Dive into the deep, no lifejacket necessary [Canadian Housing] [Inefficient Government]

Supply and Demand stupid. The reason given for the recent upshoot in home prices. Seems simple enough, a very obvious solution to the giant elephant in every Canadian who hasn’t bought real estate’s life. How can we not understand, the supply of homes is low and more immigrants are coming into the country therefore prices will rise. Even a simpleton can understand that. Try to go to a Real Estate Agent, and they’ll tell you the same thing, forget inflation, forget unemployment, forget the economic argument (because there isn’t one) and buy now otherwise pay 20% more next year. Forget the fact that if house prices fall, guess who’ll be under water in their mortgage? Not the realtor.
Unfairness defined
For those who remain homeless, should’ve bought when the economic fundamentals behind 10% YoY house price increases were weak at best (think 2015). Now that the fundamentals are even shabbier, young people are supposed to throw themselves into an even more twisted market and over leverage themselves more to barely afford a mortgage, property tax and utilities. Even for condos this ratio can make up at least 50% of a single earners income. Most people I know who are looking to buy only have between 5-8% saved up to put down on a house. Now in most situations this would be considered crazy but in Toronto, that represents approx. 1.5 years of savings, and that’s if you live at home. Right now prices for townhomes are between 400-600k. That means to have 30-40k saved up, I’d need to save for about a year and a half. But here’s where the situation becomes even more unfair. I’m supposed to throw myself into a bubble of prices competing against people who weren’t born in this country and made their money elsewhere for what reason exactly? I’ve paid income taxes and property taxes and HST on the income I’m putting my money down with. I’ve had it documented through T4s and Notice of Assessments for the last few years, yet I have to compete against people who come in from other countries where they made money in those countries systems. This is fundamentally unfair. There’s no level playing field. Vancouver just implemented a foreign buyer’s tax and their property market fell by 40% but the people over in Toronto will tell you that foreign buyer’s only make up 5% of recent sales. This is a bullshit fact. Notice they (CREA, specifically Tim “Lost 3 elections when my party was up in the polls a month before the election” or “I’ll cut 100k public sector jobs” Hudak) tell you the amount of sales but they don’t tell you the total percentage of sales volume. What I mean by this is that what if the 5% is at the top end of the spectrum, what if it’s driving higher prices? They don’t tell you this because they (real estate) wants to keep it’s closed garden of data hidden because if it was open, Realtors would not make as much money. Tim Hudak is incentivized to lie or misconstrue facts to fit his narrative. This is why having people of authority who happen to be uneducated people spewing facts is dangerous. Now everyone who hears that only 5% of purchases are made by foreign buyers will take this to be gospel but no one has asked the important followup question of what percentage of the market (in $ terms) does this make up.
I’m used to paying tax, they’re not
Also who’s to say that “foreign investors” actually lead to more prosperity after their initial splurge on real estate. Think about this. Think about how welfare rates in the richest parts of Vancouver shot up after “foreign investors” invested in the real estate there. This is documented by Statistics Canada (Google ‘Thousands of Metro Vancouver mansion owners avoiding taxes’). We have people who have never paid tax in their lives (this is the Blog writers opinion) who come to Canada, buy a house and take advantage of our system. Again as a Canadian who has made money in Canada, my net worth is documented. Yet when the spigot is finally closed and property does not increase at a 20% YoY pace, how is real estate going to be marketed to sell? We are selling our financial future for short term gain that is going to the least deserving of our labour class (e.g. Real Estate Agents). This is also skewing our labour output as a nation because why be an Engineer or Doctor or other skilled trade when you can just go be a real estate agent. Again these kinds of trends do not manifest over a short time period but rather over the long time horizon. This artificially makes certain trades more expensive because we have a period in time where our young people were herded into becoming realtors. This is the exact same thing that happened to Alberta during the oil expansion, where many young people bypassed University and College for the six figure salaries on the oil rigs.
I explained this to a realtor friend of mine recently. Canada and China are supposed to be 2 separate systems. Free trade untangles this definition but forget even that. Think about this. You have 100 people in China & 100 people in Canada. In China, those 100 people are doing things. They’re working in factories, they’re working on developing needle work skills, they’re working on expanding their technical skillsets. In Canada, there’s a higher proportion of people doing real estate. This is partially due to lack of capital controls that allows foreign capital to come into Canada and devour our real estate market, artificially increasing the value. But since there’s an artificial increase in the value of Canadian real estate it’s a double edged sword because that cost is baked into each and every single corporation’s rent costs. So now we’ve identified 2 areas where costs are artificially higher in Canada due to the influx in Chinese money:
1) Labour rates are higher because there’s more realtors
2) Real estate costs are higher because land is artificially increased in value
Free trade – a globalist’s saving grace
But free trade actually blindsides you into thinking that Canada is still a manufacturing powerhouse. This is because we can still get stuff for cheap. But guess what? We don’t have control over that production and since our consumption isn’t likely to decrease, this makes us more likely to bend over backwards to satisfy Chinese demands. Remember this is an undemocratic country that I wish Canada to not emulate. I’m not going to touch on this but increasing immigration to make up for the fact that Canadians are not procreating at a respectable rate is also a farce of a stat. Since housing is such a big cost, how can anyone afford kids? How do you afford kids without a house? How do you afford kids when there’s such a high daycare cost. Again politicians want to take the easy route to prosperity. Not the one that requires work. These issues were the same issues from 10 years ago but now they’re even worse & the answer is plain and simple, free trade.
Here’s where we get to a common sense problem, one that I’m not really sure why it exists. But it is the ability to apply for a mortgage. I don’t understand why T4s are not the basis for applying for a mortgage. It’s what we use to pay taxes, yet there’s other means of income declaration that we can use to increase the value of a mortgage we can buy. When you have shoddy practices for income verification in the mortgage process, this will likely increase the value of dishonest mortgages. This will also increase the size of a bubble because you’ll have a certain percentage of people carrying mortgages they cannot afford. Again I’d love some government data here but they’re too busy arguing Bill M103. Stopping bad mortgages that seems to be an obvious KPI that the government should minimize. Now I’m not someone who believes in government intervention for private industry. But when the government buys mortgages off banks (who issue the mortgages) and guarantee them, I get nervous. I’m a tax payer and when my future tax liabilities are going to go up because of government inefficiencies, I get irritated. For those who say this doesn’t happen (google “1 in 5 Canadian Homeowners commits mortgage fraud, says top broker”). Again this isn’t Statcan releasing data but just go to a mortgage broker and try to take out a mortgage that’s bigger than you can afford, see if you can get away with it. Now the reason I get irritated is because the same type of system that almost brought down the US Banking system has the same type of underlying system present in Canada. That is the Federal Government has a Crown Corp (CMHC) that is responsible for buying mortgages from Banks. This frees up capital on the banks’ balance sheets and makes it so banks no longer have those liabilities on their balance sheets. The banks transfer the risk of default from the private industry to the CMHC and tax payers. Again life is all about incentives and now you’ve taken away the incentive to only write good mortgages from banks.
So what can the government do in order of effectiveness
1) Implement foreign buyer’s tax – BC had the balls. Ontario has ovaries in the Premier’s Office and Canada has them in the PM’s chair. No chance of this.
2) Lessen mortgage fraud – again will require work. Politicians don’t do work, so no chance of this
3) Increase interest rates – very little chance of this happening. The reason is plain and simple, it’ll increase interest payments the government has to make to service debt (both provincial and federal guvs are deep in the red). No incentive but would be most effective behind foreign buyer’s tax
3) Enforce tax on primary residency – thegreaterfool seems to think this I what the government will implement. Again, it’s uncertain how much this will lessen the market. It’s the least effective of the top 4 government actions
4) Come up with some convoluted law that enriches their buddies and makes it so they do as little work as possible. Bingo bango now everyone go back to work…

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Author: gtareguy

Real Estate Investor Raptors fan (don't cry for me this year) Mech Eng Graduate

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