Canada's 'housing bubble' deemed close to bursting

[goodgrowth]

I think municipalities need to start giving an illusion of choice when it comes to development plans/proposals.

Like have an option A and B for everything. Maybe one proposal/plan is a 25% less dense than the other but still preferable to nothing.

I think you'd bait a lot of NIMBY's into choosing the lower density option as to oppose to outright opposition and a lot more would get built...

[Truenorth00]

There's no need to play games now that the federal and increasingly provincial governments are willing to make add a cost to turning down development. Their taxes can and should rise. Let's see how committed these NIMBYs are when it actually hits their wallet.

[WhipperSnapper]

NIMBYs will be NIMBYs. Loosening zoning is being presented as a means to creating affordability which is unlikely. It's more likely to further the real estate investment bubble and make political contributors even wealthier.

[WhipperSnapper]

Originally Posted by Truenorth00

There's no need to play games now that the federal and increasingly provincial governments are willing to make add a cost to turning down development. Their taxes can and should rise. Let's see how committed these NIMBYs are when it actually hits their wallet.

How many more new or higher taxes must the average Canadian bare while the social net gets slashed down to a select few and the feds continue to spend like drunken sailors since gaining power in 2016? Let's not forget the additional layers of tax exemptions added to the wealth typical of the super rich like our PM. (not like proposing a capital gains tax on the sale of primary and typically only residence of the middle class)

We aren't going to build ourselves out of the real estate investment bubble.

[someone123]

Originally Posted by WhipperSnapper

How many more new or higher taxes must the average Canadian bare while the social net gets slashed down to a select few and the feds continue to spend like drunken sailors since gaining power in 2016?

I think the only way it'll change is if there's some big shock the federal government can't handle and they have to let the bubble deflate. Otherwise they will do what they can to keep all the ultra-leveraged people afloat, all of those mortgage and rent payments going.

In Canada people tend to view it as a positive that we don't have a lot of crises or turnover but we have a lot of dead wood in our economy. Maybe we would have been better off with a big 2008 crash.

[someone123]

Originally Posted by goodgrowth

I think municipalities need to start giving an illusion of choice when it comes to development plans/proposals.

They don't need tricks but the local planning decisions need to connect with trade-offs at the municipal, regional, and national level. For example if the federal government decides it wants high immigration and 100 million Canadians they need housing and it has to be built somewhere.

The whole NIMBY style system of requiring local consensus for property development doesn't work, and cities break down to the degree they follow this system (e.g. SF).

[Truenorth00]

Originally Posted by WhipperSnapper

How many more new or higher taxes must the average Canadian bare while the social net gets slashed down to a select few and the feds continue to spend like drunken sailors since gaining power in 2016? Let's not forget the additional layers of tax exemptions added to the wealth typical of the super rich like our PM. (not like proposing a capital gains tax on the sale of primary and typically only residence of the middle class)

We aren't going to build ourselves out of the real estate investment bubble.

Easy solution. Allow densification and your communities property taxes won't rise. I don't see why taxpayers in the rest of the province and country should subsidize sprawl.

[thewave46]

Originally Posted by someone123

I think the only way it'll change is if there's some big shock the federal government can't handle and they have to let the bubble deflate. Otherwise they will do what they can to keep all the ultra-leveraged people afloat, all of those mortgage and rent payments going.

In Canada people tend to view it as a positive that we don't have a lot of crises or turnover but we have a lot of dead wood in our economy. Maybe we would have been better off with a big 2008 crash.

I am not so sure.

I view it more as a failure of the Bank of Canada and western central banks to properly account for inflation over the last decade and a half. While low apparent inflation seemed great and those cheap goods helped keep the appearance up, it led to far lower interest rates than ordinarily should have been the case. The bubble would have been much more mitigated in that situation had interest rates been ~5-8%.

The "dead wood" in our economy is in large part due to our demographics. One can't simply ignore that old-age supports and healthcare is soaking up a large (and increasing) portion of our GDP and labour force as predicted by demographers, nor that those who outright own the largest portion of SFH in the country outright are those same very people who've least to gain from increased density and falling prices.

I don't see how an economic crisis really helps those things.

[casper]

Originally Posted by WhipperSnapper

How many more new or higher taxes must the average Canadian bare while the social net gets slashed down to a select few and the feds continue to spend like drunken sailors since gaining power in 2016? Let's not forget the additional layers of tax exemptions added to the wealth typical of the super rich like our PM. (not like proposing a capital gains tax on the sale of primary and typically only residence of the middle class)

We aren't going to build ourselves out of the real estate investment bubble.

Have taxes gone up in real terms in Canada? Our federal tax rate is 33%. It has been 33% for a very long time.

GST has been unchanged for years. Last time it was adjusted, it went down.

in BC we have had carbon trading taxes on gas for decades. The federal one does not apply over here.

Provincial taxes have stayed the same. The province did get rid of medical premiums but introduced a payroll tax on employers (not employees).

Property tax has generally gone up but so has the number of condos/buildings so it is generally been a wash.

Where have taxes gone up?

The conservatives will always talk about how the liberals are thinking about this tax or that tax. Odd given in most cases the Liberals are not talking about these new taxes and have not introduced legislation to introduce them. Amazing how on the right wing they are able to dream up something, get worked up about it and then campaign on how they are going to fix something that does not exist.

[someone123]

Originally Posted by thewave46

I don't see how an economic crisis really helps those things.

It's not the economic crisis that is good, it is the deleveraging. In the long run I am not sure the system can work if we simply add more and more debt and print money. And free markets stop working if the government props up the actors in them (e.g. mortgage lenders are supposed to gauge risk but it's thought that the government will basically ensure nobody misses as mortgage payment in Canada).

Given the way governments seem to take the easy way out it's unclear we can have major non-crisis deleveraging in Canada. If people borrow too much and then the economy goes bust, rather than having to sell off they just get cash and/or interest rates are slashed. Would the federal government actually let a bunch of middle class households go bankrupt because they borrowed $900k to buy crappy 905 houses? Or is borrowing for real estate 100% upside?

[rbt]

Originally Posted by someone123

Would the federal government actually let a bunch of middle class households go bankrupt because they borrowed $900k to buy crappy 905 houses? Or is borrowing for real estate 100% upside?

Historically, they've not done much to prevent a wave of power-of-sale's.

I could see them relaxing rules for mortgage renewals (not new) to allow a 40 year interest-only mortgages (eliminated in 2008) for a single 5-year term. The kicks most of the defaults to the next government and gives those on the ropes a few years to either figure it out or sell without panic.

Crashing real-estate will hurt Millennials that jumped into the market the most; and help Millennials that stayed on the side-lines the most. It's an interesting battle of the votes.

[whatnext]

Originally Posted by rbt

Historically, they've not done much to prevent a wave of power-of-sale's.

I could see them relaxing rules for mortgage renewals (not new) to allow a 40 year interest-only mortgages (eliminated in 2008) for a single 5-year term. The kicks most of the defaults to the next government and gives those on the ropes a few years to either figure it out or sell without panic.

Crashing real-estate will hurt Millennials that jumped into the market the most; and help Millennials that stayed on the side-lines the most. It's an interesting battle of the votes.

The 40 year mortgages Harper and Flaherty introduced and then quickly dumped as they realized what a disaster it could be? That and Trudeau’s fiddling do nothing to address housing costs they just lead to more debt.

Pierre LePew is largely right, this bout of unaffordability lies with the BoC and their disastrous interest rate policies. It was ladled on top of unaffordabilty caused by previous lax/non-existent scrutiny of foreign money pouring into Canadian housing. The Liberals doubled down by keeping wages low with sky high immigration targets to ensure employers have cheap labour.

Blaming this all on “old people” is laughable.

[Truenorth00]

Originally Posted by whatnext

Pierre LePew is largely right, this bout of unaffordability lies with the BoC and their disastrous interest rate policies.

Hindsight is so easy. Go back and look at inflation during that whole time. Most of it was below the 2% target? What exactly should the BoC have done? Aimed for zero and caused several more recessions?

The housing affordability crisis was not caused by the bank. It was caused by politicians. They are the ones who set mortgage policies. They are the ones who set capital controls. They are the ones who determine how much and what kind of housing gets built. None of that is controlled by the Bank of Canada.

Sadly, it's so easy for populists to blame bureaucrats who are legally obligated to never defend themselves politically. Fitting that Canada's version of the "Deep State" is apparently bureaucrats at the central bank setting interest rates.

[whatnext]

Originally Posted by Truenorth00

Hindsight is so easy. Go back and look at inflation during that whole time. Most of it was below the 2% target? What exactly should the BoC have done? Aimed for zero and caused several more recessions?

The housing affordability crisis was not caused by the bank. It was caused by politicians. They are the ones who set mortgage policies. They are the ones who set capital controls. They are the ones who determine how much and what kind of housing gets built. None of that is controlled by the Bank of Canada.

Sadly, it's so easy for populists to blame bureaucrats who are legally obligated to never defend themselves politically. Fitting that Canada's version of the "Deep State" is apparently bureaucrats at the central bank setting interest rates.

Plenty of people including here were warning about inflation and that Tiff Macklem had no clue how to handle it.

[thewave46]

Originally Posted by someone123

It's not the economic crisis that is good, it is the deleveraging. In the long run I am not sure the system can work if we simply add more and more debt and print money. And free markets stop working if the government props up the actors in them (e.g. mortgage lenders are supposed to gauge risk but it's thought that the government will basically ensure nobody misses as mortgage payment in Canada).

Given the way governments seem to take the easy way out it's unclear we can have major non-crisis deleveraging in Canada. If people borrow too much and then the economy goes bust, rather than having to sell off they just get cash and/or interest rates are slashed. Would the federal government actually let a bunch of middle class households go bankrupt because they borrowed $900k to buy crappy 905 houses? Or is borrowing for real estate 100% upside?

It mostly depends if people can make the increased payments, no? Falling real-estate prices are irrelevant if one can make the mortgage payment and have no intention of moving. Many have locked-in rates for several years too, so any bump in rates will have a delayed effect on them. I also expect demand for housing will continue to outstrip supply, given that Canada's population is still increasing by ~400k per year.

If one was treading water before and they have to sell under duress for less than the outstanding mortgage as their variable mortgage rate rose, that's an issue.

The US crisis was predicated by selling people homes who had no hope of making the payments and banking (pardon the pun) on the value of the property increasing. The rate of default of those who were able to actually afford the mortgage was far lower. When the thing collapsed at a systemic level, it led to disaster for the economy.

[casper]

Originally Posted by thewave46

It mostly depends if people can make the increased payments, no? Falling real-estate prices are irrelevant if one can make the mortgage payment and have no intention of moving. Many have locked-in rates for several years too, so any bump in rates will have a delayed effect on them. I also expect demand for housing will continue to outstrip supply, given that Canada's population is still increasing by ~400k per year.

If one was treading water before and they have to sell under duress for less than the outstanding mortgage as their variable mortgage rate rose, that's an issue.

The US crisis was predicated by selling people homes who had no hope of making the payments and banking (pardon the pun) on the value of the property increasing. The rate of default of those who were able to actually afford the mortgage was far lower. When the thing collapsed at a systemic level, it led to disaster for the economy.

Most people are not redoing the valuation on their homes on a regular basis. It just does not happen. The banks are also not going to re-evaluate a loan unless something triggers it to happen.

So it comes down to making the payments. Wages are going to go up with inflation to some extent while mortgage payments will not.

As long as any devaluation of property and increase in interest rates is gradual I think we are good overall.

I would hope that the major increase in the bank rate would have caused anyone who had been on a variable rate mortgagee that could not handle major rate increases to take not an lock in.

[Truenorth00]

Originally Posted by whatnext

Plenty of people including here were warning about inflation and that Tiff Macklem had no clue how to handle it.

You mean inflation that is global? We're into quantitative tightening and inflation is still high. Should give you a clue that there's more at play than the setting on the one big dial the BoC can turn.

Also, if we're going to discuss the affordability crisis, I think you can agree that it started before Tiff Macklem became BoC Governor in June 2020.

Lastly, this is yet more hindsight, from the same lot who also said the government shouldn't do much to counter the economic effects of Covid. Doing a rerun of the Great Depression is one way to avoid inflation. Not sure how much it helps with affordability if we have double digit unemployment and a real loss of industrial capacity though. Seems to me that people forget what the first few months of Covid was like.

[WhipperSnapper]

Property taxes as if they are the only taxes or services rising and being cut under this debt financed spending spree. Densification eventually means more investment in infrastructure and, at current market values, that's very expensive. For example, the Toronto School Board places a whiteboard at each development site in my neighbourhood and the neighbourhoods next to it informing "buyers" that the local schools have no room for new students. Population were fairly stable and student popluastion were in decline for decades. Schools were close and sold to developers. Now, there's a student population explosion in part to all the development and it will take hundreds of millions in taxpayer dollars to increase capacity. The union will want its cut of this new found money too as 5% increase a year is so menial.

Increased supply is an SSP desire for taller and better. Dealing with demand will go much further in deflating the bubble, reversing the decline in quality of life and, improve Canada's global stature. Deal with the money laundering. Stop increasing immigration during housing shortages. Study permit holders blew up from like 250,000 to 650,000 in roughly five years before the pandemic. The latter two examples are sources of Canadian pride defining us as The Good Place where we can choose to go waterskiing on Reconciliation Day. We need to set that pride and SSP desire aside and look at things rationally.

Obviously, things are more complex than supply and demand but, that's usually where the discusssion lands.

[thewave46]

Originally Posted by Truenorth00

You mean inflation that is global? We're into quantitative tightening and inflation is still high. Should give you a clue that there's more at play than the setting on the one big dial the BoC can turn.

Also, if we're going to discuss the affordability crisis, I think you can agree that it started before Tiff Macklem became BoC Governor in June 2020.

Lastly, this is yet more hindsight, from the same lot who also said the government shouldn't do much to counter the economic effects of Covid. Doing a rerun of the Great Depression is one way to avoid inflation. Not sure how much it helps with affordability if we have double digit unemployment and a real loss of industrial capacity though. Seems to me that people forget what the first few months of Covid was like.

Sure, but one could argue that there has been a mismatch in inflation rates between domestically produced goods/services and imported ones, especially from low-wage countries. As an example, construction costs have risen here out of line of the published headline inflation rate, while a lot of formerly domestically produced goods now come cheaper from overseas.

It was great while it lasted, but I suspect a lot of the low headline number was due to this effect. By having the headline number remain lower, one could keep interest rates low. There is also some speculation as to how effective very low rates are at delivering real growth in an economy, or if they just create asset bubbles.

When the Bank of Canada (and other western central banks) slashed rates as COVID started, they essentially did expand an asset bubble. The economy wasn't in recession in early-mid 2020 because of an economic cycle phenomenon, it was in recession because large sections of it were ordered closed by government. Creating a pile of money with no way for the economy to absorb it (more money chasing fewer goods) led to the ~30% rise in house prices over two years. How directly it led to the inflation we see today - a more multi-factor phenomenon - is up for debate, but as a policy tool, it seems a misguided move in hindsight.

[WarrenC12]

Originally Posted by casper

So it comes down to making the payments. Wages are going to go up with inflation to some extent while mortgage payments will not.

Wages are not going up with inflation. 8%? I wish.

If that were happening you'd see minimum wage at $18 this year, $20 next year.