Housing Bubble II: The Quest To Build Enough Homes Where People Actually Need Them

[ssiguy]

Well PP has a new video out on Youtube named Debtonation if you want to take a look.

Canada now has a household/corporate/gov't debt level of $10 TRILLION which is more than triple our GDP. In a nutshell it states that the BoC is trying to put the brakes on our inflation while Trudeau's reckless spending and soaring household debt levels, by far the highest in the G7, is pushing on the accelerator. He is exactly right.

Trudeau is constantly ramping up new spending with money we don't have and puts our future financial and economic future at risk. Now, of course, he is spending untold billions on new "affordable" housing to correct the huge asset bubble he himself created.

[WarrenC12]

Originally Posted by ssiguy

Well PP has a new video out on Youtube named Debtonation if you want to take a look.

Canada now has a household/corporate/gov't debt level of $10 TRILLION which is more than triple our GDP. In a nutshell it states that the BoC is trying to put the brakes on our inflation while Trudeau's reckless spending and soaring household debt levels, by far the highest in the G7, is pushing on the accelerator. He is exactly right.

Trudeau is constantly ramping up new spending with money we don't have and puts our future financial and economic future at risk. Now, of course, he is spending untold billions on new "affordable" housing to correct the huge asset bubble he himself created.

That's an interesting video for a pundit. When a guy who wants to be PM puts it out, he needs to say what he will do to improve things?

Oh, I know. "Common Sense(tm)".

[Build.It]

Another point worth diving into a little deeper. Home sale prices are determined by the CURRENT amount of sellers, and the CURRENT number of prospective buyers.

The vast vast vast majority of homes in existence are not currently for sale. As an example, at the end of November, the total active listings in Ontario was 44K compared to the 6 million total residential dwellings. That is less than 1% of the total dwellings actively listed for sale.

It only takes a small surge in listings for sellers to significantly outweigh buyers, and then you have the recipe for price drops. This has already started happening.

This guy is a realtor in the GTA and provides weekly market updates. His updates are a lot more current than what you see in the TRREA's statistics. Prices have declined significantly across the board since August. And this is without a massive surge in unemployment or a full-blown recession.
https://youtube.com/@teamsessa?si=xgw7Ip5jro5Q66C2

Additionally this is another realtor in Niagara who has gone theough all the numbers himself, using data directly from statscan and proven that housing supply has in fact kept pass with population until end of 2021 at least (when this video was posted), which is again contrary to the narrative published by the media.
https://youtu.be/ZQQ49btytvY?si=rn63sGnQqKwB1C_v

Most of our price increases can be explained by the massive debt bubble. There is some legitimacy to the supply side as well, but mostly that developers haven't been allowed to build the amount of housing types that buyers actually want (namely single family detached), so the total number of detached houses in existence vs population has gone down. However the total dwellings, according to John Flynn's findings, has kept pace with population growth.

[yaletown_fella]

Originally Posted by Build.It

A different way to look at it:

Suppose we started from scratch with the current total supply and total population. No one has any equity going in, just their income, savings and whatever their net worth outside real estate happens to be. People can borrow based on their income, savings and assets.

What would houses sell for under those conditions? Would a "starter" condo still sell for $500K? This seems highly unlikely.

The valuations for our homes are based purely on the amount of debt banks have issued for houses. It has been incredibly easy to get loans in Canada for 10+ years. Covid era put that on steroids.

At some point reality is going to kick in again and this debt bubble is going to pop. There are a lot of reasons to think that time is now. Prices have already come down in the GTA by 20%, and that's without inventory even being that high. That's just based on affordability.

We are one bad recession away from a massive surge in inventory.

It seems prices have gone up in the past year for 1 bedroom condos in Toronto proper.

Crappy base level Condos in the 905 (in places like "Downtown" Markham) were overdue for a major correction which occured to a limited extent

I think the 905 and luxury market is skewing the figure downwards.

Most of the stupid money is first time condo buyers with access to 3x more credit than they should be allowed. As far as Im concerned the "Covid Stupid Money" era pressure cooker of skyrocketing condo prices will continue in this segment of the market , especially if rates are cut back to below negative 2% real rates (which a 100 basis point cut would achieve)

The smart money /luxury buyers arent giving into bidding wars and paying pie in the sky listing prices because they arent desperate and acting out of fomo.

Unfortunately I dont think any government would be willing to take action such as that prescribed by Garth Turner. They will just goose the market eith more stimulus whether through pressuring BOC to ease or programs such as FHSA.

[Build.It]

Originally Posted by WarrenC12

That's an interesting video for a pundit. When a guy who wants to be PM puts it out, he needs to say what he will do to improve things?

Oh, I know. "Common Sense(tm)".

The solution is massive cuts in spending.

[yaletown_fella]

The cut in spending required to deleverage the economy would not only be a reduction in services/beurocracy, but also a simultaneous increase in income tax (especially on the middle class) and sales tax.

But that will never happen. We will get more can kicking.

[casper]

Originally Posted by Build.It

The solution is massive cuts in spending.

I like the solution of growing ourselves out of it. Constrain the growth of government spending below the rate of inflation while at the same time seeing population growth.

There are likely some opportunities to achieve efficiencies in government where they could easily delivery more or the same services for less without it impacting the general population.

Where the government has little choice are direct payments such as pensions.

Perhaps the government needs to extend some target loan guarantees to developers to reduce the interest risk of starting a construction project. But that should be measured and targeted.

Some more spending on social housing would also be a positive to cover off the lowest income brackets.

[WarrenC12]

Originally Posted by Build.It

The solution is massive cuts in spending.

How does that make life better for the average Canadian?

[Build.It]

Originally Posted by WarrenC12

How does that make life better for the average Canadian?

It allows us to reduce our debt and eventually live within our means as a society. There will be some paon in the short term, but nothing compared to the decades-long era of stagnation where we are claerly headed at the moment.

[WarrenC12]

Originally Posted by Build.It

It allows us to reduce our debt and eventually live within our means as a society. There will be some paon in the short term, but nothing compared to the decades-long era of stagnation where we are claerly headed at the moment.

Take a look at the Federal budget. They could cut 20,000 jobs and the impacts would be minimal at that level. Meanwhile you need to pick which jobs to cut that don't impact visible things like passport processing, etc.

What else are you going to cut? Provincial transfers? Healthcare? Defense?

[Changing City]

Originally Posted by WarrenC12

Take a look at the Federal budget. They could cut 20,000 jobs and the impacts would be minimal at that level. Meanwhile you need to pick which jobs to cut that don't impact visible things like passport processing, etc.

What else are you going to cut? Provincial transfers? Healthcare? Defense?

Well, in the context of this thread, a government could stop funding affordable housing, and making loans to developers building rental housing. That would save some money, but it wouldn't do anything to get more housing built. The bigger move would be to treat all property as an investment, and tax capital gains on the sale of homes. That would bring in quite a bit of revenue, but so far no government has been willing to risk it.

[WarrenC12]

Originally Posted by Changing City

Well, in the context of this thread, a government could stop funding affordable housing, and making loans to developers building rental housing. That would save some money, but it wouldn't do anything to get more housing built. The bigger move would be to treat all property as an investment, and tax capital gains on the sale of homes. That would bring in quite a bit of revenue, but so far no government has been willing to risk it.

Certainly PP will do none of these things.

A departmental freeze on spending might be a start, and yes, we can grow ourselves out of this deficit hole.

[someone123]

Originally Posted by WarrenC12

Take a look at the Federal budget. They could cut 20,000 jobs and the impacts would be minimal at that level. Meanwhile you need to pick which jobs to cut that don't impact visible things like passport processing, etc.

There is summary information about this: https://www.canada.ca/en/treasury-bo...vice-2022.html



In theory I think per capita spending and civil service employment should trend downward as productivity improves and immigration continues at its current pace (immigrants are selected at a younger working age and in theory require less public funding for things like healthcare and education).

This chart makes the Harper years look relatively good IMO (looking mainly at the gap between the program expenses index and real GDP index).

[hipster duck]

I feel like there are macro and micro dynamics behind the growth (bloat?) in public sector administration.

The micro is that every manager's personal sense of worth is dependent on how many subordinates they have, and that cascades up the chain. A manager may brag on a resume that they managed 6 direct reports, instead of 3. A director that they managed 40 instead of 20 (via 3 managers), and a VP that they were ultimately responsible for a team of 500 rather than 250. These kinds of metrics matter for promotions. If there are no budget limitations - which is kind of true for a non-competitive 'business' like government - then it's in everyone's interest up and down the managerial chain to add one more worker.

The macro is that instead of thinking of public sector jobs as a means to an end, which is to help build the institutional support to make the rest of society more productive, they're often conceived as "the end" in itself. It's hard to account for whether a civil servant generates more taxable economic growth than what they cost in terms of compensation and benefits. However, you can make the excuse that by hiring this person you've just handed one more household the keys to middle class life.

[ssiguy]

Cutting will not be, in general, easy but some parts will be namely cutting the number of civil servants down to approx 2016 levels. Under Trudeau's realm we have seen the size of the federal civil service skyrocket by 40%...........anyone here seen an improvement in gov't services by 40%? How they can grow the workforce by 40% and still not figure out how to run a passport office is beyond me.

Another problem is that Trudeau keeps announcing new programs but isn't properly funding the ones we already have. I think the pharmacare & dental programs should be delayed until we get our financial house in order. That may be difficult but the reality is that we simply don't have the money. Also, all TFW & students should be mostly responsible for their own healthcare costs only excepted in emergency situations. Outside of that they should not be receiving any medical care at the cost to Canadians. Sponsored family members should also get no services at all until they become full citizens, landed immigrant status isn't good enough.

Also any of those groups should not be eligible for any housing assistance including students. All housing at univ/coll should be off limits to anyone but Canadian citizens including emergency housing. For those that don't like it they have an option.............leave the country and go back home until you can pay your own way. Ditto for social services and get rid of this ridiculous policy of allowing children born by non-landed immigrants be granted citizenship. For refugees, they should be offered medical services and emergency housing but their claims must be adjudicated within 6 months with NO appeals. Canada already has a very liberal refugee policy and the clear claimants are uniformly given status, it's the one's with dubious claims that need the endless appeals.

We can hardly pay for services for Canadians so the last thing we should be doing is paying for it for non-citizens. In other words, if you come to Canada as a TFW, student/sponsored family member it should be made very clear that you are on your own and if you cannot survive then you have an option.........leave the country.

[Build.It]

Originally Posted by WarrenC12

Take a look at the Federal budget. They could cut 20,000 jobs and the impacts would be minimal at that level. Meanwhile you need to pick which jobs to cut that don't impact visible things like passport processing, etc.

What else are you going to cut? Provincial transfers? Healthcare? Defense?

The government grew by ~50% under Trudeau ... there has to be plenty of places they can cut. Harper wasn't great either, he only ran a balanced budget for one year, which is hardly a passing grade.

The goal should be to live within our means as a society. Getting there is going to be painful for many, but that's the price of decades of excessive spending. Eventually the debt comes due. The longer this continues, the more painful it'll be to get back to responsible finances. The government can either take action now, or wait until they are forced into austerity.

[WarrenC12]

Originally Posted by Build.It

The government grew by ~50% under Trudeau ... there has to be plenty of places they can cut. Harper wasn't great either, he only ran a balanced budget for one year, which is hardly a passing grade.

The goal should be to live within our means as a society. Getting there is going to be painful for many, but that's the price of decades of excessive spending. Eventually the debt comes due. The longer this continues, the more painful it'll be to get back to responsible finances. The government can either take action now, or wait until they are forced into austerity.

Way easier said than done.

Living within our means? The government doesn't operate like a household budget. It can and should borrow money to invest in the country over the long run. We don't need to 'balance the books' the way mom and pop do.

Look at the bond market in Canada. Rates are lower than many of our peer countries. The market doesn't seem too concerned about Canada's Federal debt level.

[Build.It]

Originally Posted by WarrenC12

Way easier said than done.

Living within our means? The government doesn't operate like a household budget. It can and should borrow money to invest in the country over the long run. We don't need to 'balance the books' the way mom and pop do.

Look at the bond market in Canada. Rates are lower than many of our peer countries. The market doesn't seem too concerned about Canada's Federal debt level.

In other words they're pricing in stagflation. The market is betting that when forced to choose between inflation and defaults/unemployment, the central bank is going to choose inflation.

Other peer countries are in the same boat. Doesn't mean things are rosy for Canada.

[ssiguy]

Originally Posted by WarrenC12

Way easier said than done.

Living within our means? The government doesn't operate like a household budget. It can and should borrow money to invest in the country over the long run. We don't need to 'balance the books' the way mom and pop do.

Look at the bond market in Canada. Rates are lower than many of our peer countries. The market doesn't seem too concerned about Canada's Federal debt level.

I agree that stating spending cuts are "easier said than done" which is why we have to refocus where we are spending the money. Excess civil servants in the tens of thousands is an obvious first start but we also must make decisions on who actually benefits from our gov't services.

The latter means that any gov't services {except for EMERGENCY healthcare & children's education} should be a completely disenfranchised to any person who is not a Canadian citizen ie student/TFW/sponsored family member. Refugees due to their very nature should get gov't services for only 6 months which should be the max time it takes to adjudicate their case with no appeals. If denied they should be given a one-way ticket home and 2 weeks to leave the country.

Landed immigrants should have to pay 50% of their medical bills {except emergencies} and not be eligible for any gov't welfare programs for more than 6 months including housing. No OAS. Obviously once they become Canadians they enjoy all benefits.

I shutter to think how much our federal/provincial gov't spend in healthcare/social services/education/housing every year on non-citizens and, except for the exemptions I noted above, it should be made very clear to all people entering the country that you must pay your way and if you can't then good luck and goodbye.

[WarrenC12]

Originally Posted by Build.It

In other words they're pricing in stagflation. The market is betting that when forced to choose between inflation and defaults/unemployment, the central bank is going to choose inflation.

Other peer countries are in the same boat. Doesn't mean things are rosy for Canada.

What makes you think stagflation is happening? Inflation is very close to BOC target levels and housing increases (thanks to rate increases) are the major component now. Once that lag is over we should be right around 2%.