Let’s play a game, shall we?
These usually go over well.
I’m going to give you five scenarios and I want you to tell me which is something you would define as a “problem.”
A property in North Toronto is listed for $1,099,900 and is likely “worth” about $1,400,000 in this hyper market.
My colleague has the listing. He tells me, “My seller would jump at a bully offer of $1,450,000. Bring it, David. I’ll get it done.”
My clients aren’t interested because of the lack of ‘real’ parking, and they pass. But low and behold, another buyer submits a bully offer on the property.
How much is that offer for?
My colleague is literally laughing, the price is so outrageous.
The buyers are overseas. They need a 120-day closing so they can have their money in a Canadian bank account long enough to satisfy whatever rules are in place. They are likely buying in cash, but who knows, they might take a small mortgage because money is cheap.
My clients are a 24-year-old couple looking to buy a 1-bed, 1-bath condo in the downtown core.
Are they too young to be buying? Does anybody “deserve” to be able to buy at this age? Are we entitled to have ANY opinion on this, whatsoever?
They have a 20% down payment on a $600,000 purchase.
At 2.29% for a 25-year amortization, on a 5-year fixed-rate mortgage, they would carry this for $2,100.36 per month.
They qualified based on a “stress-tested” rate of 4.79%, and just slid through, being able to make those payments of $2,734.60.
If the stress-test qualification goes up to 5.75%, they would not be able to make the payments of $2,860.41.
Even though we are, potentially, light-years away from a 4.79% rate, let alone a 4.25% rate, they aren’t permitted to buy in this market.
An Ottawa couple bid $400,000 over the asking price of a house and lost to a higher bid.
This is from a CTV news story which you can read HERE.
Some exceptional mathematical deduction went into this quote:
Fewer homes are for sale and more people are wanting to buy.
The would-be buyer said: “This was probably one of our dream homes on our list. We’ve been looking and looking for over a year and we bid over $400,000 over the asking price.”
Two young ladies are cubicle-mates at ABC Corporation where they work in cost procurement.
Both ladies are currently in the market for their first condo.
They make the same salary and ultimately obtain the exact same bonus.
One of the ladies has saved her money since she was 15-years-old; every single penny, from every single job. Folding t-shirts for minimum wage at The Gap, serving assholes drinks on the golf course as a “cart girl,” and knocking on doors as a rep for College Pro Painters every summer during university. She is frugal, doesn’t spend her money on material goods, and brings her lunch to work every single day. She knows the value of a dollar and how hard it is to keep a dollar, let alone make one.
The other young lady comes from a very well-off family and is part of a yacht club, a golf club, and one of those “family, athletic, recreational, and social clubs” as well. The car that she drives to work every day costs more than she makes in a year. Pre-pandemic, she was out four nights per week, taking in all of Toronto’s best restaurants, bars, and nightlife, most of which she shared on her Instagram account, all of which garnered serious “likes.” Her parents are going to give her half of the cost of the condo for a down-payment so they can help lower her monthly payments.
A house is listed for sale in the west end of Toronto.
In one week, there are 97 viewings.
On offer night, 14 people submit offers.
Only one buyer is able to purchase the home.
I’m sure there’s a scenario #6, a scenario #7, and even a scenario #19 for the purposes of our game, but in the interest of time, I think we’ll just let sleeping dogs lay.
Which of these five scenarios would you see as a “problem?”
Feel free to scroll down and comment now, since I’m about to give you my two cents, for what it’s worth.
Scenario #1 is a toughie. This is a real story, one that took place last week.
We all know that Canadian real estate has been used as a safety deposit box for foreign investors for quite some time, but once in a while, a transaction is right there, in your face, and you just know what’s happening.
So is this a problem?
It’s not a problem for the seller who got $200,000+ over what any other rational human in Toronto would have paid.
It’s not a problem for the buyer and seller agents, who both filled out the requisite paperwork for FINTRAC purposes.
But is it a problem for you?
Is this a problem that “somebody should do something about,” as the discussion in the media goes?
Much has been made of “banning foreign ownership,” but that’s all well and good in hot markets, during hot times. But when a property owner in cooler times, in a cooler location, isn’t permitted to sell to a foreign buyer in the future, I’m sure there will be some dissent about these regulations.
Taxing foreign buyers is a joke, really. I have no evidence to support this claim, but I highly doubt that the government is able to accurately track the true origin of funds for people who don’t want the origin to be found.
So are we xenophobes? Or do we feel that those who live here, work here, generate income here, and pay taxes here should have a better “chance” at buying real estate than those who don’t?
Scenario #2 is problematic for me, at least.
If the government wants to “cool the housing market,” the low-hanging fruit here is to take the least-qualified buyers out of the market by raising the stress-test qualification rate, and making it harder for those buyers to buy.
But if foreign buyers can still buy in cash, then what are we doing here?
Scenario #3 is a problem for many, many Canadians.
But is it really a problem?
Or is it just supply and demand at work?
Is this something we need to “fix?”
Or should we “fix” people’s expectations and understanding of “wants versus needs?”
Scenario #4 is an interesting one, since I personally believe that society has deemed this to be “unfair” and governments are seeking to desperately level the playing field.
The definition of “fair” is one we can debate for years and to which we will never reach a consensus. But circumstance plays a large role in many of our lives, as does luck. We can’t control where we’re born, or to whom. Some people are more fortunate than others, and some just have it better.
The idea of a capital gains tax to “cool the housing market” is a fraud. It’s not going to cool the market, which is something we’ll debate later. It’s a tax. Taxes are implemented to create revenue, not solve problems.
There’s a growing perception out there that those who “have” should also be forced to give. Give more, more, and more. Some politicians say things like, “It’s time the top-earners pay their fair share,” as though 53% income tax, plus sales tax, property tax, land transfer tax, et al, isn’t “fair.”
I truly believe that Scenario #4 encompasses what much of the real estate rage is about in 2021.
Scenario #5 isn’t a problem.
It’s a reality.
It’s supply and demand at work.
Supply and demand have been at play in every instance of our lives from the very time we were born. Everybody wanted to hold you when you were a newborn, but once you were 3-years-old, and your younger sister was the cuter, smaller, newborn, everybody wanted to hold her instead.
Supply and demand are based on tastes and preferences, and human nature.
The real estate market is a market, and sometimes, people forget that. Concert tickets can sell out quickly, for prices that many people can’t afford, but we don’t fly into a rage about “fair,” do we?
Perhaps real estate is an essential right, and that’s where things differ.
But is it a right to own? And to own in Toronto? And to own the property, size, style, and location that you want?
I have come to realize that we will never agree on what the “problem” in our real estate market is, but we will continue to come up with solutions regardless.
And that, pardon the play on words, is the problem with the solutions.
All the solutions being bandied about have yet to address what the true problems in our real estate market are.
For many, the problem is that they can’t afford what they want, plain and simple.
But what is the difference between a “want” and a “need?”
That’s something that I feel has really been lost by society over the past decade.
Perhaps the solution here is to make high-school economics a mandatory course as well as a course on personal finance. The public school curriculum, in my opinion, doesn’t prepare students for the real world. It coddles them, teaches them they’re all equal, and that they’re all special, and that everything is going to be okay. If we don’t teach kids the difference between “needs and wants,” as they do in economics, or allow them to pass/fail, or be celebrated for achievements, then is it any wonder why everybody wants everything out there in the world today and expects to get it?
But what about this idea that inequality is growing too rapidly, and the rising housing prices are, in fact, a problem for our country as a whole, and could lead to a societal breakdown?
I read all the comments on Wednesday’s blog, and I appreciate them all.
Here’s one that stood out to me:
Wow, Keith, you hit the nail on the head here!
You’d really hit it off with my colleague Chris, who talks like this all the time.
“Do you want us to be like Mexico? Where the wealthy need to build walls around their houses to stop the peasants from breaking in and killing them?”
I think we can all agree that we’re a ways off from that. But look south of the border and you can see how extreme inequality – including but not limited to racial inequality and financial inequality, have divided the country so deeply in two that they will never, ever find common ground.
I’m not going to suggest that house prices rising forever are a good thing.
I’m also not going to suggest that the government should step aside and put zero effort into helping the housing crisis.
But I am going to suggest that the government will not act in an appropriate way, and sadly, won’t actually address the root issues here.
I’m personally offended by the suggestion that a capital gains tax is going to “solve” the problem in the real estate market.
I was quite surprised to see this in the Globe & Mail:
“Canada’s Wild Housing Market Is Making A Case For The Country’s Most Unpopular Tax”
The Globe And Mail
March 20th, 2021
The capital gains tax is coming, trust me.
It’ll be on the wealthier Canadians, since as we know, “They don’t pay their fair share,” and that’s how the government will deal with the unpopularity of the tax, since people generally don’t care about things that don’t affect them.
I understand the basic argument that we’re “lucky” to have this exemption on capital gains on a primary residence or that it’s been “good while it lasted,” but that’s weak. That’s an excuse. If you look at why they’re going to bring this tax in, you’re a fool if you think it’s to cool the housing market.
You do not solve a problem by creating a tax.
It’s never happened and it never will. It’s an excuse to create a tax and raise revenue, pandemic to pay for, or not.
And if you’re a self-respecting, intelligent person, you should be offended by the load of bullshit that the government is feeding you – that this tax will “help” the real estate market.
This tax will raise revenue, and that’s it.
Then over the next few years, many home-owners will transfer their properties into holding companies, family trusts, and/or pass them down to their children. Fewer and fewer houses will be sold on the open market, and this “strategy” of implementing a tax to “help cool the market” will backfire exceptionally.
Check out this line from the Globe & Mail article:
Today, the housing tax break is one whose biggest benefits flow to those with the deepest pockets. A $200,000 gain on the sale of a $300,000 home is tax free, but so is a $10-million windfall on the sale of a $15-million home.
I know that you don’t want to feel sorry for the person who owns a $15,000,000 home, but can you not admit that it’s up to these individuals to solve all the country’s problems?
The Globe article talks about “average” Canadians, but what does that mean? The “average” Canadian in Toronto might own a $1,000,000 house, but the “average” Canadian in Winnipeg might own a $350,000 house. How do you account for average with this tax? How do you define “middle class” in this tax?
I’m trying my best not to run off on a political rant here, but I don’t believe that the government will address the “problem” in our housing market. They just won’t, sorry!
Instead, they’ll look at the housing “problem” as a way to raise taxes and generate revenue.
You think I’m ranting, right?
You think I’m off base?
Chrystia Freeland was on Bloomberg Markets last week and had this to say:
“Some Canadian households, and it tends to be the better-off households, do have quite a lot of money that they’ve saved because there hasn’t been that much to do in the pandemic, and certainly it would be great if that money could go towards driving our recovery. And I want to make an offer now to all of your listeners: if people have ideas on how the government can act to help unleash that stimulus, I’m very interested. Maybe, as Doug Porter suggested, it happens by itself, that’s the best-case scenario for me.”
She wants to “unleash” your savings.
Imagine that? You, having the audacity to save money?
This is the scary part: “Maybe it happens by itself.”
Because that maybe leads to an “or” or a “but,” which then leads to, “or maybe we find a way to unleash it ourselves.”
I swear, sometimes I think we’re about two weeks away from the government just coming into our living rooms, taking the TV off the wall, and saying, “Thanks, we need this…”
Folks, I realize I’m getting away from the conversation about the “problem” in our housing market here, but my point is simple: the government isn’t going to offer real solutions. They are concerned, more than anything else, with finding new sources of revenue,and they’ll use the red-hot housing market as an excuse to find them.
Here’s a headline that’s refreshing:
“CIBC CEO Calls For Policies To Boost Housing Supply As Prices Surge”
April 8, 2021
It’s almost as though the various levels of government have all forgot that there are two sides to every coin. I know that most people call “heads,” probably a little more than half of the time, but why doesn’t the govenrment ever address the supply-side “problem” in our real estate market?
Demand, demand, demand.
It’s always demand.
We need to make it harder to borrow, harder to qualify, and remove potential buyers from the market! We will absolutely continue to allow dark money to flow freely into our country to buy real estate in cash, duh! But yeah, back to organic, grassroots demand. Yeah, that has to stop…
In the above article, CIBC CEO Victor Dodig asks:
“How do we make sure we have supply of housing in place and a plan to make sure that supply grows?”
That sound you just heard was my head exploding.
What a novel idea!
Supply, you say? Nooooo!
“Part of the short-term aberration you’re seeing here is low interest rates, lots of liquidity, but not enough supply,” Dodig said in an interview late on Wednesday.
I see, I see, said the blind man.
So the demand in the short-term is being driven by low interest rates, but if we’re going to provide a “solution” to this so-called problem in Canadian real estate, we need to have a long-term plan to deal with demand?
Here’s another article that I rather enjoyed seeing in
“Psst, How To Build A $10 Billion Public Transit System At Half The Cost”
April 13, 2021
What a breath of fresh air!
I know the author is somebody who has a vested interest in the idea of a private/public partnership, but I’m just reading an idea. Doesn’t matter who wrote it.
I’ve always said that the best way to address the housing shortage in an effective, long-term way is to build infrastructure that cuts down on commute times, and potentially allows people to live further from work or other places of interest.
You’ve heard this from me before, but here goes: what if a person could wake up in Niagara Falls, Ontario, and jump on the bullet-train that takes them to Union Station in 25-minutes?
Pie-in-the-sky, you think.
But I went to Japan in 2005 and rode the Shinkansen, which runs at speeds of up to 320 KM/H, and is known for punctuality, comfort, and above all, safety, since there has never been a fatal accident in its history.
We can all agree that our public transit system in Toronto is great………….for 1960. But in 2021, we’re more than a generation behind.
People on the east-coast in the United States will literally commute from other states to get to work, and sometimes roll through two states.
Why can’t we invest in ourselves? Why can’t we spend money on longer-term projects, ie. 20-30 years down the line, to anticipate a time when people can live anywhere in the Golden Horseshoe, and still get around with ease?
That will help ease housing prices more than any “solution” the government will ever suggest.
Raising taxes, coming up with new taxes, and finding ways to “unleash savings” don’t address the problem.
But governments don’t think 20-30 years in advance, since city councilors, and members of provincial and federal parliaments are elected every few years, and the key to politics is staying in power.
I don’t trust the public sector to build our cities any longer.
It’s time the government looks into public-private partnerships to move the city and the province forward, and I could care less if we have Coca-Cola advertisements on every goddam seat on a new subway car. But we have to start somewhere, and start now.
Collectively, the group of us could come up with a dozen ways to help increase supply or decrease demand in our real estate market before the government can even order lunch.
Open up the Greenbelt for development?
Fast-track residential construction projects?
Offer incentives or tax-breaks to developers who will build what we need, rather than what those developers want to sell to investors?
Build more subsidized and low-income housing?
Partner with private-sector developers, either through financing, or job-creation in the construction industry, to spearhead development?
The “solution” to our “problems” in the housing market cannot be on the demand side any longer, save for the idea that we turn the Golden Horseshoe into one large city that can be accessed from anywhere via the best public-transit in North America.
The solutions must be on the supply side.
You can take buyers out of the buyer pool for now, and stop rapid price appreciation, but those buyers will be back, and so too will a flood of new buyers as our country continues to grow. To truly address the housing “problem,” we have to focus on supply.
Build, baby, build.
That’s all I have to say.