Housing Market in the big cities

[Independent1986]

Topic of discussion: where did the government failed its citizens in regards to housing in the big cities ?

I work and live downtown in one of the big cities in Canada, very lucky to work from home and to not have my financial situation affected that much but started thinking why the rents are so high and so many people will not be able to pay if they don't have savings.

I was talking to a friend and he was telling me the one of the reasons the rents are high everywhere is because foreign investors (mostly from China) buy condo buildings and then leave them empty as an investment and they do not allow people to rent.

Don't get me wrong I don't agree with communist posters that say: "don't pay your rent", "free housing" but it begs the question, where did the government failed that a foreign investor has priority over its own citizens ?

[Moonlight Graham]

Our governments (federal, provincial, and municipal) are corrupt.  When rising housing prices greatly benefit massively powerful & wealthy entities like developers, rich land owners, mortgage brokers, banks, real estate companies etc. and they have political influence on our politicians, there is little incentive to change things to help the little guy unless it becomes a key election issue.

It's not just foreign investors, it's allowing domestic investment speculating too.  A ton of people living in Vancouver or Toronto etc have investment properties along with their own home.  If you don't live in the house you own, why shouldn't you pay a big tax?  Then you have these big cities being the place where new immigrants concentrate, putting more pressure on demand.

Now add cheap borrowing interest rates since the 2008 recession, plus the real estate market always figuring out new ways to make bidding go higher, and now we you have the current situation.  Major regulation is needed, but it won't come unless the whole system is at clear risk of collapse, and then it will probably be too late.

 

[Independent1986]

Yes, and this explains the rise of the populist left, creepy old men like Bernie that speaks a language familiar to us eastern Europeans, it sounds good but in practice it does not work, it creates a disaster.

I said it for years if the system does not correct itself we risk having a major change, that's why populists from the left and right are rising.

Edited April 20, 2020 by Independent1986

[Michael Hardner]

I like how we are warned that making change will create a disaster, as though the status quo is not a problem.

[Moonlight Graham]

1 hour ago, Michael Hardner said:

I like how we are warned that making change will create a disaster, as though the status quo is not a problem.

Who says this?

[Michael Hardner]

37 minutes ago, Moonlight Graham said:

Who says this?

Independent 1986.

[cannuck]

11 hours ago, Moonlight Graham said:

Our governments (federal, provincial, and municipal) are corrupt.  When rising housing prices greatly benefit massively powerful & wealthy entities like developers, rich land owners, mortgage brokers, banks, real estate companies etc. and they have political influence on our politicians, there is little incentive to change things to help the little guy unless it becomes a key election issue.

It's not just foreign investors, it's allowing domestic investment speculating too.  A ton of people living in Vancouver or Toronto etc have investment properties along with their own home.  If you don't live in the house you own, why shouldn't you pay a big tax?  Then you have these big cities being the place where new immigrants concentrate, putting more pressure on demand.

Now add cheap borrowing interest rates since the 2008 recession, plus the real estate market always figuring out new ways to make bidding go higher, and now we you have the current situation.  Major regulation is needed, but it won't come unless the whole system is at clear risk of collapse, and then it will probably be too late.

 

It is not just real estate, but equities and anything else done by finance that has shifted what is happening within the economy (of the world).  What governments are far too inept to appreciate is that ANY speculative gain of any kind creates NO wealth - it merely re-distributes it.  Problem is: if you have such a change in value, it happens by having a winner on one hand and a loser on the other - a zero sum game it would seem.   Not quite so.   When you rack up a bunch of specualtive gains, you need money to feed the increase, so it makes government expand the money supply to cover what is ultimately an inflationary force.   What that does is heap the actual cost of Chinese real estate speculators or Wall Street and Bay Street financial manipulators right back on the taxpayer and general public.

Until we as a species recognize that wealth can be created in only two ways: adding value to a resource, or deliver a service required to support the value added process and that ANYTHING else you do is merely wealth re-distribution we will not correct the inequities that come from government granting the privilege to manipulate and exploit the situation to a small cadre of financiers - that happens to include real estate speculators of any stripe.   While a healthy economy can tolerate a little bit of speculative shit, we have essentially handed over our ENTIRE economy to the world of finance and will all be "shocked and surprised" when it once more goes down the drain (as it DID in 1929 and SHOULD HAVE BEEN ALLOWED TO DO in 2008).  Instead, the Sheeple bought into "too big to fail" and "quantitative easing".

[Moonbox]

Well that's a gross oversimplification, and wrong in many regards.  The idea that we should have allowed the economy "fail" in 2008 is straight-up dumb.  It shows a profound lack of understanding for how our economies work and a version of revisionist history that forgets what the 1930's were like.  Our economic system certainly isn't perfect, and it's definitely exploited, but speculation is they key to a free market economy.  Everything about our economy, from buying milk at the grocery store to building giant new condo complexes in Toronto is based on speculative profit-driven business.  Anytime you offer something as a service or good you're taking a risk that you won't make a return on your investment.  

Speculation can, however, get wildly out of hand, and you can easily argue that we're in that environment today.  On that we can agree.  The inflated real-estate market in Canada is a house of cards based on cheap credit more than foreign investors (though we really don't know to what extent they've driven prices up).  When the BoC dropped rates in 2008/2009 to ease against the Great Recession, that was good policy.  It was, however, only supposed to be temporary.  Instead, provincial and federal governments (along with the BoC) allowed and encouraged the housing boom to continue to absurdity. 

There's no doubt that financiers, banks and realtors have profited immensely off the boom, but blaming it on them is too easy.  I have clients with <$100,000 family incomes that own 2-3 fully-financed rental properties in the GTA.  I wish I'd met them before they bought into the seductive realm of easy-money real-estate, but the fact is that they're not particularly bright.  They are also quite greedy.  From the very top to the very bottom, people are greedy.  The smart and greedy tend to do better than the dumb-and-greedy, but the bottom line is that greed is what feeds these sorts of bubbles - greed and a healthy dose of ignorance and short-term thinking. 

I've said in other threads, but the one thing that Western governments and economies never fail to do is ignore obvious problems and risks until they blow up in their faces.  

 

Edited April 20, 2020 by Moonbox

[Independent1986]

14 hours ago, Michael Hardner said:

I like how we are warned that making change will create a disaster, as though the status quo is not a problem.

"Capitalism is the worst economic system, except for all the others that have been tried."  We have been through the alternative in Eastern Europe. I remember my mom telling me stories how she had all this money but no eggs to buy, "for the people" created more damage than the status quo. So how does one society change a system but not go fully to the socialistic communistic spectrum ?

[Moonbox]

It's not really a black-or-white decision.  There's a wide grey-area in between, but we know that both of these extremes (and everything in between) is prone to corruption, stupidity and short-term thinking.  

Frankly nothing is going to change until voters smarten up.  Too few people actually care enough to read a newspaper and inform themselves, so nobody ever really sees or understands what's going wrong.  

[Michael Hardner]

34 minutes ago, Independent1986 said:

1. "Capitalism is the worst economic system, except for all the others that have been tried." 

2. We have been through the alternative in Eastern Europe.

3. So how does one society change a system but not go fully to the socialistic communistic spectrum ?

1. Agreed.

2. At this point, all of the Conservatives on the board would normally chime in and say "don't tell us how to change our politics".  I am open to hearing from you, but you need to study Canadian politics of the recent past.

3. One is Canadian.  We are not purely capitalist nor socialist.  We are pragmatic.

[Argus]

In a Capitalist market the price of goods will be governed by supply and demand. And those two invariably balance each other except where government interferes. And government has hugely interfered in the housing market in Canada for a very long time. A study by CD Howe showed that a big chunk of the cost of housing is directly related to government fees and regulations. Government also stringently controls rental prices and the regulations surrounding evicting tenants for violating their leases, which deters companies from investing in the construction of rental housing. Quite simply, if you can make more profits building a condo than an apartment building you're going to build the condo. Why wouldn't you? And government regulations limit how many new condos and single family homes can be built, and where, which also causes dramatic upward momentum in prices.

Add that government encourages demand, particularly for cheap housing, by bringing in half a million foreign students and almost as many temporary foreign workers every year, along with tens of thousands of asylum claimants and hundreds of thousands of immigrants. And the answer to these problems government causes, at least as far as the Left seems to be concerned, is to have the government itself build housing. Which it does at great cost, and then fails to maintain (also at great cost).

Government housing regulations are a key force behind rising prices for new homes in Canada’s costliest cities, according to policy-research group C.D. Howe Institute.

Zoning rules, delays on permit approvals and municipal development fees all contributed to a steep increase in prices of single-family detached houses across Canada, C.D. Howe said in a report Tuesday. The study focused on eight areas -- including Toronto, Calgary, Vancouver and Ottawa-Gatineau -- where new-home prices are more than 20 percent higher than the cost of construction. In those cities, barriers to homebuilding added an average of C$229,000 ($179,000) to the price of a house from 2007 to 2016, the group said.

https://www.bnnbloomberg.ca/government-rules-add-to-rising-home-prices-in-canada-study-says-1.1077063

 

Edited April 20, 2020 by Argus

[cannuck]

2 hours ago, Moonbox said:

Well that's a gross oversimplification, and wrong in many regards.  The idea that we should have allowed the economy "fail" in 2008 is straight-up dumb.  It shows a profound lack of understanding for how our economies work and a version of revisionist history that forgets what the 1930's were like.  Our economic system certainly isn't perfect, and it's definitely exploited, but speculation is they key to a free market economy.  Everything about our economy, from buying milk at the grocery store to building giant new condo complexes in Toronto is based on speculative profit-driven business.  Anytime you offer something as a service or good you're taking a risk that you won't make a return on your investment.  

Of course, I will respectfully disagree with you.   The mere fact we are running our economy into the ground by doing nothing but speculative investing is absolute evidence that what is conventionally understood (note: pretty much ever chair in economics worldwide seems to be sponsored by banks) and taught.   I happen to have spent a LOT of time with a few genuinely intelligent economists who's views I share - and are dramatically different from classic models.   I am also old enough to have known many people who lived through the '30s and I am more than a little aware of the history and facts of what was right, what was wrong, what was good, what was bad, etc.

Where I think you do have a grasp on reality is realizing government's role in screwing up royally.  What you may not understand is that government is a short term thing, owned and operated by financial interests, who very directly affect what government does.   GOOD government we don't have (pretty much anywhere these days).   What we do have is institutions that spend their days granting privilege to those who would benefit financially and /or politically from said activity.  Pretty much defines what BAD government is and does.   What NONE of them can do is understand the fundamentals of how wealth is created and how wealth is re-distributed.   I take it from you tenor, you live by the world of free rides in Casino Capitalism - that is dramatically different from the capitalism that built and builds economies that are then sucked dry by finance.

[eyeball]

With regards to real estate and supply and demand recall the adage they're not making land anymore.  I really don't understand why that is in a country as large as ours.  I'm surrounded by thousands of square kms of unoccupied lands.  I get that you can't just drop people off in the wilderness and let them have at it but surely there are different approaches governments can take to open up a little more on the supply side of things.  Long-term leasing of crown lands or indigenous territory for example.

[Michael Hardner]

28 minutes ago, eyeball said:

With regards to real estate and supply and demand recall the adage they're not making land anymore.  I really don't understand why that is in a country as large as ours.  I'm surrounded by thousands of square kms of unoccupied lands.  I get that you can't just drop people off in the wilderness and let them have at it but surely there are different approaches governments can take to open up a little more on the supply side of things.  Long-term leasing of crown lands or indigenous territory for example.

They're not making people either.  Or at least, we aren't.  So we have to import them so they can help finance the dividing up of the land.  And if they don't want to come, they can just stay for a weekend, and we'll keep a place open for them all week.  Or they might just buy a place and let it sit empty if they think it will go up in value.

 

[Moonbox]

39 minutes ago, cannuck said:

Of course, I will respectfully disagree with you.   The mere fact we are running our economy into the ground by doing nothing but speculative investing is absolute evidence that what is conventionally understood (note: pretty much ever chair in economics worldwide seems to be sponsored by banks) and taught.   I happen to have spent a LOT of time with a few genuinely intelligent economists who's views I share - and are dramatically different from classic models.   I am also old enough to have known many people who lived through the '30s and I am more than a little aware of the history and facts of what was right, what was wrong, what was good, what was bad, etc.

Economy IS speculation.  If you're going to say you're spending lots of time with economists, you should at least understand that.  Everything about every economy ever is speculative.  Go back to cave man times and it's still true.  

In a way, I agree with you.  There's little/no value in a purely speculative, self-propelling boom like we've seen in the Canadian housing market.  Similarly you can see stupid crap like the Canadian Cannabis boom (and bust), Tesla's ridiculous valuation and examples like this go all the way back to the Dutch Tulip bubble.   

A booming and growing market is a good thing, to a point, but there often comes a time when the valuations are divert entirely from fundamentals and math.  As the mania sets in, when prices are at their highest, there are still fools with FOMO that are going to be greedily buying.  Eventually something gives and that sucks but fools get parted with their money.  That's a simple fact.  What we DON'T need is our governments encouraging and/or ignoring this stupidity on a systemic level.  Stock market booms and busts are at least self-limiting.  Credit-fueled ones are not.  The time for stricter mortgage rules and foreign ownership taxes were apparent back 5-10 years ago, but Canadian governments dawdled on it and here we are now.  

 

[Moonbox]

22 minutes ago, Michael Hardner said:

They're not making people either.  Or at least, we aren't.  So we have to import them so they can help finance the dividing up of the land.  And if they don't want to come, they can just stay for a weekend, and we'll keep a place open for them all week.  Or they might just buy a place and let it sit empty if they think it will go up in value.

 

My cousin has a $1M home in Waterloo sitting empty next door to him.  It happens a LOT.  

Part of the problem with low fertility in the western world is economic uncertainty.  We need immigrants for sure still, but unaffordable housing and lower fertility go hand in hand.

[Michael Hardner]

3 hours ago, Moonbox said:

My cousin has a $1M home in Waterloo sitting empty next door to him.  It happens a LOT.  

Part of the problem with low fertility in the western world is economic uncertainty.  We need immigrants for sure still, but unaffordable housing and lower fertility go hand in hand.

We have had low fertility since 1965.  This is Globalism...

[cannuck]

18 hours ago, Moonbox said:

Economy IS speculation.  If you're going to say you're spending lots of time with economists, you should at least understand that.  Everything about every economy ever is speculative.  Go back to cave man times and it's still true.  

You are missing the entire point, I think.   Speculation is a distortion within the economy, not the economy itself (you can be forgiven, after all, it was Ronny Raygun who told the US population not to count on SS but to put their money into their 401K).  You are using semantics of speculation to infer that business is all about speculating.   Speculating on your possibilities of success is doing business in a manner that YOU can control by adding value and CREATING wealth.   Financial speculation is the exact opposite: you gamble on the value of an asset or transaction that you can NOT control in any way, and which through its speculative change in value creates NO wealth, but merely redistributes.

The economy is a productive thing that uses capital to create wealth.   The mere existence of same is essential for surplus to be available for others to take advantage of speculating with the money they can skim or manipulate from the actual economy (the capitalist one).

It isn't that difficult to understand.   You just have to learn to observe and think logically instead of regurgitating the total BS from The Street and those who worship at the alter of greed and privilege.

[Moonbox]

Sorry, but you're missing the point.  You're arguing as if anything has fixed value, and nothing does.  The economy functions on perceived value.  There's no such thing as objective intrinsic value for anything, and therefore no such measurement for adding value either.  Every single exchange of money is a function of timing and circumstance, and every single one of those is a transfer of "wealth".  

While it's true that the most important determinant of an economy's success is its ability to somehow create or add value, you grossly oversimplify everything that happens around this activity and seem to misunderstand the concepts of which you're speaking.  Speculation is not a distortion in the economy.  That's a ridiculous idea and falls flat on its face.  Take new home construction, for example.  The difference in value-added for a new construction in Fort McMurray today is VERY different from what it was in 2014, and all that's changed are the circumstances.  The interesting thing about that is that the input price for that new home is WAY cheaper today than it was in 2014 (folks are desperate for work), but someone who goes through the trouble will still lose money today, where they would have had a nice profit in 2014.  

By your logic, I don't even know what you'd suggest should have happened.  Should there have been some sort of calculation on what the price of a home should have been in 2014, and that the price in 2019 should be a function of 2014 values + inflation +/- changed input costs?  No. 

My argument isn't semantic.  The issue with your line of reasoning is that you think you can boil these sorts of issues down to simple equations.  That's not possible.  The systems are far more complex and organic than you'd have us believe, and the speculation you deride is part of the supporting network of activity that allows for wealth-creating activity.  That part you seem to understand, but then you  characterize it as a somehow unhealthy part of the economy.  It isn't.  That sort of speculation is necessary for economic activity and growth.  

It's not a perfect system, and there are plenty of inefficiencies and even folks who take advantage of them in a less-than-wholesome way (90% of realtors).  That much we'll agree on, but I'm not sure what you consider as the alternative.  

 

 

[cannuck]

I imagine you make money by somehow drinking and regurgitating the Koolaid from the Street.   Reality is actually very, very simple.   Yes, speculation happens, but market forces determine the cost of goods and services.   THAT is all that should ever be a factor in the cost of a home in Ft. McMurray, Toronto or Moose Jaw.   Speculation happens because we (the royal we) give privilege to those who make speculative gains a free ride on the tax system.   You can kill off speculative transactions in a flash by simply taxing speculative gains heavily.   That will drive investment money out of the speculative market and into the real capitalist economy that EARNS money by doing useful, productive work.   Main Street.   If we were having this disussion in the '30s, EVERYONE understood this very well.