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Comment by mabbo | Hacker News Reader

There's so many articles about the Canadian property bubble popping that I'm starting to feel like it's some sort of concerted effort by the real estate industry to cool down the market.

It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.

But it never does. Prices are still high because demand is high and supply isn't keeping up. Demand is high because our financial laws allow criminals to launder money through housing, and because we're a desirable country for wealthy immigrants. Supply is low because cities have too many NIMBY politicians that are against density increases.

I wish it would just pop so we can all get on with fixing the root problems.

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As an Australian, every single problem you have, we also have. It sucks.

I'm starting to come to the view that you should only be able to own one house, and you've got to live in it otherwise you pay full market rent on the vacancy.

I think about the housing situation as an almost existential economic threat. With the scale 'money' sitting in housing the banking sector is acting like a parasite starving potential capitol from growth opportunities.

It's really grim.

We have a very high vacant home tax in Vancouver. There are also taxes on foreigners buying real estate. The pandemic has put a serious dent in foreign buyers as well.

None of it made much difference. Homes are selling after just days on the market, and as much as half a million above asking.

Putting a for sale sign on your lawn is akin to chumming shark infested waters. It begins a bidding frenzy.

I don't know what the solution is, but I'm ready to throw in the towel and leave the country for more affordable locales as soon as my lease is up. I don't work a local job, there's no reason for me to be here aside from the fact that I love the city and the country.

Vacancy tax isn't enough. Any residential property you own that is not your primary dwelling needs to be highly taxed. With how low western interest rates are currently, it's way too profitable to own property you don't ever plan to use yourself.

Housing is essential. It's bordering on a human right. When only the people who already own property can afford the prices, you've effectively created an insurmoutable barrier between the haves and the have-nots. The solution is to build more homes in the areas with jobs, and to make it unprofitable for private actors to own rental properties.

I'm missing something here, how do you own multiple homes and not have to pay the vacancy tax?

You have to rent them, and at that point they're part of the rental supply and not contributing to the problem anymore.

Rental properties absolutely contribute to the problem. I even outlined one of the reasons as to why in the above comment. The problem isn't that housing prices have passed some arbitrary threshold. Rising housing prices and easy profit from buying up property and renting it out eventually leads to neo-serfdom with the non-property-owning class being locked to renting for life. Moving property ownership to the people who want to live there is by definition part of the solution, and you don't own a property you rent.

Yeah, that's true. I suppose I wouldn't be stuck renting if homes were the price they are in Calgary.

>Any residential property you own that is not your primary dwelling needs to be highly taxed.

An excellent way to drive up rents into the stratosphere, both by reducing the rental stock and by having the landlords pass the tax right on to the renter (remember, landlords don't run charities and will adjust rents accordingly). So all you're doing with that high tax is giving even more of a subsidy to homeowners at the expense of renters. Regressive taxation in all but name.

There are a million ways to tax rentals that make it impossible for landlords to pass the bill onto the renter.

None that actually work though, is the problem.

> I don't know what the solution is

Build more homes.

I don't think it's possible to build enough homes in Vancouver.

It's part of a solution, but a shift to higher density housing is also required.

I certainly didn't mean "build more homes, but only the low density kind".

Not saying what is / isn't a bubble, but enjoyed this discussion here on Aussie / Canadian RE bubble. https://youtu.be/2MLZxJuzT5E?t=2802

Joe Walker: "Sydney and Melbourne are 2 of the most expensive cities in the world..."

Tyler Cowen: "AND THEY SHOULD BE! Great food, great views, relatively competent government. Are there 2 nicer places to live on Earth? Maybe these places are actually undervalued?"

Turns out really great places to live are extremely rare (Toronto, Vancouver) and expensive for good reason.

I got a day trip on Sydney harbour on a yacht a few years back. It was really nice. I can imagine a very expensive day for the host. I wish it was my yacht, because it was a real indulgence. Personally, I would have been pretty happy to just take the manly ferry a few times and have a sandwich.

Anyway, as we were boating about the proper harbour side mansions that sit close to the water. I noticed a few things. A lot of them were empty. I asked about this and the finance guys with us mentioned that most of them were land banking assets for Chinese money which isn't safe in CCP banks. I'm not sure how real this is, but if I owned a home on the waterfront in Sydney, I'd never leave the balcony.

Anyway, the effect is that rich foreigners own the places where our rich countrymen used to live. So now they've moved a street back and pushed all the upper middle class into the inner suburbs and now the regular professional folk our on the outer rim. And if you aren't rich, then your over mortgaged and live in a flood plain. Which just flooded.

Sydney is nice, but it's getting less nice, we generally need more cities in Australia. But what we really need is people to treat the family home as that. A place for families to grow and not some asset class.

Toronto isn't exactly a match for Sydney when it comes to climate or scenery though, and while Australian politics has its warts, the mayor of Sydney has yet to be caught on camera smoking crack.

That Cowen view is a very blasé view of inequality. So the great city to live ends up prices for the wealthy served by an underclass that lives in servitude, unable to ever own their own home.

And worse it’s that way for a super rich elite that buys assets and leaves them unused for most of the year.

> Great food, great views, relatively competent government.

The thing is, none of these things are a function of previous owner or landlord, so why should I be paying them for these great things?

Put another way, I'm honestly glad to pay lots of money to live in Toronto, because what I get for that is amazing. But I'd rather just pay that directly to the people who made the city great (the community as a whole), rather than someone who simply had the luck to buy at the right time.

I've been saying for years that there should be a tiered system of property taxation based on the number of properties owned by an individual or entity.

It could be a simple as using a multiplier. Own 3 taxable properties? Your rate for each is 3x the base rate. Unsustainable? Great, lower the base rate.

Then when it pops all the people with means will buy it up to invest and those without will still be in the same situation, or worse.

> Demand is high because our financial laws allow criminals to launder money through housing

> too many NIMBY politicians that are against density increases

Now I'm sure you can argue that there's no real contradiction between these two statements, but I can't help but feel that these are one and the same problem, and that we need some idea beyond the supply-demand or nimby-yimby binaries. Do these concepts really model the reality well, or perhaps more importantly lead us towards the reality we want to see? Isn't this high-density housing also just another way for real estate people to speculate?

I think we have to start looking at this problem like we do healthcare: the markets are _the_ problem. Housing should be something more like a right.

> Do these concepts really model the reality well, or perhaps more importantly lead us towards the reality we want to see? Isn't this high-density housing also just another way for real estate people to speculate?

Thinking about it. China itself is a good example. A fifth of the entire housing stock are vacant concrete boxes despite China having the biggest construction boom in human history for 20 years in a row (Chinese construction industry builds one California worth of housing every 2-3 months.)

Rents are very low though, rent to buy ratios above 100 are not rare.

Food for thoughts.

> allow criminals to launder money through housing ... wealthy immigrants

not sure how it is in canada, but money laundering is taken fairly seriously in australia.

As for wealthy immigrants, the amount of purchases by foreign investors are few compared to locals purchasing.

> get on with fixing the root problems.

and nobody agrees what the root problem is.

> As for wealthy immigrants, the amount of purchases by foreign investors are few compared to locals purchasing.

The marginal buyer[1] has pricing power, so it doesn’t need to be a huge number. Pricing is complex though so I’m not sure that’s really what makes sense to call the root cause.

[1] http://www.jnrealty.ca/buyers/what-is-a-marginal-buyer-/

> Across the country, the prices for real estate rose by 1.3% in February compared with the month before. however, in Toronto, the rise for similar period was 2.6%. This actually makes the strongest gain in 5 months. However, although the prices rise in both Toronto and Vancouver, listings and sales are falling in these cities.

But the article has no date. Seems like marketing copy to me.

Canada is widely known (internally and among allies) to be an easy place to launder money (relative to other similar countries).

> The U.S. Department of State has designated Canada a “major money laundering country” where foreign drug-trafficking gangs are exploiting weak law enforcement and soft laws.

via https://globalnews.ca/news/5102137/us-canada-major-money-lau...

> Tim Hudak, president of the Ontario Real Estate Association, said he was “very nervous” that Toronto’s housing market could see an influx of dirty cash as B.C. regulators crack down. “I’m very nervous that the Greater Toronto area will become the epicentre for dirty money in Western democracies,” Hudak told Global News. “For some reason, Canada still seems to be in a bit of the dark ages when it allows drug dealers to hide behind numbered companies and snap up real estate.”

https://globalnews.ca/news/6608644/canadian-real-estate-abys...

I just want to point out that Tim Hudak being “very nervous” doesn’t mean it’s happening, or that the impact is large. He does however suggest we can’t properly measure it; to me that means we’re equally in the dark about whether the impact is small or large.

I highlighted this in another comment: foreign ownership is banned in New Zealand but they are going through the same speculative asset bubble.

Interest rates are at record lows. Stocks and other assets are at record highs. People are buying and selling NFTs for millions of dollars. Canada and other governments have erected policies that solely benefit homeowners (e.g. no capital gains on appreciation of your principal residence). Why isn’t occam’s razor sufficient here?

I’m not saying money laundering or foreign ownership aren’t happening. I am saying that at best, it is one of a number of factors.

Changes are coming on June 1. it'll be interesting to see if it changes anything

https://www.bcrea.bc.ca/practice-tips/2021-changes-to-your-a...

> money laundering is taken fairly seriously

There are a lot of loopholes to exploit, especially in regards to real estate.

I keep hearing that there are loopholes and there are exploits, but not one actual example. I seriously doubt that money laundering is a huge factor in real estate price rises.

Are they trying to cool down demand or are they trying to create a climate where people feel they should list thier home now before the market cools?

They aren't doing anything. Bank of Canada said they don't want to adjust rates for a couple years, ruling parties have been mum on the whole thing because it benefits a good chunk of voters that are homeowners.

Right now it seems like to buy a house you have to offer no conditions, so no housing inspections etc. which is probably going to lead to a good number of screwed people when they find out their 900k home needs an extra 200k in work.

> because it benefits a good chunk of voters that are homeowners.

Western nations all deciding to encourage homeownership looks like a bad decision in retrospect. Having a large percentage of voters with a large percentage of their net worth in a particular asset class practically guarantees bad policy with respect to that asset class. The same sort of thing is no happening with pension programs being replaced by investment schemes that encourage widespread stock ownership.

As far as I know, pension fund board members were investing in stocks and REITs and hedge funds also. What is the difference between an individual owning a broad market index fund ETF like VTI and a pension fund?

Both are going to get bailed out by governments the same way, by inflating asset values. At least with the individual investing in the index fund directly, they get to save money by not having to pay the pension fund board members and actuaries and lawyers and all that overhead.

The pressure to bailout is lessened when the assets are owned by an intermediary institution. It took until the third covid free money bill for the multiemployer pension fund to get nearly a hundred billion of dollars with no strings attached. Meanwhile housing has been bailed out several times since those funds started ailing.

The biggest owners of pension fund assets (and hence liabilities) are governments themselves, whether it be city, state, or federal.

Multi employer funds also got bailouts via all the asset inflation, but I assume you are referring to an explicit cash transfer bailout, which I am not aware of. I am simply referring to the continuing trend of devaluing currency and inflating assets to fulfill debt obligations. In which case pension funds only serve as unnecessary middlemen where a target date fund from Vanguard/Fidelity/Schwab will do just the same.

Canada seems to perhaps be the #1 place that foreign money wants to own property - a stable, fairly rich country - resource and otherwise. The current measures to counter this are inadequate, along with countering the efforts of the local grown Landlord-Rental complex - which is compounded by foreign investment - and their rent-seeking behaviour.

Its because it never popped recently... probably should have popped in 2008 like the US bubble

>There's so many articles about the Canadian property bubble popping that I'm starting to feel like it's some sort of concerted effort by the real estate industry to cool down the market.

From my point of view it's the real estate industry that's propping up the bubble. Evan Siddall came out telling the truth. https://www.thestar.com/business/2021/03/02/canadian-press-n...

Fired immediately because of outrage by the FIRE industries. The problem with Canada is that we taxed all our industries out of existence. We only really have FIRE industries or our economy crashes. There is technically only 1 way for it not to crash. Hyperinflation will fix the problem, though yes grandma and grandpa have to go back to work.

>It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.

Technically the bubble has existed since about late 90s and worse yet the federal government(Harper) spent significant tax payer money to keep our housing bubble from popping. https://4.bp.blogspot.com/-T_t1vRHF1Wk/Tl_578DBn3I/AAAAAAAAD...

That graph shows the problem. The USA took the hit in the face but we didn't.

https://tradingeconomics.com/canada/households-debt-to-incom...

The problem is that interest rates are so tremendously low and in some countries even going negative because it's a bubble that the governments are propping up. They'll risk everything to not be the last guy holding the bubble. It has gotten to the point that Canada's governments are not releasing financial information and even blocking evictions and such. Exacerbating the problem.

>I wish it would just pop so we can all get on with fixing the root problems.

It will continue so long as the government runs deficits. Everyone gave Kathleen Wynne a hard time about deficits but Ontario's deficits are not going to at least 2030. By Ford... the guy most likely to balance the budget. Meanwhile Trudeau's deficit of ~400 billion in a single year is equivalent to about 20 years of government debt.

The deficit problem is so bad that they are planning to simple print money. If your debt is locked in at 6% or so like ours is. If inflation is 50%. The problem goes away quickly. They will do that before letting our last industry fall. Especially given our taxes are so connected to the value of what is on the property.

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