Market not behind lack of daycare spots: economists
Providers say strict regulations, tight profit margins pose barriers to opening facilities
Free-market forces have given Canadians the ability to summon meals or cars at the touch of a button and demand $1 million for an urban bungalow. But as frustrated parents know all too well, the same forces haven’t solved the problem of finding child care.
The Canadian daycare market has a well-established surplus of demand, resulting in anxietyinducing waiting lists — joined as early as the day a couple learns they’re expecting — and monthly fees that can amount to more than a mortgage payment.
“It’s worse than finding a house or looking for an apartment, it’s just insanity,” said Anjali Lowe, a civil servant in Ottawa.
Lowe started to worry after nine months of silence from the dozen daycares to which she applied through the city’s centralized wait-list system.
With her maternity leave ticking down, Lowe widened her search and found a promising home-based daycare, only to lose the position after asking for a police check. She also considered a private daycare that was just adding spots, even though it would add 45 minutes to her commute and cost $2,500 a month.
She finally managed to find a space — across the provincial border in Gatineau, Que., that worked as long as she made a temporary office change.
“Eventually you find something, you don’t have a choice because you need to go back to work,” she said.
Lowe is among thousands of parents searching for child-care spaces every year when there aren’t enough to go around.
In 2016, there was room for 28.7 per cent of all Canadian newborns to five-year-olds in regulated centres, according to a report by the Childcare Resource and Research Unit, a group promoting a universal, publicly funded child-care system.
In Toronto, one of the country’s most expensive daycare markets, a 2016 city-commissioned study found demand for licensed spaces outstripped supply by 4,069 spots, or about eight per cent of total demand — this in a city where the median cost for child care is $1,758 a month for children under 18 months, according to the Canadian Centre for Policy Alternatives.
Economic theory supposes that in a competitive market, such a surge of demand inflates prices to a point where there is incentive for innovation and more providers to come on board. That, in turn, is supposed to increase supply until the quantity demanded equals the quantity supplied, resulting in market equilibrium.
But daycare is no ordinary market. Child-care providers say a host of barriers — including strict regulations and tight profit margins — combine to pressure supply and make meeting that demand an expensive challenge.
One of the biggest hurdles is finding rental space, said Abi Paul, who opened Chapter1 Daycare in Calgary in 2015.
Some building owners don’t want to rent to daycares because of the renovations required, while operators who do find space have to pay rents charged to big conglomerates that might otherwise occupy the space, he said.
“They’re paying the kind of rent that Tim Hortons or Starbucks or any other major tenant would be expected to pay,” Paul said.
The time and effort to renovate a space and get all of the inspections and approvals completed also adds to the challenge and costs. It takes well over a year to open a space, he said.
Once the space is opened, because the business involves the delicate task of taking care of people’s children, there are also numerous regulations, including strict child-to-supervisor ratios that make it difficult to have flexibility in the business when other costs go up, Paul said.
“You cannot reduce hours, you cannot lay off staff because of the ratio requirements, so the only avenue you have is raise fees.”
Daycare does generally follow market principles, suggests Michael Krashinsky, an economist at the University of Toronto, but the cost of running a daycare means operators do their best to make sure spots are always filled — one of the reasons for the ubiquitous waiting list.
“It’s not that supply and demand aren’t operating — in fact, they are operating — but it means that you don’t tend to get your spot exactly when you want it.”
Use of child care in Canada shows the variety of ways the market is filling demand. About 31 per cent of parents use a home daycare, 33 per cent opt for daycare centres, and 28 per cent use private care like family or a nanny, according to a 2011 Statistics Canada report.
The real problem with daycare isn’t the market but the ability to afford the actual cost of care, said David Blau, an economist at Ohio State University who’s studied the issue.
“Often when people talk about not being able to find daycare, what they really mean is not being able to find daycare at a price that they’re willing and able to pay.”
The question becomes a problem of public policy rather than market principle, Blau said.
“The issue isn’t competition, the issue is just that high-quality care is costly to provide . ... That is definitely a social problem, it’s not a problem caused within the daycare market,” he said.
“It’s a problem of whether the government or society wants to ensure people can have access to high-quality care at an affordable price.”