Whose “fault” is it that the price of real estate in Toronto is so high?
I mean, everywhere you look, people complain. The media absolutely loves to focus on the high price of real estate, but it’s portrayed as a negative, and often as an epidemic.
I don’t know if the simple answer is what people want to hear – that “the free market” of buyers and sellers; supply and demand, is responsible.
So let’s play the blame game, and see who we can pin this problem on…
Fair warning: this blog post is equal parts sarcastic, and snide. It’s rhetorical, and inciting.
But it’s true.
So why don’t we….
1) Blame The Government
When people use the word “government” in a blanket statement, it often reflects their lack of knowledge of what a government actually is, and what role they’re supposed to play.
“It’s the damn government’s fault that, a, b, c, or d.”
Not a particular member of government responsible for writing policy, or a certain wing of the municipal government, or the provincial government, or the federal government, and not the level of government that is responsible for that particular grievance, but rather “the government” as a whole.
It’s like something out of the X-Files. “The government is keeping a secret!”
So often in society, when a problem arises, people who are (in my opinion) less informed, often look to “the government” to fix that problem.
Of course, society in general seems to have this mantra, “I want the problem fixed, but I don’t want to pay for it. I also want more free services, and lower taxes.”
It’s like people forget that the government, in theory, is simply a body of citizens – like the rest of us, who are tasked with taking a small portion of our earnings, and using it for our collective purposes.
But alas, those who lack a basic understanding of the world in practice, let alone economics, look to “the government” to cure every single problem that ails every single one of us.
When it comes to rising real estate prices, some members of the public believe it’s “the government’s” job to fix them.
In Monday’s Globe & Mail, there’s an article titled, “B.C. Pressured To Cool Down Vancouver’s House Prices.” The first paragraph reads:
“The average price for detached homes within the city of Vancouver has rocketed to a record $2.23 Million as the provincial government faces pressure to cool the scorching housing market.”
You or I might ask, “Is it really the government’s job to cool the housing market? Who says the market needs to be cooled?”
Well, people who want to be able to afford real estate, but can’t. And people who firmly believe that the government is a magic cure-all. Like a building that prints money, and hands out dreams in manila envelopes.
If you’re sick of the high cost of real estate, then simply blame the government for not doing enough.
2) Blame CMHC
Yes, let’s blame CMHC.
They simply haven’t done enough to “tighten mortgage lending rules.”
Ten years ago, we could get 107% financing on houses. We could but a $1,000,000 house with ZERO money out of our own pocket, and get $70,000 in cash back upon closing.
Since then CMHC has raised the minimum down payment on purchases to 5%, thereby eliminating these “cash back” mortgages.
CMHC has raised the minimum down payment on second properties to 20%, to curb speculation and over-leveraging.
CMHC has reduced amortization periods from 40-years, down to 25-years.
But you know what?
They should do MORE!
It’s clearly CMHC’s fault that the housing market is so hot, and continues to rise.
They should simply raise the minimum down payment on properties to 15%, and somehow find a way to eliminate variable rate mortgages. In fact, why not take the maximum amortization period down to 20-years.
Isn’t it CMHC’s job to sit down at every dinner table, in every Canadian household, every night, and ensure that we’re not taking on too much debt?
If you’re sick of the high cost of real estate, then simply blame CMHC for not doing enough.
3) Blame The Bank of Canada
What does the Bank of Canada really know about money?
Here they are, up on their high horse, writing Monetary Policy.
Setting the overnight lending rate.
When all the while, Canadians are finding it tough to afford a home.
If the Bank of Canada was doing its job, houses would be affordable.
If you’re sick of the high cost of real estate, then simply blame the Bank of Canada for not writing the correct fiscal and monetary policies.
4) Blame Lenders
What a paradox!
We all want cheap money, right? I mean, if we had a choice between paying 3.99% for our 5-year, fixed rate mortgage, and paying 2.59% for the same product, we’d all choose the latter.
But you know what?
It’s these damn lenders and their damn low rates that are creating so much demand for housing!
If lenders weren’t giving out insanely-low, borderline-free-money, then fewer people would be buying real estate, and if fewer people were buying real estate, then prices wouldn’t rise as much.
I mean, John, Jane, and Jimmy still want their 2.59% mortgages, but they also want lenders to stop being so damn aggressive!
If you’re sick of the high cost of real estate, then simply blame lenders for giving away money too cheaply, and helping to create demand!
4) Blame Realtors
Goddam real estate agents.
They all drive fancy cars, yap on their iPhones, and work 20-hours a week.
All they care about are their commissions, and they’ll do anything to make deals – even if it means telling their buyers to pay more for a property than they could, would, or should.
The tactics that Realtors employ are shameless.
“Staging” a house to make it look better than it actually is? In what other industry would this be allowed?
This “under-pricing” of homes and “holding-back” offers is solely responsible for the insane appreciation of real estate over the last decade. Trying to solicit multiple offers, rather than looking for the one person who will pay fair market value for the house.
There are no barriers to entry in this business. Anybody over the age of 18, who is a resident of Ontario, and who can write a cheque to OREA can get their real estate license. And then that person can go out and sell real estate on behalf of buyers and sellers, who of course, hire that person…
If you’re sick of the high cost of real estate, then simply blame Realtors for driving up the price!
5) Blame Society
If you let your son go to his hockey game without that new Bauer composite hockey stick that costs $300 and might break after one shift, then you’re a terrible father. Don’t you know the other kids on the team will make fun of your kid?
And if you and your partner simply lived within your means, rather than buying a much larger property than you actually need right now, then your friends with larger properties might think less of you.
You have a $4,000 purse for a reason. You could put all your stuff in a five-cent plastic bag from No Frills, but you elect not to.
It’s quite simple: you want the most out of life, but you want to put in the least amount of effort.
I went to GoodLife today to get in the first workout I’ve had in ten days (at what point are you considered “fat”?), and one of the girls at the front counter told me, “I saw you on CTV news the other night talking about real estate!”
The girl standing next to her said, “Am I ever going to be able to afford a nice, new home?”
I paused, offered a kind smile, and said, “Probably not.”
Why sugarcoat it?
“A nice, new home,” she asks?
And here’s the part where you can label me an elitist, or a jerk. But this is a girl who works at the front desk of a gym, probably making minimum wage, and probably working 25-30 hours a week.
I mean, “should” she be able to afford a “nice, new home?”
If she was able to afford a nice, new home, then wouldn’t the market be out of whack?
If this was Kansas in 1950, then working at the local hardware store would probably net you enough money to buy a 3-bedroom home for you growing family.
But this is 2015. This is Toronto. This is the 4th largest metropolitan area in North America. It’s competitive out there! Working 9-5 doesn’t seem to cut it anymore, and that’s just the city we live in.
“Should” everybody in Toronto be able to afford what they want?
I’m not sure that’s the way an economy works.
Is there a city in the world where people who simply “want” a big house, at a reasonable price, can get one?
If you’re sick of the high cost of real estate, then simply blame society for having lavish tastes, and unrealistic expectations.
6) Blame Buyers
Your mom and dad think you’re insane for buying a $900,000 house with a 5% down payment.
What are you thinking?
You should sit back, save money, and wait until you have more.
Nevermind the fact that a $900,000 house seems to cost closer to $1,000,000 the next year, and then follow the same pattern every year after…
Buyer are cashing in their RRSP’s to buy houses! But what about retirement? Can’t you simply put the immediate future on hold for a moment and think about fifty-years down the road?
And where are all these buyers coming from?
Why are there so many people in this city, who all want a place to live? Wassup with THAT?
If there weren’t so many damn buyers, and so many people “bidding” on properties, prices wouldn’t keep rising.
If you’re sick of the high cost of real estate, then simply blame buyers for out-numbering sellers, and driving up the price!
7) Blame The Free Market
A free market, you say?
So buyers and sellers interact, and a “market price” results.
If there are more sellers than buyers, then there might be a “surplus,” and prices might fall.
If there are more buyers than sellers, then there might be a “shortage,” and prices might rise.
So in Toronto, as noted – the 4th largest metropolitan area in North America, and essentially the true “capital” of Canada, where about 50-60% of all Canadian immigrants end up, and where more people want to live than any other area of the country, there happens to be more buyers than sellers?
SHUT THE FRONT DOOR!
Who would have ever guessed that there would be demand for freehold houses in a city where approximately ZERO new ones are being created each year?
Who could have predicted that when there’s 100 new condos being built in the downtown core for every 200 people who choose to move there, that things could get a bit competitive?
It sounds to me like this “free market” has been free to drive up prices, without any third-party intervention.
If you’re sick of the high cost of real estate, then simply blame the free market for responding exactly as it should, as a free market does.
“Should” is a word I don’t understand.
I feel like a lot of folks out there believe they “should” be able to afford a home.
But then I should be able to play in the National Football League, and I should be able to perform magic tricks without any formal training, and I should be able to marry three supermodels with my wife’s blessing.
The price of a home in Toronto is expensive, I get that.
More people wish they could afford one, I get that too.
But all the media attention seems to portray this invisible “bad guy” that’s responsible for crushing the hearts of Canadians, when in reality, it’s just the result of a free market.
Both media coverage and public sentiment seem to feel that housing “should” be more affordable, and there’s always these two inferred questions: “What’s going to change, and who is going to do something about it?”
Maybe sometimes in life, there’s just nobody to blame…