sector, it would also change the financial health outcomes for many working in the sector.
Creators will often support each other’s projects, but these exchanges occur within friend groups or like-minded networks of practice. More formal methods of exchanging expertise or assets are less-well explored. Might there be an opportunity for ownership and equity to play a larger role in collaboration and coordination in the cultural sector? The study shows that finances are generally tracked loosely. Mutual aid tied to revenue would need to see greater attention to formal elements of project development and commercialization.
The willingness to explore different models is clearly evident in how expenses are controlled by study participants. A similar willingness to share in revenue through exchanges of services and expertise is less common. A lack of instruments to regulate these agreements may play a role in the hesitancy to allocate upside in this way.