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In case anyone still wants to somehow debate whether the Liberals will deliver affordable housing.
“Housing needs to retain its value,” Mr. Trudeau told The Globe and Mail’s City Space podcast. “It’s a huge part of people’s potential for retirement and future nest egg.”
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Housing CANNOT be an investment, and I say this as a homeowner whose house value has nearly tripled since I bought it. I bought a house simply because I didn’t want to rent for the rest of my life.
It’s obviously absurd to claim to want affordable housing and refuse to cause prices to go down. If housing is an “investment” then you are by definition fucking over all subsequent homebuyers. Everybody needs a place to live.
I’m not saying you’re in any way wrong, but for my own understanding, are schemes to help people onto the housing market not effectively the same thing, while still retaining value for those who expect to do things like funding retirements with their existing properties?
No, because that government money to fund those programs has to come from somewhere, and it’s almost always debt that future generations end up saddled with, so it’s still making younger folks pay for it either way.
Fair argument, but in principle lots of taxation is about redistributing wealth to those who need it, and it doesn’t have to result in debt for future generations.
It eventually will be. If something yields a guaranteed return, the cost to buy that thing increases exponentially. The math is very simple and no amount of politicking can hide it.
Edit: let’s use the classic investing “rule of 72” to illustrate (multiplying the rate of return and number of years to double your capital will total 72). Assuming an annual increase in house value of 5%, which is way below what is happening in Canada right now, the value of a house will double every 14.4 years. Every 29 years (roughly a generation nowadays) the price will quadruple. Grandkids would pay sixteen times more for their grandparents’ house than the grandparents did.
That makes sense. The cost of housing is rising faster than pretty much anything else, so it’s inevitable that any well intentioned scheme to help first time buyers will ultimately become completely unaffordable unless something else changes. Thanks! Such schemes exist in my country, so I’m curious now to look up some of the reasoning behind those schemes and see how they argue around or attempt to compensate for this.
These schemes are very appealing to politicians because they get to have their cake and eat it too, at least for a short time. Their solution will work for a few years and they get to please both the homeowners and homebuyers. They will no longer be in politics by the time housing has doubled or quadrupled in cost, so someone else will take the blame and they can live their comfortable retirement telling everybody that back in their day, they successfully fixed the problem, but contemporary politicians aren’t as smart or skilled as they are.
It shouldnt be an investment but it should still have value. As in it shouldn’t be commoditized but should still be a way to “store” wealth.
Can you elaborate on this? I’ve always thought that housing is an absolutely terrible “store of value”. Given the fact that appreciation at a population level, by definition means housing will be less affordable for the next generation. How is value for one generation balanced against subsequent ones. Also, it’s an incredibly inefficient way to build a nest egg or whatever. If you pay a mortgage like most people do, over 15-30 yrs, you’re paying something on the level of 150%-200% of its value over time. It seems to me a more rational way to build value is to keep housing costs low, allowing people to invest that difference (mortgage interest) into either investments or savings, rather than paying it to a bank.
I get that the US doesn’t really have a culture of saving, but I feel like this is rationalized by the “my house will be more valuable when I retire” crowd. It’s so easy to save now, with efficient investment products broadly available to individuals. Maybe it’s time to let the house as the bulk of your wealth go, and make housing affordable again.
How is value for one generation balanced against subsequent ones.
I don’t know actually. By market regulation? By ensuring new housing isn’t a PITA to build and telling NIMBYs to fuck off? You’d also need to regulate the other way. Ideally a maintained house wouldn’t have its value changed that much over time. And it would be adjusted to inflation.
if you pay a mortgage like most people do over 15-30 yrs, you’re paying something on the level of 150%-200% of its value.
Yes and your net worth accumulates 50%-66% of what you pay. That’s better then the 0% for renting. AND you don’t need to complete the mortgage to sell the home and reclaim that stored wealth.
And yes housing should be affordable. I’m saying all this within the context of some kind of free market economy with some kind of private property. Being able to add most of your home payments to your net worth is very helpful in the long run. Especially if you need the Monet, you can switch to renting. Again, ideally, that would be the same cost as a mortgage, as the landlord would be using that rent to pay down their mortgage or whatever.
It depends on your definition of “storage”. Like I said, I bought because I didn’t want to give money to a landlord for the rest of my life. The best-case outcome in my mind was breaking even when it comes time to sell. Any more than that necessarily increases housing costs for every subsequent generation.
Absolutely fucking wrong. The immense value tied up in housing is killing the economy…
So written, a condo owner whose property value went up 50% over the past five years.
I don’t get what the point is except for investors.
People using it as a “retirement holdings” might try to sell and then find they can’t afford to live anywhere in retirement.
People saving property to leave an inheritance have kids waiting for their parents to die so they can afford a home to own.
Actually, w.r.t. to retirement savings it can be valuable as a lot of the better assisted living arrangements will require an upfront payment of hundreds of thousands of dollars for unexpected expenses along with a regular rent expenditure.
This is arguably an awful way to finance elder care and doesn’t justify making housing unaffordable but that stored value is useful if you think you’ll need assisted living.
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Our government really should have better programs to assist seniors and there should be non profit, government owned and operated assisted living available. Over 1 million seniors needed to use the new dental benefit so clearly there is an issue with how canada treats their seniors financially.
Yes.
Because by that point, the Boomers will have been soaked for trillions by the LTC industry. The investors will have already be rich and will have moved on to the next victim.
Ah, that’s fair. I didn’t consider assisted living!
Hey, no worries… I’ve been getting deep in the weeds on this one as my mom is in her eighties and trying to decide how to allocate her savings for her EOL.
It really sounds like the issue there is just another subset of housing (un)affordability.
Oh, definitely… and the consolidation of assisted living into fewer and fewer PE firms should scare the shit out of everyone - but it is important to remember that a few people would be screwed if the housing market suddenly collapsed… that said, we absolutely should deflate this market - we just need to consider some fixes for the house-wealthy cash-poor older folks who might be really fucked by this.
Yeah, I do think the assisted living industry would be forced to adjust though. It’s not like the real estate market in general, if the majority of their potential buyers simply don’t have enough money it’s not like they can pivot to other demographics or attract wealthy people from outside the country.
If things aren’t corrected, it won’t be long before a whole generation of new seniors is cash poor with no house to sell.
then find they can’t afford to live anywhere in retirement.
I think the plausible circumstance is them selling and moving out of Canada, really it’s the logical thing to do when you destroy the eco system you inhabit for gains. Then the money also gets spent out of Canada, we might spend less on healthcare cost for the elderly but I could see the math working out to be a net loss.
I think the plausible circumstance is them selling and moving out of Canada
Or moving to SK
Or moving to SK
Same thing. (Or was that the joke?)
Lifelong SK resident.
How? What country is going to jump at the chance to take in a 70 year old immigrant?
The countries people like going to is Mexico, Costa Rica, Portugal, Vietnam, Thailand off the top of my head. They’re pretty happy to take retirees with money.
The fundamental issue with housing as an investment is that it is a monolithic and non-fluid vehicle, which makes it worse when leverage comes into play. Whereas stocks can be purchased/sold at any time in an instant and have fractional costs (sometimes as cheap as 10$ per stock), houses are not, and fast fluctuations in prices could heavily impact your ability to realize your gains. So it is, on that aspect, a terrible investment.
For large companies owning thousands of units, this is not an issue since they are spreading the risks across the units (by buying diversely located units of all types). They can also quickly execute purchases and sales since they are in that exact business.
So the argument that houses are ways to pass down wealth is misguided: they are terrible ways to pass down wealth, and parents should leave a trust fund or safe investments rather than a house if their goal is to build generational wealth - housing should be passed down for personal reasons.
I’m not smart enough regarding macroeconomics to know the right answer, but I feel like there has to be a solution that makes home ownership affordable for new entrants into the market without causing the value of existing homes to tank so hard and fast that we end up with a 2008-style crash again. I’m pretty confident that getting large-scale corporate investment out of the picture is part of the solution, and I don’t care if the method involved there hurts the corpos pretty bad. Maybe an oppressive rent-control scheme that makes keeping the properties untenable for corporate owners, forcing them to want to sell as fast (and therefore as cheaply) as they can. I don’t know what zoning laws are like in Canada (compared to here in the US), but I think merging zoning for low- and mid-density residential such that suburban NIMBYs can’t block multi-family units from being build is another necessary step. As far as everyday folks who bought into the housing system, I’d like to see them as protected from the fallout as possible, especially since (at least the US) government has been all-too-happy to let home ownership replace pensions as the primary way people are “supposed” to retire.
I think a rent cap could be a good way. It could be raised wrt to inflation. Then, government housing, better loan systems for non profit and maximize density to allow building taller rather than wider (making land cost minimal), but not tall enough that would create increased cost (elevators are expensive to maintain for example). A lot of initiatives need to be put in place, but one that could be effective is to lower costs of construction and find ways to increase productivity by improving resource management
The thought of an across-the-board regulation based rent cap never crossed my mind, but that actually could be effective and fair. If there was some kind of easy to understand formula based on the unit, potential landlords would easily be able to calculate whether it makes financial sense instead of simply cutting costs and squeezing as much rent out as possible. There wouldn’t be an incentive to kick people out (can’t jack the rent) but there would be one to keep it maintained/updated since they’d be competing on everything but price. Honestly, I wouldn’t mind if my rent went up a bit if it meant my unit would be properly maintained or I had the freedom to move somewhere similar without doubling my rent.
Edit: you could make it more enticing to the current landlords by easing some renter protections, like making it much easier to remove problem tenants
Yeah problematic tenants are an issue, especially when the landlords are elderly folks whose alternative would be to seek professional management or sell it to REITs, both of which exacerbate the issue of rent price.
Lmao how is selling my house and buying another ridiculously inflated house part of my retirement?
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Another way to say this: if no one can afford housing, no one retires or has a nest egg.
That’s a fact, but like, I’d prefer not to be homeless when I can’t retire.
The place next door just got rebuilt as a fourplex, each unit of which is going for 1.6 million dollars. The mortgage would be $8k/month. I and my partner have no kids, no car, and both have solid incomes in union jobs. Our current rent is a hair under $1k/mo because we’ve been in this place awhile.
That mortgage plus taxes, utilities, would still be almost all our income. It’s ridiculous.
I’d say that would be fine in theory, if “retain its value” meant that housing would follow very closely but tailing local inflation. That won’t happen though. As long as “housing needs to retain its value” ideology runs the country, housing will be viewed as an investment and scarcity will cause it to push inflation upwards. Even trying really hard to quell these prices it might beat inflation, and even if it were a success it would take decades of nominal-growth with negative-real-returns to bring those prices to parity with incomes.
So no, even if “technically maybe?” the answer is still no.
totally agree on most points (see my earlier reply in this thread). However dissuading “investment” into property (aka taxation on non-primary dwellings) and keeping returns below inflation will divert investors from the real estate market over time. They will HODL however if not presented with exit strategy. If they are allowed time to divest and exit - they will IMO
keeping returns below inflation will divert investors from the real estate market over time.
There are multiple types of Real Estate investors. We want to attract investors who build, who finance land development, infill, retrofits and so on. These will keep coming because the goal is to sell the labor of construction, and that can still be profitable. We don’t want to attract land speculators or rent-seekers, these provide little value to the market.
They will HODL however if not presented with exit strategy. If they are allowed time to divest and exit - they will IMO
Investors (i.e. institutional/professionals, not amateurs) don’t hold on to investments because they lack an exit strategy. It’s the exact opposite. Investors get rid of assets as soon as there’s enough information to say a loss is likely.
I know that the biggest chunk of real estate “investors” are amateur shops, people hoarding homes as their retirement plan, and these might hold on despite bad performance yeah. This happens all over the world because in most markets Real Estate is a bad investment, yet people are addicted to it.
But in any case, I was discussing the outcomes under the hypothesis that home prices are following inflation, so the hypothesis includes the assumption that there’s enough market transactions to put those prices under control.
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Fuck. The. Investor. Class.
It’s like they know they lose next election and are just trying to leave the most broken mess in attempt to smear the next party
At this point PP wins by just saying he’s not Trudeau, this is such a bad situation
PP is also doing his part to increase housing prices (at least in his platform)
Singh is the one against it and it’s not helping his numbers so this isn’t a relevant issue to Canadians
Yeah PP wins and this is about to get a whole lot worse. I’m afraid of the future here
High housing prices are bad for the economy
Housing prices become high when there is a scarcity of houses in job markets. This means you will have a shortage of labour in those markets because people can’t afford to be there
And if you have a house + are paid well that is still bad for you because there will be less in your area for you
Housing needs to retain its value so politicians can stay in power. Appealing to homeowners with policies that enrich them is popular, but bad for everyone.
Well yeah. People’s entire life savings are wrapped up in their houses. We all saw what happened in 08 when the housing market crashed. It would cause absolutely massive fallout if people’s largest asset that they’ve been investing in their entire lives lost a bunch of value. It’s unfortunate that they’re not more affordable, but devaluing them would be catastrophic.
I think we should clarify what devaluing mean - I think it’s reasonable for a house purchased in the 90s to not decrease in value if proper maintenance is applied - but what’s our rationale for housing to be a profitable investment? Why, rationally, should it gain value over time… and why should that gained value outpace interest rates, the stock market, and wage cost-of-living increases?
I’m in favor of devaluing real estate because it’s currently astronomically overvalued and viewed as an investment vehicle - if it were reasonably valued I’d be in favor of land having a flat value relative to inflation and construction having a slow depreciation rate as the materials age and require more active maintenance… with the only real increases in value coming from renovations or other active investments in the quality of the house.
Why is it that teleporting back in time, surrendering cash according to inflation, buying a house, teleporting forward in time, selling that house - then repeating that on a loop… why is that an infinite money glitch?
Similar to nature abhorring a vacuum - capitalism abhors a free money glitch (and in all other cases, free money glitches get absorbed by arbitrage).
I’m all in favor of preventing corporations and investment firms from purchasing houses, and also foe heavily taxing private home ownership after the first one. I think that would bring the demand down to reasonable levels. The houses would still appreciate due to increasing population levels through birth and immigration, but it would hopefully keep it in the affordable for average people realm. It makes sense for your largest investment in your entire life to appreciate. It absolutely doesn’t make sense when a home triples in value in 3 years. That is causing its own financial catastrophes.
But in a society where no one but the wealthiest can afford to own property, does it still make sense for its value to continue to appreciate, putting it further and further out of reach until everyone is renting from corporations who own the housing stock, except those born into wealth?
Your question starts from a false premise though, that nobody except for the wealthiest can afford to own a house. I’m from the USA, not Canada, so I had to look up the statistics for your country. You’re definitely facing a crisis, and if nothing is done, then your statement will probably be true sooner, rather than later, but it’s not accurate today. The prices of homes up there are certainly preventative for working class families, but depending on the area there are still middle class citizens buying homes. It would be disastrous for them if their homes - which have traditionally been the one source of financial stability - suddenly plummeted in value.
I totally get your sentiment since we’re facing a similar situation down here. Something needs to be done. Ideally that something doesn’t completely screw over millions of working class citizens who have made all the right moves, have been disciplined and financially wise, and through no fault of their own find themselves on the shit end of the stick yet again.
I think blocking investors and corporations from buying houses is a good step in the right direction, and probably making them sell the houses they already own too. That alone would open up a lot of inventory and stop the massive appreciation we’ve seen over the last half decade. That of course carries its own set of challenges though. What do renters do who can’t afford to buy a house, or don’t want to buy a house, when they suddenly have no more rentals available?
Idk man. I’m glad that I’m not the one who has to sort these problems out. My only point is that I hope they consider the millions of working class citizens who already own homes as they plan their solutions.
Devaluing them in a deliberate and controlled manner is much better then waiting for a crash.
Slowing their appreciation seems like a better solution for people who bought in the last few years. Having their homes lose value in a controlled manner would ruin some people. They’d not only lose money on their life savings, they’d be trapped, unable to ever move without paying even more money, or filing bankruptcy if they don’t have more money to lose.
Slowing appreciation below inflation is depreciation/losing value. It’s a hard tagert to nail, but if we can keep the needle between static price and inflation; we’re doing well.
They’d not only lose money on their life savings, they’d be trapped, unable to ever move without paying even more money, or filing bankruptcy if they don’t have more money to lose.
This already happens, we just don’t hear about it. And we normally blame the homeowner for falling into a preditory trap.
Also the building envelope and internals IS a depreciating asset, always has been. It takes effort to maintain it.
Right now it’s just the land values rocketing so high that on many places the crack shacks sitting on top depreciates slower than land value increases. So people’s homes are still losing money, it’s just the land underneath them goes up faster.
Edit:
They’d not only lose money on their life savings
Diversify yo bonds.
- Wu Tang Financial
Land should retain its value, houses should deteriorate just like they do physically.
Like in Japan
Fyi. Japanese housing structure lifespan is rather unique.
https://en.m.wikipedia.org/wiki/Housing_in_Japan
An unusual feature of Japanese housing is that houses are presumed to have a limited lifespan, and are often torn down and rebuilt after a few decades, generally twenty years for wooden buildings and thirty years for concrete buildings – see regulations for details.
Helps that they have a lot of earthquakes that tear buildings down in their own. New construction takes an evolving, anti earthquake designs into consideration.
Suddenly I want to buy an F-350 and a “F 🍁 UCK TRUDEAU” flag. It’s nice to see that every political party in Canada has finally united to fuck Canada.
Let’s be real, those of us who can’t afford housing can’t afford a jacked up F350.
Bold to assume that current 350 owners can afford their 350s.
not that simple. Trudeu is a jerk etc. But in this case the only reasonable measure that will minimize damage is to prevent further price growth. Maybe allowing growth at “under inflation” rates which could soften the blow to poor saps that are neck-deep in mortgages.
I AM in a ridiculous mortgage and I would be thrilled to see housing prices stop growing for the next decade or so. Every time prices go up the city starts drooling and adds another 100 bucks to my property tax.
