Canada's 'housing bubble' deemed close to bursting

[MolsonExport]

Originally Posted by lio45

Well, some McDonalds actually might raise wages needlessly just out of pure kindness; see for example how altruistic this guy is:


https://www.ponctuation.com/businessProfile02.html

I worked for this dude for 5 years. He is widely known as the stingiest of a group of very stingy owner-operators. Was known to lose his shit over a 10cent minimum wage increase. At the time, all other McD's offered free food (burger/sandwich + fry + drink + dessert) if you worked at least a four hour shift. Not Baldanus. He made his employees pay half price, even for fountain drinks. I was a manager, so I got free "food"

[biguc]

Do I understand correctly that these McDonald's managers hired a marketing company to write a puff piece about how nice and fun they are?

[MonkeyRonin]

Originally Posted by casper

The first property you lists was around $934k when you convert form US to CDN. The second is around $780k

The exchange rate is meaningless in this context - Canadian workers are paid wages in Canadian dollars; American workers are paid wages in American dollars.

A job paying CAD$60,000 in Canada doesn't equate to a USD$46,000 position in the US - it most likely equates to a $60,000 USD (or higher) one.

[Innsertnamehere]

Originally Posted by MonkeyRonin

The exchange rate is meaningless in this context - Canadian workers are paid wages in Canadian dollars; American workers are paid wages in American dollars.

A job paying CAD$60,000 in Canada doesn't equate to a USD$46,000 position in the US - it most likely equates to a $60,000 USD (or higher) one.

US compensation bands are much wider, but it really depends on what industry you are in. If it's an educated position, wages are typically much, much higher in the US, but most educated workers have massive debt loads to handle and have healthcare costs as well.

Overall if you make an above-median income you are probably better off south of the border but it's not as big of a difference as it first appears.

Real estate in the US isn't as cheap as most people think either, in most major markets where the big salaries are it's just as expensive or even more expensive than Canada. They definitely have more very-low-cost markets, but those areas generally have lower salaries than you will find in Canada.

[hipster duck]

Originally Posted by Innsertnamehere

Real estate in the US isn't as cheap as most people think either, in most major markets where the big salaries are it's just as expensive or even more expensive than Canada. They definitely have more very-low-cost markets, but those areas generally have lower salaries than you will find in Canada.

They have other real estate issues, too. Property tax rates are typically about 3x higher than they are in Canada on the same property valuation. This is compounded by the fact that property taxes pay for public schools, which means that parents of school-aged children compete for homes in areas with well-funded schools - hence high property values/property taxes - driving up costs even more. For renters, the costs of high property taxes is embedded in their rent, so on top of the competing demand for space, renter parents who want to send their kids to a good public school may be particularly screwed over.

Throughout most of the housing affordability debate, we've mostly been thinking about Canadians who are not already homeowners but who aspire to be. We're kind of ignoring renters who don't have much of a desire to buy, and we're also ignoring existing homeowners, not all of whom are rich or old. Rents are considerably lower relative to gross incomes in Toronto and Vancouver than they are in NYC and SF, even accounting for the high salaries in those places.

And while I think Canadian rates of home price appreciation is bad for society, most people who save for a downpayment expect some return for their investment. After all, that money could have gone somewhere else.

Typical homes in Metro Detroit cost about 50% more in 2021 than they did in 2000, after adjusting for inflation. A person who makes a 25% downpayment ($50,000) on a $200k house would gain $50,000. That looks good, but you have to pay a mortgage, high property taxes and maintenance over those 20 years, and you might have just been better off renting and investing that $50k somewhere else.

So, even if prices are cheap, there may not be that much of an incentive to buy. Housing is more of a good than an asset in Detroit, but saving a substantial chunk of your earnings over a few years to purchase a good seems kind of foolish to me.

[MolsonExport]

Originally Posted by biguc

Do I understand correctly that these McDonald's managers hired a marketing company to write a puff piece about how nice and fun they are?

Yep.

[thewave46]

Originally Posted by hipster duck

So, even if prices are cheap, there may not be that much of an incentive to buy. Housing is more of a good than an asset in Detroit, but saving a substantial chunk of your earnings over a few years to purchase a good seems kind of foolish to me.

The blurred line between 'investment/asset' and 'good/shelter' distorts the debate.

Housing has become the one-stop shop for both. Buy a good, get an investment goes the mantra. Except said investment is largely illiquid and said good requires continued mandatory spending and encouages continued spending on improvement. It's all and wonderful for a consumer-based society and feeds into the narrative of 'Renovations are investments!'

It's an unhealthy attitude. If housing appreciation was closer to the historically modest returns than our current mania, maybe we'd look at housing in a more realistic fashion. Viewed as shelter first that one might break even on over the long-term if they're lucky.

What's it is "worth" is irrelevant if I need to live in it. My liability on it (i.e. what my mortgage is) is far more important.

[someone123]

Originally Posted by hipster duck

They have other real estate issues, too. Property tax rates are typically about 3x higher than they are in Canada on the same property valuation.

This is all true (and I'd add crime to the list; some of the cheaper US neighbourhoods are very high crime and that's a cost that should be accounted for when comparing them to less crime-infested Canadian neighbourhoods) but at the end of the day I think Americans on average have nicer houses than Canadians do. We are probably kidding ourselves if we list some pros and cons and decide it's all a wash.

I'd guess on average they have faster commutes too, and more availability of land within a given metro area typically. This is not very popular on SSP but it's a choice that has been made at the municipal/provincial/societal level in Canada. Toronto could have been developed like Chicago or Vancouver like Seattle, with highways stretching out everywhere and much more permissive land use. And while we have nicer transit, we don't have commensurate infrastructure, with networks of rapid transit lines or commuter rail stretching out to new greenfield areas in the major metros.

[FarmerHaight]

What the hell are we talking about? A summary of points from the last few pages:

• Canada allows immigration because we feel bad for the rest of the world
• Visible minority communities are more well off than white communities
• Real estate developers are the only people that benefit from immigration
• Immigrants selfishly only want to move to Toronto, Vancouver, or Montreal
• Immigrants are the reason housing markets are out of control

I think the only thing missing to top off this thinly veiled prejudiced list is something about how foreign religions are more prone to violence.

Although Canada allows some immigration because of political asylum, most of our immigration is because we have a labor shortage and Canada's population in 10-year increments resembles an upside-down pyramid.

Here are some of the real motivations for Canada's immigration choices:

• Canadian children aren't interested in becoming nurses and our population is aging? Bring in nurses from south-east Asia.
• Canadian farmers don't want to pay their workers enough and Canadian children think the work is too hard? Bring in temporary foreign workers, make them live in terrible conditions, and send them home after harvest.
• Canadian children and their parents are complaining about high tuition rates? Let Chinese parents send their kids to crappy post-secondary institutions (like my alma mater, the U of S) and make them pay out their ass to subsidize Canadians.
• Only-child Canadian couples don't want to have kids anymore, but their parents and a great uncle who never had children need someone to pay for their pension? Bring Indian doctors and engineers over so they can contribute to our taxation system.

If you think the real estate crunch is Canada's only problem and that immigrants caused it, you are clearly looking at this through a nationalist lens. Immigration dropped by over 200,000 in 2020, yet housing prices had their biggest spike year ever. And if immigrants disproportionally move to our largest cities, young Canadians are doing the exact same thing.

Even if immigration contributes to housing unaffordability, it addresses so many of Canada's other problems that it is still totally worth it. Keep in mind that this is ignoring many of the other, less economic, benefits that immigration brings to Canada.

[someone123]

I regret mentioning immigration but the simple reality is that immigrants who come here are a factor in housing demand because like other humans they all need housing. If Canada were to decide to admit 1 million immigrants per year housing would cost more than it would at 300k immigrants per year, and the target is somewhat arbitrary (JT does not allow 1 million per year because he hates immigrants, right?). Foreign capital ($ alone going into the housing market) is another factor of debatable weight.

If this is all too unpleasant for SSP Canada and cannot be discussed without turning into some kind of culture war mess that is fine, but it means that housing discussions will be incomplete, because these days our population growth is almost all immigration. If we had a huge baby boom that would have housing consequences in future years too but that's not what's happening in Canada.

[WarrenC12]

Originally Posted by someone123

I'd guess on average they have faster commutes too, and more availability of land within a given metro area typically. This is not very popular on SSP but it's a choice that has been made at the municipal/provincial/societal level in Canada. Toronto could have been developed like Chicago or Vancouver like Seattle, with highways stretching out everywhere and much more permissive land use. And while we have nicer transit, we don't have commensurate infrastructure, with networks of rapid transit lines or commuter rail stretching out to new greenfield areas in the major metros.

I don't think they have faster commutes. Have you ever spent time in rush hour in some of these cities? It's a crawl. That's why places like Seattle are trying to catch up building light rail. Chicago has a massive rail system and it's easily the best way to get around.

Places like Texas opt for things like paid express lanes, which end up being quite pricey.

I used to travel around the US a lot for work. The cost of things like parking downtown in major cities made my eyes pop out of my head.

[FarmerHaight]

Originally Posted by someone123

I regret mentioning immigration but the simple reality is that immigrants who come here are a factor in housing demand because like other humans they all need housing.

This is obviously true but as I said, the benefits of immigration far outweigh the impact on housing prices. Canada is essentially a pyramid scheme, where as the large boomer generation reaches retirement age and their pension and medical bills start drawing from the country's taxation funds, Canada has to increase the tax base to support it. If born-Canadians aren't interested in having children to support themselves in retirement, Canada has to bring in immigrants with large families to do it for them.

[thebasketballgeek]

Originally Posted by FarmerHaight

This is obviously true but as I said, the benefits of immigration far outweigh the impact on housing prices. Canada is essentially a pyramid scheme, where as the large boomer generation reaches retirement age and their pension and medical bills start drawing from the country's taxation funds, Canada has to increase the tax base to support it. If born-Canadians aren't interested in having children to support themselves in retirement, Canada has to bring in immigrants with large families to do it for them.

This is true to an extent. As automation starts ramping up in the coming decades we hypothetically wouldn’t need to bring unskilled workers and will put more restrictions where only professional or skilled workers would be allowed to immigrate here. Although we might still take in the same number of immigrants or more they will need to have a lot more merits to enter the country.

[thewave46]

Originally Posted by FarmerHaight

This is obviously true but as I said, the benefits of immigration far outweigh the impact on housing prices. Canada is essentially a pyramid scheme, where as the large boomer generation reaches retirement age and their pension and medical bills start drawing from the country's taxation funds, Canada has to increase the tax base to support it. If born-Canadians aren't interested in having children to support themselves in retirement, Canada has to bring in immigrants with large families to do it for them.

The more important question being: How long can the pyramid scheme last? Or how long does it have to last in order to get over the big hump?

I suspect that's the drive behind high immigration levels from government's point-of-view.

We just got very lucky in the 20th century that wealth hugely increased via technological advancement and by population growth. It was assumed that this would continue into forever and we built many programs/services in that mould.

Reality had other plans.

[whatnext]

Originally Posted by Nouvellecosse

Something being clear in terms of you being persuaded of it =/= something being clear in terms of the research supporting it. Economies are complicated and are affected by a wide variety of factors so it's easy to isolate certain factors one wishes to focus on because it supports one's preferred policy prescriptions, while establishing an empirical basis for such analysis is much trickier.

Then you're every bit as guilty with your biases. Bloomberg is hardly some nutty tabloid.

[hipster duck]

Originally Posted by someone123

This is all true (and I'd add crime to the list; some of the cheaper US neighbourhoods are very high crime and that's a cost that should be accounted for when comparing them to less crime-infested Canadian neighbourhoods) but at the end of the day I think Americans on average have nicer houses than Canadians do. We are probably kidding ourselves if we list some pros and cons and decide it's all a wash.

I'd guess on average they have faster commutes too, and more availability of land within a given metro area typically. This is not very popular on SSP but it's a choice that has been made at the municipal/provincial/societal level in Canada. Toronto could have been developed like Chicago or Vancouver like Seattle, with highways stretching out everywhere and much more permissive land use. And while we have nicer transit, we don't have commensurate infrastructure, with networks of rapid transit lines or commuter rail stretching out to new greenfield areas in the major metros.

I never called it a wash, but I also don't think we can compare housing situations across nations like they're apples to apples, even in countries as similar as the US and Canada.

One of the principal reasons housing is cheaper in the US relative to what you get in Canada is because they had a crash less than 14 years ago that basically set prices in many metros back to 1990 levels and reset the clock. The rate of price appreciation since then has been roughly similar to what you get in Canadian metros, give or take.

I'm more supportive of the sprawl-and-highway model for people's welfare than most people on SSP. A lot more people would prefer a big house where you have to drive everywhere, rather than living in a walkable neighbourhood where homes are smaller and neighbourhoods have to be more dense to support walkable retail and services. Leaving aside the environmental and fiscal sustainability issue of sprawl - which is kind of a big thing to ignore - there are a lot of things that I would not want to replicate in Canada. For one, you'd have to systematically disinvest in downtown to the point that centrality doesn't exist and no one location confers any benefits over the other. I'm not sure this is possible in any Canadian city at this point, let alone Toronto or Vancouver. Secondly, many of those places are cheap because they were the worst hit by the crash, and so it was only fairly recently that they cleared out their inventory of large, foreclosed homes.

And finally, that sprawl model eventually runs out of gas. Even if a city is totally decentralized, many services, amenities and job types can only be supported in one or two places, even in a big city, so you end up with long-distance trips clogging the roads for more vehicle-kilometers and, system-wide, the efficiency starts to decay. Some examples of this are international airports (there's only one in Atlanta, it's the biggest single trip generator, and it's on the opposite side of the region from where the prevailing sprawl is), or specialized jobs. In a giant sprawl city with no downtown, it's not as if people just commute to the closest unspecialized job in the nearest industrial park. A materials scientist husband commutes 100km east to his job at 3M, while his laparoscopic surgeon wife commutes 75km west to her job at the Mayo Clinic. If those jobs were both located downtown, then it would be inherently more efficient and you'd have commuting options other than the car, but then there would be a centralizing effect on home prices.

[someone123]

Originally Posted by hipster duck

I'm more supportive of the sprawl-and-highway model for people's welfare than most people on SSP. A lot more people would prefer a big house where you have to drive everywhere, rather than living in a walkable neighbourhood where homes are smaller and neighbourhoods have to be more dense to support walkable retail and services.

I don't actually like the sprawl-and-highway model but in some ways we have the worst of both worlds. In metro Vancouver you get nice walkable neighbourhoods if you pay a lot and everybody else gets sprawl-lite-without-highways. The GTA is mostly sprawl with what would qualify as anemic highways in the US. I think a transit model would be better but that we don't invest enough in that, and the large footprint mono-use suburban developments common in Canada are not very compatible with it even if they are denser than typical greenfield development in the US. Canadian suburban sprawl is in the uncanny valley where it doesn't do anything all that well. You don't get Charlotte lot sizes, you don't get Copenhagen amenities.

I agree that American style sprawl scales badly although they have a lot of multi-polar metros and job opportunities seem to be spread out more. I don't think much of Canada is to the point where it would have hit scale limits though. It's not like Winnipeg, as one example, is so huge it couldn't develop like Houston. But it doesn't have a major freeway system to build on. And I'm not sure its downtown is that far ahead of American cities. If we had some big sprawl metros like Atlanta maybe they'd take some pressure off of the housing market. Maybe there is an argument for say Moncton having very lax and affordable building standards.

[Nouvellecosse]

Originally Posted by someone123

I regret mentioning immigration but the simple reality is that immigrants who come here are a factor in housing demand because like other humans they all need housing. If Canada were to decide to admit 1 million immigrants per year housing would cost more than it would at 300k immigrants per year, and the target is somewhat arbitrary (JT does not allow 1 million per year because he hates immigrants, right?). Foreign capital ($ alone going into the housing market) is another factor of debatable weight.

If this is all too unpleasant for SSP Canada and cannot be discussed without turning into some kind of culture war mess that is fine, but it means that housing discussions will be incomplete, because these days our population growth is almost all immigration. If we had a huge baby boom that would have housing consequences in future years too but that's not what's happening in Canada.

I think the best strategy would be to just talk about population growth rather than immigration. Not that I'm a fan of euphemisms or dancing around topics, but in this case, the topic actually is growth rather than immigration since as you point out, all people need homes so the need would be basically the same with a particular level of growth regardless of the current growth mechanism. So referring to growth would actually be more accurate.

And let's face it. Immigration is a touchy topic because there are some people who react differently to growth from outside Canada compared to growth from within, so while I wouldn't avoid talking about it when necessary, it's best to consider whether it's necessary or not in a given situation.

[FarmerHaight]

Originally Posted by someone123

It's not like Winnipeg, as one example, is so huge it couldn't develop like Houston. But it doesn't have a major freeway system to build on.

Why would Winnipeg have freeways like Houston? Houston is a huge metro area both in size and population, and it has a number of other large cities like San Antonio, Austin, Dallas, and New Orleans within a relatively short distance. Winnipeg is a much smaller city, and the closest big city is... Minneapolis, which is across a border and is almost twice as far from Winnipeg than the cities I listed are from Houston.

Houston and Dallas are also perfectly situated from a logistics standpoint, where any ground transport to the states east of the Rockies flows through those cities.

The only intra-city highways in Canada west of Ontario that you could possibly argue hinder economic activity is the TCH and Yellowhead across the Rockies.

[whatnext]

Originally Posted by someone123

I regret mentioning immigration but the simple reality is that immigrants who come here are a factor in housing demand because like other humans they all need housing. If Canada were to decide to admit 1 million immigrants per year housing would cost more than it would at 300k immigrants per year, and the target is somewhat arbitrary (JT does not allow 1 million per year because he hates immigrants, right?). Foreign capital ($ alone going into the housing market) is another factor of debatable weight.

If this is all too unpleasant for SSP Canada and cannot be discussed without turning into some kind of culture war mess that is fine, but it means that housing discussions will be incomplete, because these days our population growth is almost all immigration. If we had a huge baby boom that would have housing consequences in future years too but that's not what's happening in Canada.

You've hit the nail on the head. For all of Justin's high-flown rhetoric about "Welcome to Canada" he and his government have done virtually nothing to increase the supply of rental homes. The Feds used to be far more involved in housing before the Paul Martin Liberals started hacking away at government investment in rental homes. Canada's ridiculous housing prices show the free market is not going to provide the solution, therefore the gov't must get more involved.