Should the Government Mess with the Housing Market?

FIRECracker
Follow me

FIRECracker

FIRECracker is Canada's youngest retiree. She used to live in one of the most expensive cities in Canada, but instead of drowning in debt, she rejected home ownership. What resulted was a 7-figure portfolio, which has allowed her and her husband to retire at 31 and travel the world. Their story has been featured on CBC, the Huffington Post, CNBC, BNN, Business Insider, and Yahoo Finance. To date, it is the most shared story in CBC history and their viral video on CBC's On the Money has garnered 4.5 Million views.
FIRECracker
Follow me
Photo credit: TaxRebate.org.uk

Carrie Bradshaw from Sex and the City once said:

“Being beautiful is like having a rent-controlled apartment overlooking the park: completely unfair and usually bestowed upon those who deserve it least.”

Well, clearly the Ontario Liberal government has been watching way too much of that particular 90’s trivia, and in a fit of jealous rage decided to announce this:

Foreign buyers tax, expanded rent control coming to Ontario

So for those who believe that bitching and whining to get the government to fix stuff is the best way to solve life’s problems, you win! The government FINALLY decided to take a stab at Ontario’s run away housing market.

This 16 point plan has a mind-numbingly boring name: “Ontario’s Fair Housing Plan”.

But since I have the attention span of an over-caffeinated squirrel, instead of breaking down all 16 points, I’m just going to highlight the most interesting and relevant ones:

#1: 15% Foreign Buyers Tax

Why re-invent the wheel when you can just steal someone else’s? The Ontario government decided to crib Vancouver’s notes and slap a 15% tax on property bought by non-residents. But instead of applying it to one city, they decided it to apply it to the entire “Golden Horse Shoe” area of Ontario—the most densely populated area in all of Canada. Basically, out of the entire population of Canada, 1 out of 4 live in this region.

Eat your heart out, Vancouver!

 

#2: Rent Control

After Toronto tenants complained about landlords doubling their rent out of greed, the government decided to bring down the hammer.

Rents used to only be capped to inflation on buildings built before 1991, but now, like scrunchies for some reason, rent control is coming back from the roaring 90’s. Yup, that’s right, ALL rental units are now under rent control, new or old.

So what, right? Couldn’t landlords just immediately raise rent to cover any unexpected future cost increase? Nope. The rule went into effect the same day it was announced, April 20, 2017.

So if you are one of the many MANY greedy bastard landlords out there taunting your tenants and daring the government to tear you a new one, enjoy your new asshole, friend.

 

#3: Vacant Homes and Vacant Land Taxes

Another page from Vancouver’s books. From now on, water and electricity usage will be tracked to determine vacancy rates. Property hoarders will be forced to sell or rent out an unoccupied unit or pay a vacancy tax. Ditto for developers who hoard land.

Also, if you’re just an innocent bystander who had nothing to do with all this Toronto housing business and simply owns a humble cottage in Muskoka, you’re fucked too. Sorry. 

 

#4: Crack Down on Property Speculators

Paper flipping or selling the deeds before a property deal closes? The government is after your ass too. Before people were getting away with not declaring or paying taxes on deals like these. Those days are over. Uncle Sam (or the Canadian equivalent, Auntie…Beaver?) is coming for you.

 

#5: Get Rid of “Doubling Ending”

I think this has to do with the practice of a real estate agent representing both the buyer and the seller, but in my perverted head it’s something much more disgusting.

Double Ending. *Snicker*. They can’t get rid of that! It’s, like, 10% of all the videos on PornHub! And 100% of my bookmarks!

 

So who are the winners and losers in this whole “government-to-the-rescue” plan?

Foreign Buyer Tax

Well, judging by how only 5% of properties in Toronto are purchased by foreign buyers and there are now over 121,000 domestic buyers who own multiple properties, the housing prices are being driven up by locals and not by foreigners. This seems to suggest that a Foreign Buyers Tax wouldn’t make much of a difference.

Rent Control

Good for renters, bad for landlords. A no brainer right? Well, MAYBE.

Economists have been complaining, as they tend to do, that messing with the free market will jeopardize the supply of rental housing coming into the market. Since builders can no longer make a profit by raising rents, they won’t have the incentive to build rental housing.

I think this is bull. Why? Because the problem in Toronto is not supply, the problem is rampant speculation.

Not only do over 121,000 Toronto residents own multiple properties, there are also 99,000 vacancies. So even if rent control wasn’t there and a new supply of properties enter the market, they will be bought up by speculators and Canadians will still cry “not enough supply!”

In the meantime, if you’re a renter this is essentially a wealth transfer from the landlord to you. Over time, their property taxes, condo fees/maintenance will go up, but your rent increase is capped at inflation (2.5%).

For amateur condo “investors”, the gravy train has derailed. Your tenant can easily just report you or refuse to leave if you try to pull the “Oh by the way your rent is doubling this month” trick.

So if you’re renting and want to reap the benefits of this new plan, stay where you are and don’t leave.

And sure, the landlord can pull that whole fake “family moving in” trick to put the property back on the market and raise the rent. But if they end up timing this incorrectly or doing it too blatantly, the law is on your side to be compensated in court. Also, for every landlord who’s willing to do this every single year, there are thousands out there who won’t go through the trouble. They can no longer just hand you an eviction notice saying your rate is doubling in 1 month.

Vacancy tax.

The jury is still out on this one. It’s going to help alleviate some of the fake “lack of supply” problems, but it’s challenging to enforce. I think it will be positive for renters but no one knows to what extent.

Crack Down on Property Speculators.

Smacking down Property Speculators are like a game of “whack a mole”. You keep whacking them but more and more keep popping up. That’s why I think the only way to truly solve the housing issue is:

 

#1 Get Rid of CMHC (Canada Mortgage and Housing Corporation) Insurance

For our international readers out there, CMHC is the government entity that provides insurance for high-ratio loans. So by using public funds to back the banks, this incentivizes banks to shower unqualified borrowers with money. And who can blame them? With no skin in the game and a killing to be made, wouldn’t you?

While I’m all for banks making money (after all, the capitals gains and dividends from their stock come back to us as investors. The more they make, the richer we get), I’m not a fan of how this is turning into a precarious house of cards.

 

#2 Raise interest rates

Historically low interest rates has been driving up the housing market by turning everyday people, from barbers to grocery clerks, into real-estate speculators.

Research has shown that even a modest rate hike of 1% would reduce home prices by 30%.

Don’t believe rising interesting rates will cool this market? Read this article:

The Bank Of Canada Is Full Of S**T, Here’s How Interest Rates Impact Speculation

 

#3 Crack Down on Sub-prime Lending

Oh wait, we don’t have a sub-prime like the States, right? WRONG. In fact, Home Capital has admitted to $1.9B in fraudulently underwritten mortgages last year alone. Its shares also plugged 18% after the Ontario Securities Commission accused their executives of making misleading statements. Maybe this is why Billion Dollar Fund managers like Marc Cohodes  are coming out of retirement to short our housing market.

 

Those are my 2 cents, but no one can really predict the market, whether it’s housing or stock market (remember how many people lost money shorting the market on a Trump win? Lesson learned: don’t try to predict the market).

I want to hear from you.

And not JUST from my fellow Canadians, I want to hear from the Americans, Europeans, Aussies and other international readers as well. Americans have way more experience with housing crashes than we do. Aussies seem to have the same over-heated markets like us, and the Europeans have experienced vacancy taxes in major cities like London and Paris. What do you guys think? Should governments mess with the free market?

 

Should the Government Mess with the Housing Market?

Which rule will have the most effect on the housing market?

70 thoughts on “Should the Government Mess with the Housing Market?”

  1. Yes… the government should mess with the housing market, but only in the ways that I like :). The problem is when they try to design brainiac solutions to what is inherently a pretty simple problem. Rent control, eliminating CMHC, and raising interest rates would likely reduce and stabilize the cost of housing. All of this other stuff is just window dressing to avoid dealing with the elephant in the room. People love to find someone else to blame for the problem (speculators! foreign buyers!) but really it’s just our love affair with debt.

    1. Totally agree! Since I own I’ll vote and try to make others vote for parties that let the good times roll. Once I lock in the gains I’ll vote for parties who’d try to cause a crash and then buy again.

      1. I’m kind of on the other side of the page.

        I have no desire to (directly) own real estate. It’s too much extra responsibility at this point in life.

    2. I think whenever governments roll out “solutions”, it’s usually something cautious because they don’t want to get blamed for crashing the housing market.

      Rent control was a surprise to me…they probably wouldn’t have done anything that drastic if people weren’t complaining so much about greedy landlords doubling their rent. Too much greed= playing with fire= getting burned.

      The other measures probably won’t do much to dampen the market…but who knows? only time will tell…

  2. Interesting Stuff FireCracker. While I don’t live in Canada, our local housing market here in the Pacific Northwest is starting to see a lot of foreign buyers in the $1m+ range.

    Possibly because of the Vancouver foreign buyers tax? Hard to say!

    It’s an interesting experiment Ontario has there. I’ll be watching it closely. Your local government can try to control the housing market, but ultimately all that speculation needs to be brought back to reality with a friendly recession and some interest rate increases.

    A lot of those leveraged speculators with vacant properties need to be wiped-out. They’ll have to lose big before this highly-leveraged gambling stops.

    1. Yup, people who say ‘oh it’s different this time’ never lived through a crash. No one can predict exactly when a crash will happen, but nothing goes up forever. Regardless of whether it’s real-estate or stocks.

      Wiping out speculators is not going to happen overnight…the “whack-a-mole” game continues…

  3. I think this is the first FI blog I’ve read that’s mentioned PornHub. High five :). Great post as always. I haven’t been following what’s happening in Canada very closely so awesome to hear about!

  4. My understanding is that a lot of our problems in US with new apartments being too expensive for most locals to afford has to do with building codes so stringent that many existing buildings would be illegal to build.

    A lot of it to do with required amount of parking and zoning restrictions, rather than “it can’t fall over or catch on fire and then fall over” type codes.

    Basically, the people who already live in the cities want it to stay exactly the way it was when they moved there, and local ordinances get passed that prevent bulldozing a city block of picturesque 3 story San Fran row houses and replacing them with a six story apartment/condo building. As population increases, this puts upward pressure on housing prices, and prices out a bunch of people.

    Not sure if anything similar to this is happening in the frozen north, as you guys seem to be more sane than most of us when it comes to cars/mass transportation balance, but NIMBY-ist impulses for your living situation to stay the same as when you moved to a place seems to be a pretty common feature of human psychology.

    1. In the frozen north, we have less ‘livable’ space, so people tend to crowd into the “golden horse shoe area”, but I think in this case it’s not about supply like so many people say it is. It’s about speculators hoarding properties and land. And the problem won’t get better until interest rates goes up, the hammer is brought down on sub-prime lending, or CHMC gets killed/revamped.

      No one knows when the party stops. Only time will tell…

      1. Well, I voted for rent controls on the second question. Less because I’m sure it’ll have the biggest effect, and more because, as Vancouver Brit and Zoid say, it’s one of those policies that economists are pretty uniformly certain is counterproductive.

  5. Also, I think the first question is a bit silly, as the existing regulations are already “the government messing with the housing market.” The question is more “what changes does the government want to enact to how it regulates the housing market, what effect are those changes likely to have, and are those effects better or worse than the effects of the existing state of regulation.”

    I acknowledge that my version is significantly longer and less catchy. 😉

    1. Yup, that’s why we can be objective about this thing. No matter which way the housing market swings, we don’t have to give a shit. F-U money + geo arbitrage = ultimate freedom!

  6. Your CMHC sounds like our student loan issue. If banks can’t lose than there is no reason not to lend. Once they yank that rug out you will see risk management come into view to protect the bottom line. Prices will follow accordingly or if it keeps going up more people will end up voting with their feet like you have.

    In Texas our home prices are pretty modest compared to the rest of the nation because a large percentage of taxes raised are tied to house price. We pay no income tax but a $150k home has around a $5k property tax bill every year regardless if it is paid off. This varies by county and there are some exemptions like agriculture that reduce taxes.

    Hey! If it doesn’t work out the government could easily supply all the jobs, housing, and 3 squares a day. That will surely fix it.

    1. Didn’t think to link it to your student loans issue but that’s a good point!

      You’re right. The banks can’t lose so they won’t stop until they have some skin in the game. Who knows when that’ll be, but waiting for the government to save us is not the answer. Gotta save yourself.

      “Voting with their feet”…I like that term 🙂

      1. In truth, the banks are not really to blame here and they’ve actually all but come out and said this. I expect that they prefer stable consistent long term returns and view our housing market as a risk to that, but they can’t stop competing with their competitors or they risk being attacked for not fulfilling their fiduciary responsibilities. A housing market bust is really negative for the banks as well, but they sort of have to make hay while the sun shines.

  7. Thanks for the advice Mr. Money Bags! CMHC provides a guaranty service to help buyers who could not afford a house without mortgage insurance (Canada Guaranty and Genworth do the same). Otherwise, most people would not ever be able to afford a home. I know you don’t want to hear this, but some people like having a place called home – not everybody is like you. And having a home instills a savings discipline, that a lot of people would not ordinarily have.

    I see your cruel, mocking wit is just a hair’s breadth from nihilism. Ya, why don’t we all just cleave to the imaginary financial system, and hope that there will be another sucker that will take the fall after we cash out and the whole house of cards crashes.

    As for raising interest rates, you’re right, that would cool things off! And then there would be a whole lot of families in bankruptcy, but I guess you’d have the last laugh, wouldn’t you!

    1. “Mr. Money Bags”.

      Sir that is both discriminatory and offensive.

      Are you saying that those of the FEMALE persuasion cannot be wealthy? But more importantly, are you saying that money must be kept in BAGS like the possessions of some common hobo?

      I keep my money in a burlap sack and don’t you forget it.

      Signed,
      MRS. Money SACKS Esquire *rides away on her high horse*

    2. You mean CMHC enables the mis-pricing of risk and enables moral hazard for the banks?

      Maybe we should do the same thing with car loans and credit cards too…

      On a positive note, for those folks who can’t withstand a mild interest rate increase, I bet they’d be a hell of a lot better off with bankruptcy + 7 years than they would be with 20+ years of indentured servitude.

        1. I followed that link to find the source, and am pleased to report that there is a whole series of gifs of this girl that would easily encompass FIRECracker’s saucy personality. There’s even an eyeroll one in there.

          If you ever get tired of writing, I’m pretty sure this charming lady has enough facial expressions to convey your point(s)..

  8. The rent control rule is great, but any idea if they still have the crappy caveat: “You can only raise rent by the same amount as inflation UNLESS there is a roughly equivalent place nearby that is renting for more than your place. If there is feel free to jack up that rent to match it!”

    That rule always strikes me as being a huge load of equine waste.

    1. I didn’t see that caveat included anywhere in the rent control. All I’ve seen is “landlords are only allowed to raise rent to account for inflation (capped at 2.5%).”

      Landlords can still exploit a loophole by pretending to “have family move in”, kick their tenants out, then jack up the rent to match the market. But they’d have to do this every single year…that’s a big pain in the ass. And if they get caught, they’d have to compensate the tenant in court.

  9. Thanks for this article, FireCracker. One of the things that has never been adequately explained to me is why the federal government doesn’t simply amend and/or eliminate the CMHC provisions which are simply insurance coverage for the banks that issue mortgages. If it was harder for people to get CMHC coverage, then banks would be far more hesitant to issue mortgages. The lack of easily accessible mortgage money would result in fewer buyers in the housing market. Fewer buyers in the housing market would mean less demand for homes. Less demand for homes would mean that prices would drop to the highly-sought “affordable” levels.

    Does anyone have a cogent explanation for why the federal government refuses to amend and/or eliminate CMHC insurance?

    1. Once you introduce a measure that inflates the market, taking it out would have massive consequences. Likely, they don’t want to be blamed for crashing the market. That’s why they’re pussy footing around with these “little changes”.

      Also, people who are bad with finances, think it’s their God given right to own a house, and think it’s up to the public to bail them out would break out the pitch forks and torches…just read the comments from Andrew Barker above if you don’t believe me…

  10. I think they should mess with the housing market. But, to only to a certain point to make it fair as to keep up economic momentum in the long term.

    Keeping to the theme of your blog, the more capital tied up in a home, the less you can spend on things and stuff which is the engine of the economy. Right?

    So the higher and higher the rent and mortgages go (and lets be honest, wages aren’t moving up in a similar scale) , the less that goes into the economy.

    All percentages and wizard math aside, anyone who argues this is worried about today/now, instead of the long haul. If the government doesnt step in, the bubble will burst and be a complete disaster.

    1. Easy. Anything that makes homeownership less accessible will be met with public outrage.

      This sort of thing allows the government to have its cake and eat it too. It can keep home prices (and thus property taxes) high and growing, while allowing a path to home ownership for people who can’t afford it.

      Sincerely,
      ARB–Angry Retail Banker

    2. Might already be too late, but yes, the pressure is too high for them to sit there and do nothing. I’m normally against government intervention, but when the house of cards is about to fall, it might be better than nothing.

  11. We’ve had rent control here in Vancouver for ages, it achieves nothing and actually could be increasing the cost of rent for many. If the apartment you rent becomes out of touch with the local rental market, landlords are allowed to unequivocally raise rents for everybody in the building to the market rate. An example of the neighborhood I live in (http://www.cbc.ca/news/canada/british-columbia/vancouver-west-end-geographic-area-increase-clause-spike-rents-1.4021985) highlights this, where rent for a unit building was $1,150 per month, but all other units in the west end were charging far more. The landlord can use this geographic increase clause as a reason to increase rent substantially, in this case by 43%. I’ve seen this used frequently.

    Now, do I feel sorry for these renters who now can’t afford to live where they have grown up? Not really in all honesty. The only reason they could rent for that cheap was because of a government controlled system in their favour. As soon as that system bites them in the ass, they’re absolutely screwed. These rent control policies place people into bubbles where they think they can afford to live in the downtown core, for example, when really they can’t. When reality strikes, they spit their dummy out. These rent control policies don’t prepare people for the reality of the city they live in. It’s expensive here for a reason and these people who can’t afford the going rate need to move if not.

    There are many reasons I am against rent control (and I rent btw). The main reason is it significantly reduces the amount of rental units available in a city. People never leave their apartment because they can’t afford to move into a new apartment which can charge the real going rate. These people paying $1,100 in downtown Vancouver cannot afford to move to another place because the real going rate is probably $1,700, so they stay there forever, taking up valuable rental space and not paying their fair share. This all reduces the number of units available to rent, forcing prices up for everybody trying to enter the rental market. Not only that, as you mentioned, construction companies and land owners are far less likely to build rental units as they know once it is rented out it is very difficult to actually increase rent at the appropriate rate. This also reduces the amount of rental units available in the city.

    Furthermore, rent control results in landlords being reluctant to improve or even maintain their property. Why maintain a property when the renter is paying a pittance to stay there? Many units end up dilapidated and run down as landlords are reluctant to put money into something that provides no returns.

    You get a situation like in NYC where people occupy rental units for decades, paying insanely low rates, living in squalor like conditions but taking up prime locations. In many cases they then sublet these places to other family and friends etc. if they intend to leave just to keep the low rental fees.

    I wouldn’t mind, but it isn’t even the “needy” who it benefits most the time. Many people who can afford to rent at the going rate simply refuse to leave due to the low costs.

    Anyway, long story short, rent control is a dud for many reasons and for the most part I think the markets should dictate themselves. There is little evidence that rent control actually has the intended benefits. I actually think rental rates for many here would go down if every condo owner could increase rents to the going rate as vacancy rates would increase sharply.

    Oh, and one of the main reasons Canadian property is so unaffordable is due to the lax regulations regarding the real estate industry in Canada. Real estate boards are self governed with no government input. They can make up their own facts and figures and spew it out to the public to make them all think the market is strong. The media doesn’t help when all it does is support them. Also, potential buyers are kept completely in the dark in regards to MLS information. Unlike the US where buyers can find out anything they want about a property by using, for example, Zillow, it is next to impossible for a buyer here to find out even what the last sale price of the property was, or how long it has been listed for etc. It’s a rigged system where realtors keep all the cards close to their chest, providing only positive information for the public so they assume the market is strong and will always be strong.

    1. “It’s expensive here for a reason and these people who can’t afford the going rate need to move if not.”

      – Have you ever heard of mixed communities of poor, middle class and wealthy people all living together, or would you prefer the cities to be ghettos of poor, middle class and wealthy people. What is better for society as a whole? Should the poor and middle class be forced to commute great distances to work, in addition to not being paid a living wage? The only solution I can think of is intelligent urban planning, that mandates that developers build mixed communities into their plans – the rich need nannies, plumbers, cooks, cops, firemen and delivery people to live in their neighbourhood – for their own benefit, I might say!

      “These people paying $1,100 in downtown Vancouver cannot afford to move to another place because the real going rate is probably $1,700, so they stay there forever, taking up valuable rental space and not paying their fair share.”

      – Are you kidding me? To you it’s valuable rental space, but to them it is their home.

      “I actually think rental rates for many here would go down if every condo owner could increase rents to the going rate as vacancy rates would increase sharply.”

      – You are a comedian!

      I would be interested in learning more about how the game is rigged. Hmmm… sounds familiar.

      I will agree with you that rent control is a bad idea. Your solutions are worse. Urban planning is the solution and governments have been asleep at the wheel for decades on this one – Lazy, incompetent and irresponsible. Affordable housing should be part of urban planning, not an afterthought.

      1. Sorry, I don’t buy into all that socialist nonsense. I don’t agree with low income workers living in high income neighborhoods whilst being given preferential treatment from the government at all beneficial to society. Yes, if you can’t afford to live in a given area, you have to commute (or work outside of the given area). Tough luck, not my problem and you shouldn’t be given preferential treatment for earning less money and having less to offer

        Society will not collapse if cleaners, cops, firemen, plumbers, electricians etc. can’t live in high income areas. If it gets to the stage that these jobs are in short supply, the market will react and these careers will get paid more. That’s the beautiful thing about capitalism, it automatically reacts based on supply and demand, allowing the hard workers get ahead and the not-so-hard workers fall behind. Your solution rewards people for doing nothing but low level work.

        The moment you start rewarding people for being poor, having no skills/qualifications, having no desire to improve their own situation etc., society starts falling behind. That motivation to better yourself is the reason for advancement in the world.

        There is a reason the world’s greatest countries and economies are capitalist, because it works.

        1. I agree with you 100%. I was once classified as the POOR. Guess who fixed it?
          This guy!
          Not the government!
          Guess who pays the going rate on rent and chooses where he wants to live?
          You got it, this guy again!

        2. Dear Upper Class Brit;

          You see, the beautiful thing about KAKACaptialism is that it is so terribly short sighted. That’s why the wealthy nations are burning through resources so fast we actually need 1.5 earths just to sustain their demands. Can’t blame the poor. No, No, No. That’s your mess!

          Ah, the imbecile wealthy, I do know a few myself! So loath to mix with the commoners, I’m sure you of all people understand. Those lazy, insulent poor people, there’s a reason we call them the down trodden. It’s cads like you who are doing the foxtrot all over them, every chance you get.

          Say, why don’t we meet at the club for a game of billiards, Old Chappy?

          1. How can you say capitalism is short sighted when it’s only been around for around 500 years? (the 500 most prosperous years of mankind I might add). As mentioned above, the beautiful thing about capitalism is it reacts to changing needs, including resource needs. The world already knows it can’t rely on oil and coal forever and is slowly but surely changing how energy is produced. What happens as we get closer and closer to running out of oil? Well, firstly it will become too expensive to use anymore and secondly more and more focus will be placed on renewable energy, of course.

            We are already seeing the shift away from non-renewable energy to renewable energy. Britain, for example, just went a full day without relying on coal to provide energy for the entire sovereign state for the first time since the industrial revolution. By 2025 there will be no coal energy in Britain, instead shifting to solar and wind. That’s pretty mind blowing for one of the world’s greatest economies.

            In what regard am I “doing the foxtrot” all over low income households? There is a vast difference between stomping people into the ground and giving them everything for free like you proclaim. There is this vast area in the middle of those two extremes called “get off your ass and get it yourself”.

            Too many people sit back and claim the system is against them when it isn’t. It’s a free world, vastly different from the peasantry of the past that you draw similarities to. You can go out and get whatever you want, whenever you want with nothing holding anybody back but themselves. Why do you think the US is called the land of the free? It doesn’t take much to get off your butt, get even a smidgen of education or skills and go get a job that pays well enough for you to achieve what you want to achieve. Whinging and moaning for the government to come and bail you out isn’t helping anybody. All it does is discourage people from succeeding, advancing and bettering themselves. Why bother trying to improve when we can be given everything for free?

        3. All I can say is amen to Vancouver Brit

          People need to start to produce demonstrable evidence that any of this feel good stuff works in a macro, long term sense. As someone else mentioned, economists are pretty much in agreement that rent control is counter productive. Other interventionist policies may have have similar blowback.

          In general, I’m very much opposed to much of what our (and I’m in US) government are doing to “help” people. If you want to have your mind blown about this kind of thing, listen to Thomas Sowell (black, Harvard educated, prof) as he talks about the legacy of the welfare state and how its lead to the degradation of the social state of affairs for black people, https://www.youtube.com/watch?v=lm-FqtAOSB8. He is highly intelligent and takes an evidence based approach and speaks dispassionately about these things.

        4. Personally, I like the people that take care of my kids being able to earn enough money so that they can eat and not be stressed out all the time. I think I actually benefit from the fact that people can afford to take those jobs. Am I better off having them commute 2 hours for work? Probably not, because then they’ll just leave (hint: that’s what they’re doing).

    2. Feh. Two things

      1. the market increase card can’t be played too frequently. My understanding is that it can at most be used every few years, not annually.

      2. rent control across tenancies would solve a lot of what you’re describing. My understanding is that for existing rent controlled units in Ontario this is in fact the case. Rent control in BC is pretty much useless, especially now that most landlords refuse to rent except on a one year terminating lease basis. We actually paid a bit more in rent to find a decent landlord who wasn’t playing that silly game.

    3. “one of the main reasons Canadian property is so unaffordable is due to the lax regulations regarding the real estate industry in Canada”

      I agree with you there. When you have “double ending” (*snicker*) real-estate agents who make up phantom bids, and speculators committing tax evasion (and even though they were reported to the CRA, nothing got done about it), you create more speculators and less people who actual buy a home to live in.

  12. And on a side note….I was completely on the same wavelength with the “double ended” and would have been disappointed if you didn’t make some sort of comment

  13. Wonder how foreign ‘Canadian citizen’ buyers are treated? I am one although am anxious to dump my properties. Oh and since everyone gets my name wrong (almost on a weekly basis) i thought i would stand up for ‘Carrie’ (not Kerry), whom i miss dearly!! 😉

  14. Rent control is one of the clearest areas of consensus in all of economics, it does not work and will most likely exacerbate the problem it is trying to solve. This has proved itself over and over again: http://www.economist.com/blogs/economist-explains/2015/08/economist-explains-19

    “As Paul Krugman wrote in the New York Times in 2000, rent control is “among the best-understood issues in all of economics, and—among economists, anyway—one of the least controversial”. Economists reckon a restrictive price ceiling reduces the supply of property to the market. When prices are capped, people have less incentive to fix up and rent out their basement flat, or to build rental property. Slower supply growth exacerbates the price crunch. And those landlords who do rent out their properties might not bother to maintain them, because when supply and turnover in the market are limited by rent caps, landlords have little incentive to compete to attract tenants. Rent controls also mean that landlords may also become choosier, and tenants may stay in properties longer than makes sense. And some evidence shows that those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market-rate apartments. That may be because wealthier households may be in a better position to track down and secure rent-stabilised properties.”

    1. ‘some evidence shows that those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market-rate apartments.”

      Yup, that part is probably true. Rent control is essentially a wealth transfer from the landlord to the tenant.

  15. Great post. Im from Sydney, Australia. Interesting to read that Ontario has the same problems. At least your government has done something about it. here in Australia we are still waiting for the government to act. In the mean time prices keep going up. Last year alone prices went up 19%. Housing speculation appears to be a problem around world.

    1. An Aussie reader commented on the Financial Post, saying that Australia brought in measures allow foreign buyers to buy only new builds? Apparently it helped that locals had a free for all for existing builds?

      Did this actually happen?

      1. Kind of. Foreign buyers can buy vacant land for development and new houses or apartments. However there are restrictions on buying established properties. I believe a higher tax has been introduced to foreigners and tougher borrowing regulations. Unfortunately this has not stopped speculation in Sydney and Melbourne, Australia. Our median price in Sydney is now $1.15 Million. This will get you a 30+ year old house 30-40kms from the city centre or a 2 bedroom apartment 10 kms out of the city. SAd!

        1. So Sydney and Toronto are in the same boat…except you actually have sunshine all year round and Toronto is freezing for 5-6 months of the year.

          Looks like foreign buyer taxes isn’t the way to go….

  16. Interesting read. Living in China and working amongst wealthy Chinese, I have heard anecdotally of several people considering buying in Toronto since Vancouver implemented their 15% tax.

    Also, there are ways for foreign buyers to avoid the tax. Most who are wealthy enough to purchase Canadian property are also savvy enough to set up a Canadian real estate corporation. They then have their Canadian company buy the real estate. Or they come over and establish residency, or send a family member over to establish residency, then buy in their name.

    It’s kind of interesting how creative people can get.

    1. I don’t buy the notion that the Toronto housing market has been driven up by foreign buyers…considering how many domestic residents own multiple properties. I think it’s mostly local speculators driving up the housing market.

      I guess time will tell…

  17. As a center left voter, I am definitely not against the idea of government intervening in markets. I do wish it weren’t tainted by xenophobia, going specifically after foreign buyers, who are a red herring anyway (house horny Canadians are driving this bubble, as Garth Turner mentions daily).

    I will note that the government was already intervening in the housing market (in the other direction) with the way they’ve set interest rates. Personally, I think they’re flirting with a hard landing and this latest set of measures may be too little, too late. But I’m hoping for (naively) for the elusive soft landing for Canada’s housing bubble…

    1. “I think they’re flirting with a hard landing and this latest set of measures may be too little, too late. But I’m hoping for (naively) for the elusive soft landing for Canada’s housing bubble…”

      I’m on the same page as you.

  18. It’s almost impossible that the government doesn’t mess with the housing market. At the end of the day, the government chooses locations for roads, public transportation lines, airports, stoplights, police stations, schools, and more. All of those things tweak home prices in one way or another.

    Because “the people” have some control over all those things (thanks democracy!) as well as all the things which drive property values down (prisons, landfills, undesirable businesses, high density housing, etc) there is widespread opportunity for rent seeking.

    Government meddling in the housing market is inevitable. We as a society have to decide what trade-offs we can accept and which ones we can’t.

  19. The Ontario government has mismanaged the health care system, screwing over doctors and blaming them for the problem. Doctors danced in protest to the song YMCA, with pertinent facts at the end: https://youtu.be/cKUQvrmYdAc

    So: should the government mess with the housing market? I’m sure there may be competent leaders somewhere in the world who could do something positive, but I wouldn’t trust Wynne’s Liberals with anything except fattening their own bank accounts and misleading the public.

    I’m concerned about your last two posts. How do I avoid sub-prime lending? Does it mean getting rid of bank stocks (which is a good chunk of the Canadian index)? What about REIT’s? Do we just cross our fingers and hope Canadians aren’t as blind and greedy as Americans on the sub-prime issue?

    I know you’re not supposed to give investment advice, but for me, this is honestly the most worrisome thing I’ve seen on your site. Thanks to anyone who wants to comment.

    1. How do you avoid MBS’s? Just don’t buy them!
      And as for Canadians being not as blind and greedy, I honestly don’t know. That’s why we split our portfolio between Canada, US, and International. You just don’t know what kind of systemic risks are lurking in any one country, even one you live in.

      1. Thanks, Wanderer! I won’t be buying them, and I do try to diversify our investments geographically. I guess that’s all we can do.

    1. Thanks, Mysticaltyger! Awesome name, btw. Does your coat change color and become magical? Can we make a wish by rubbing your fur? 🙂

      1. Thank you. Some people love the name. Other friends of mine make fun of it. I think it suits me. It’s funny you ask those questions. I created the name almost 20 years ago and am actually working on becoming a faith healer in the name of Jesus. I know, sounds pretty out there–to me, too.

        But I haven’t ignored the practical. 20 years of steady saving is now allowing me to explore other life options without too much need for a paycheck. So that’s a roundabout way of saying I hope at some point in the very near future, you’ll be able to rub my fur and be healed of whatever ails you, physically, emotionally, psychologically, spiritually. I HATE our health care system in America and really hate how Americans make themselves sick and then fight about who pays the bill afterwards. 70% of our health care spending is on sicknesses that are mostly or completely preventable…yet no one talks about this fact.

        If only I’d earned a kick-ass income like you and your husband and saved more of it, I’d have been able to unplug from the matrix sooner…guess I’ll have to trust more in a higher power than the money god.

        1. “70% of our health care spending is on sicknesses that are mostly or completely preventable”…that’s a very good point. People don’t realize how much money preventative care saves. I guess it’s easier to justify the spending once the problem is already there.

          1. I think the thing about prevention is it’s not just “preventative care”. Preventative care often doesn’t save money because it often involves a lot of unnecessary and expensive tests, etc.

            Real “preventative care” is lifestyle based. This guy, Dan Buettner, gets at the very essence of what I’m talking about. The short version is that for the world’s healthiest populations, no one is “trying” to be healthy. It’s just built into their way of life. IE. A walking or cycling culture vs. a car culture. Eating a plant based diet with minimal or no processed foods is the norm, etc. Problem is that many things in modern America work against the healthy choice being the normal “default” choice–and that is what has to change:

            https://www.youtube.com/watch?v=waGHi6aMzh8&t=37s

            1. A healthy lifestyle definitely helps, but sometimes even people with the healthiest lifestyles still get cancer (maybe due to family history, etc), so in those circumstances, early screening (which is preventative care) would catch it, thus costing less in the long run to fix the problem.

              Getting people to actually CHANGE their behaviour/lifestyle is pretty challenging though. Any ideas how that could be done?

Leave a Reply

Your email address will not be published. Required fields are marked *

Social Media Auto Publish Powered By : XYZScripts.com