Uncertain future: Canada's housing market

[McC]

Originally Posted by NOWINYOW

Not true. Department of Defense has taken a big hit, partly for austerity and greatly because of inflationary operational costs.

And you can't remove the aging and sedentary population, so those costs will continue to rise.

The world leaders are hiding inflation costs as much as possible, but this can't/won't last.

I don't understand. You asked why government budgets were increasing faster than inflation, I explained why I think that this is the case. you said "not true," then gave two examples which support my argument: cuts to another budget line item even while overall spending is increasing, and agreement that the costs associated with an aging and sedentary population are increasing inexorably.

[phil235]

Originally Posted by NOWINYOW

They're not under water yet because we have unsustainable low interest rates. If interest rates can go down, they can also go up. Public debt, plus consumer debt isn't being paid off in any significant manner. Governments can only continue to print money for so long before the value decreases.

It's economics.

Those are pretty generic economic principles you are raising. I think that the actual situation is a little more nuanced than that.

On the household side, I don't think that your logic holds - how would a rise in interest rates mean that mortgage holders would suddenly be underwater in large numbers, when most have significant equity in their homes? Only a massive price drop could lead to that result, and a interest rates going a few ticks upward is not going to do it.

Yes, household debt is high in Canada, but that is a very blunt measure of financial standing. The debt-to-equity ratio is far more useful in judging whether households can sustain some sort of external shock. The problem in the US was that a large proportion of mortgage holders had little to no equity in their houses, and when payments went up, they owed more than the value of their houses, and millions walked away, impacting the entire market.

That situation simply does not exist here, as Canadians have an average of 66% equity in their homes and most are well positioned to withstand a rate or price shock. Certainly a rapid rise in rates would likely affect the arrears rate, but that rate is so low at the moment that it would take a massive increase in the short term (which is very unlikely) to significantly impact the market.

As for government borrowing, have a look at Canada Savings Bond 30-year rates, which are largely influenced by the market. Government borrowing costs are anticpated to be reasonably stable for a generation or more. If this rate shock that you are predicting occurs, governments are going to be the last to feel it.

[phil235]

Originally Posted by McC

I don't understand. You asked why government budgets were increasing faster than inflation, I explained why I think that this is the case. you said "not true," then gave two examples which support my argument: cuts to another budget line item even while overall spending is increasing, and agreement that the costs associated with an aging and sedentary population are increasing inexorably.

Perhaps he mistyped and actually meant "true".

I do think there is also some confusion between inflation, and rising costs associated with a particular budget item, which are related to increased service demands and may have little or nothing to do with inflation.

[Kitchissippi]

An increase in interest rate above that of the the US rate would hike up the Canadian dollar and seriously hurt a lot of industries especially what's left of Ontario's manufacturing. If it weren't for oil revenue, we could probably raise the rate, so blame the Alberta oilsands.

Try building a house from scratch. Not the DIY kind but by paying carpenters, electricians, plumbers, etc fairly, and buy materials at regular price. Discounting the cost of land which varies from the desirability of location, you'll find that the value of most homes in Ottawa are not far off from replacement value. Vancouver and Toronto are/were overvalued, however.

The problem we face is credit discipline. The minimum downpayment should be higher and credit rules need to be tightened. But this is where banks are getting their money, and if drastic steps are taken, you'll find that new development will grind to a halt for a few years until the market balances up to the tougher rules. Building stuff won't get any cheaper so developers will have no incentive with rock-bottom profit margins.

If this city had balls and was concerned about housing affordability and smart growth, it should address the property tax system and make it more equitable. I find it difficult to accept that a two bedroom condo downtown and a 3,000 sqft home on a half acre in exurban Manotick can pay the same amount just because they are valued the same, despite the latter costing the city a lot more to service. Condos handle most of the utility distribution between units and centralize garbage and sewage collection using their condo fees and should get huge tax breaks.

[phil235]

Originally Posted by Kitchissippi

If this city had balls and was concerned about housing affordability and smart growth, it should address the property tax system and make it more equitable. I find it difficult to accept that a two bedroom condo downtown and a 3,000 sqft home on a half acre in exurban Manotick can pay the same amount just because they are valued the same, despite the latter costing the city a lot more to service. Condos handle most of the utility distribution between units and centralize garbage and sewage collection using their condo fees and should get huge tax breaks.

I agree entirely. The best way to promote smart growth would be via a change to the tax system (though it would have to be done on the provincial level). A property tax system based on the size of lot (or a condo's fraction thereof) would be a far more equitable way of approximating the cost of servicing that property.

There is zero political will to make that kind of systemic change at the moment, so the best we can hope for is some minor tweaks to the current system in the way of credits etc.

[Dado]

Originally Posted by phil235

I agree entirely. The best way to promote smart growth would be via a change to the tax system (though it would have to be done on the provincial level). A property tax system based on the size of lot (or a condo's fraction thereof) would be a far more equitable way of approximating the cost of servicing that property.

There is zero political will to make that kind of systemic change at the moment, so the best we can hope for is some minor tweaks to the current system in the way of credits etc.

Hey now, stop copying my idea

[McC]

yeah, the last thing a policy proposal needs is more support!

[Ottawan]

Originally Posted by phil235

I agree entirely. The best way to promote smart growth would be via a change to the tax system (though it would have to be done on the provincial level). A property tax system based on the size of lot (or a condo's fraction thereof) would be a far more equitable way of approximating the cost of servicing that property.

There is zero political will to make that kind of systemic change at the moment, so the best we can hope for is some minor tweaks to the current system in the way of credits etc.

I think the most fair system (at least for residential property taxes) would be a hybrid: size of lot and unit + number of occupants + user fees.

Size of lot and unit (add the square footage of the land or percentage share thereof to the square-footage of the unit - still gives a huge advantage to condo tower-dwellers, but not as astronomical a one) would pay for servicing the land, transportation, etc.

Specific fees should be put in place for things like garbage collection (pay by the bag) and water.

Number of people would account for all those other benefits the city provides (libraries, cultural funding, economic development, social services, etc.)

[phil235]

Originally Posted by Ottawan

I think the most fair system (at least for residential property taxes) would be a hybrid: size of lot and unit + number of occupants + user fees.

Size of lot and unit (add the square footage of the land or percentage share thereof to the square-footage of the unit - still gives a huge advantage to condo tower-dwellers, but not as astronomical a one) would pay for servicing the land, transportation, etc.

Specific fees should be put in place for things like garbage collection (pay by the bag) and water.

Number of people would account for all those other benefits the city provides (libraries, cultural funding, economic development, social services, etc.)

True, a hybrid system would likely be the most fair. But it wouldn't do as much to promote smart growth, if that is your objective.

I'm also a little leary of tying taxes directly to services used, because then you get this retail model of government that leaves no room for the endangered concept of the collective interest. That leads to more dummies saying things like they shouldn't pay eductation taxes because they have no kids in school, or they shouldn't pay transit tax because they don't take the bus. And when they get really old, they combine the two and complain that they shouldn't have to endure school buses driving down their adult lifestyle street!

[phil235]

Originally Posted by Dado

Hey now, stop copying my idea

I find that I get most of my best ideas that way.

[Schattenjager]

Originally Posted by phil235

And when they get really old, they combine the two and complain that they shouldn't have to endure school buses driving down their adult lifestyle street!

My parents were going to live there if not for it already being sold out. They did get a house from those that were available for that community but it was built on another street.