Wednesday’s blog spawned a philosophical debate about the role of government, which wasn’t exactly unforeseen, given the topic at hand, not to mention my slightly right-of-centre fiscal views.
So let’s pick up on that theme, and get slightly more specific. Let’s discuss whether or not, or to what extent, the government should monitor, oversee, or limit the action of investors, in order to protect, or promote the “best interests,” of the public.
It’s a massive grey area, and a debate with no clear conclusion, I know. But it’s a topic that I think is going to gain a lot of steam in both Toronto and Vancouver…
I want to start today’s discussion with two interesting quotes – one from an investor interviewed in a CBC.ca article, and one from a blog reader here on TRB.
The CBC article was entitled, “Toronto Real Estate Investors Deny They’re Driving Up The Market.” Read the whole story if you have time.
Here’s an excerpt:
Peter Walsh says that since arriving in Toronto a decade ago, he and his wife have purchased three houses and two condos.
But he rejects the idea that their property investments are contributing to the affordability crisis in the city’s red-hot real estate market.
“I wouldn’t like to think of us as kind of ruining the market for anybody or making it bad for anyone,” says Walsh, who emigrated from the UK and now works full-time as an accountant. “I don’t think I’m driving up the market. I’m just quietly benefiting from it.”
His comments come amid suggestions from some real-estate observers that domestic investors in Toronto are partially responsible for pushing up prices in a housing market with a limited supply, making it a challenge for first-time buyers to purchase a home.
Can you guess which quote it is, that interests me?
It’s this one:
“I wouldn’t like to think of us as kind of ruining the market for anybody or making it bad for anyone.”
No, neither would I.
Neither would most rational people, in my opinion.
Neither would most fiscal conservatives, free-market proponents, or, to be quite honest, those that own their own home.
But if you read the comments on the article (I know, I know, the old adage among journalists “don’t ever read the comments” is ringing in my ears), you would see that a lot of people disagree.
A lot of readers think that Peter Walsh is the devil reincarnated, and that he, and people like him, are doing something wrong.
The next quote I want to look at is one from blog-reader “Potato” on Wednesday’s blog:
As an aside, Potato – where have you been? I don’t think I’ve seen a comment under your handle in more than a year! We miss you. And where the heck is Chroscklh or whatever his name was? I miss hearing about his childhood grizzly-bear…
In any event, a resounding “No” was offered by Potato in this comment, in response to my attempt at a rhetorical question.
I feel, for the most part, that investors should be rewarded for the risk they take on, and that they should be free to seek returns as they fit.
Of course, there are always exceptions to the rule.
The returns provided by gambling, for example, might not be legal. I mean, unless you’re betting Pro-Line through the OLG, where the government collects the take, while giving far worse odds than any online casino or sportsbook, might I add.
But as Potato points out, when it comes to real estate, an “investor” can’t result to illegal activities (co-ops, brothels, or even illegal rooming or student housing), and of course we need to consider that the city has already put restrictions on the “uses” of real estate, when it comes to zoning designations. You can’t build a 20-storey building in your backyard, just because that’s what you consider to be the “best return.”
To take things a step further, however, you might read some of the angry comments from the CBC article readers, who believe that real estate should not be available as an “investment,” since it’s where people live!
There’s a school of thought out there that there’s no real harm in “investing” in stocks, but when you’re speculating, buying and holding, and investing in a house, then you’re messing around with people’s lives.
Is that pie-in-the-sky thinking?
Or is there some truth to that?
Who’s job is it to distinguish a fair investment vehicle from an unfair one?
Now as my series of rhetorical, leading, and unanswered questions continues, let me ask you one about speculating.
What is the difference between speculating on real estate, and speculating in the stock market?
People often complain that it’s not “fair” for investors to speculate on real estate, since it drives the price up.
But do you remember the early-2000’s “dot-com” boom like I do?
I was in university, following the stock market with great interest, as every “dot-com” quadrupled in value after its initial public offering.
You could literally create a company based on a “dot-com” URL, having nothing but the name, and a business plan, and go to a venture capitalist for millions of dollars.
Somebody could have bookmarked “www.realestate.com” and put together a PowerPoint slideshow about how this “business” would revolutionize the way real estate is sold, put together a fee structure, make projections for revenue and profitability, and then launch an IPO for $200,000,000.
Tell me that isn’t speculative.
Tell me the people buying stocks based on emotion, hysteria, panic, hype, excitement, greed, and hope, aren’t, by the very definition, speculating.
Every single day, in the stock market, people speculate.
Very few people know the true value of a stock, if you’re looking for the intrinsic value of the company, or a P/E ratio that’s based not only on an acceptable multiplier, but a true value of earnings – one that isn’t massaged by accountants, or created by the CEO.
So what the hell do all these people buying stocks really know? Aren’t they simply speculating on what could happen to the stock price?
I guess to be quite honest, I don’t think the whole “speculation” argument for real estate is a valid one, since any investment is a speculation.
Now if you want to go back to the idea that real estate is a different type of investment altogether, because it’s the only one that’s lived in, and for that reason the government should restrict the type of investments allowed, then I’ll entertain that.
After all, the government applies different tax rates to different investments, ie. which returns on which investments are taxed at which rates.
So can they take it a step further and decide which investment vehicles can be utilized altogether?
It seems as though the government in Vancouver is heading in that direction.
As Potato points out, the government ought to be concerned with the “public good.”
The government’s job, at least in theory, is to serve, protect, and promote the best interests of the public, since the government is in fact made up of the public itself.
So in Vancouver, where you have a dire housing shortage, and “investors” are buying real estate, holding it empty, and taking supply out of the housing stock, it looks as though the government has finally stepped in and said “this isn’t going to happen anymore.”
The 15% foreign buyer’s tax was to try and reduce demand, thereby cooling the market. But it was also specifically trying to eliminate those buyers who are most likely to hold the properties empty in the first place.
Now along comes the vacancy tax, and we can see that the government is taking things a step further.
They know there are 10,000 vacant properties out there, and while they think they’ve put measures into place to stop that number from climbing to 11,000, they’re on a mission to whittle that 10,000 number down, or at least collect tax dollars in the process that could (you would hope…) be used for affordable housing.
Is Vancouver’s situation different from the rest of the country?
Or is this idea of restricting ownership of real estate one that should catch on?
I think the one factor the government can never control, never eliminate, or never fully understand (since most governments deal in theory and not reality), is human nature.
It’s human nature to want.
People don’t only have what they need. Even Abraham Maslow knows that.
People want, and then they want more.
People with money are going to want that money to grow.
To grow your money, you need to invest.
And real estate is, and always has been, one of the most popular and most successful investment vehicles on the planet.
So do we really do away with that?
We live in a capitalistic society, in a free-market economy, and in a democracy.
I just don’t know that you can step in and tell people they can only own one house, and continue to call it all three of the above.