In many countries, including Europe, new properties are quickly snatched by investment companies that have much easier access to capital than private individuals and can easily afford to pay above market prices. People shouldn’t really have to compete with companies or “investors” on the housing market.
Demand for housing is not infinite, and supply of capital is not infinite. Building more units will always help. The quantity of units which are bought and then kept empty long term is tiny in relative terms.
> Demand for housing is not infinite, and supply of capital is not infinite. Building more units will always help. The quantity of units which are bought and then kept empty long term is tiny in relative terms.
I think it's kind of pointless to argue over which one policy to pursue to fix this problem, why not try a multi-pronged approach?
1. Implement some policy to ban large investors from home-ownership (say no corporate ownership and a small cap on how many an individual/family can own). There are more reasons to do this than just supply.
2. Put an onerous tax on housing that is not occupied full-time.
3. Build more housing.
1 & 2 would help ease some (but not all) pressure that makes 3 less desirable.
Not if the rule is scoped to single-family homes and individual units in multi-owner buildings. Purpose-built rental housing (e.g. apartment buildings) would be exempted for obvious reasons. The intent is to keep large investors out of markets where owner-occupancy is typical. Even in my original comment I did make allowances for single-family home rentals, but they'd have to be from small-scale landlords.
Also suggestion 2 wouldn't prevent a rental market anywhere there's demand for housing, it would just force landlords to drop rents aggressively to get units occupied.
And obviously, as is true for any internet comment suggestion of regulatory changes, actual implementation will be more complicated than can be expressed in a pithy comment that lays out the gist.
People don't like to rent because of instability or unpredictability of pricing. But a large and growing long term rental market where it's straightforward to find a new place and nobody has an incentive to kick you out or raise your rent is really just fine.
You might be thinking, right but if you rent you'd be giving up the ability to make all that money from appreciation that homebuyers get BUT THAT IS ACTUALLY THE PROBLEM WITH THE ENTIRE SYSTEM because you can't have affordable housing and also have housing as a guaranteed investment that always builds wealth the two concepts are fundamentally incompatible with each other and when you get that you're really starting to understand the problem.
It almost NEVER works out in favor of buying except for some crazy flukes like pandemic accelerating prices in Toronto.
I think it's largely cultural? Canadian's (more than any of my American friends) are fed the idea that owning a home is the best financial decision and the holy grail of life. It may happen to be the best financial decision for them, but because they lack the information that it's not and wouldn't otherwise invest very well.
Even in spite of that information, I still want to spend money and buy a house. I've been asked for vacate my apt for property sale more than once, and faced +800/mo rent spike (NYC...), and I'm over it.
I can't see how that's possible.
Rent is pissing away money, and from the rates I've seen, the monthly rent on a house is often very close to the monthly mortgage payment, so the "investing the difference ins S&P500" ends up being moot.
For my house, Zillow estimates the monthly rent value at $2,400/month, which is almost exactly what my mortgage payment (including property tax) is. And in 10 years, that payment will become ~$570 once the mortgage is paid off and all that's left is property tax. Meanwhile, if I chose to rent instead, after 10 years, my rent would probably be well $3,500/month.
Yeah, owning means I'm paying maintenance and repair costs, but those certainly don't add up to anywhere near what the rental payment would be.
I fully reject any claims that in the long term, renting could ever possibly be better than buying from a purely financial perspective. A mortgage is constant (Unless you fell for the scam that is an ARM) and eventually goes away. Rents perpetually go up and don't leave you with an asset.
This source [0] states annual appreciation to be about 6.11% for real estate. In my models I use 6.5% as a safe return rate for the S&P500. In the long term, you are no longer leveraged so that's a fair comparison I believe.
anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M.
[0] https://precondo.ca/canada-real-estate-statistics/#:~:text=T...
Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind.
The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M.
The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K.
I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.
And considering a mortgage payment is constant while rent continuously goes up, in a few years, rent would EXCEED the mortgage payment.
When I bought my house in the end of 2015, I paid $338K. Mortgage + property tax was $1800/month. Zillow estimated the rent value at $1700/month. It's now early 2022, 6 1/2 years later. Zillow estimates the house is worth $615K and has a rent value of $2500/month.
Rent and mortgage may be similar for the same exact space, but rarely in cities do people rent entire houses. There is usually significant lifestyle inflation that comes with buying.
In any case, where do you live? 615 is so cheap that I suspect the economics here aren't comparable to my situation. Maybe I'll move! Haha
I was renting a 2-bedroom, 1 bath, 800 sq foot apartment for $900/month which would have been going up to $1,100/month if I had signed a new lease instead of buying the house.
The house is 3 bedroom, 2.5 bath, 1850 sq feet.
> In any case, where do you live? 615 is so cheap that I suspect the economics here aren't comparable to my situation. Maybe I'll move! Haha
Suburbs just outside of Portland, OR.
this varies a lot locale to locale. in some places the rent is very close to the monthly mortgage payment. in some places, the mortgage is much higher.
https://www.investopedia.com/terms/p/price-to-rent-ratio.asp
if you're damn sure you want to live somewhere long enough to pay off a 15 year mortgage, then yeah, odds are it's better than renting. most people can't be 100% sure of that, so to make it a fair calculation you also have to include the costs of buying and selling. in theory, you should also have to price in the risk of having so much money concentrated in a single asset, but it seems to be a matter of policy that housing prices are never allowed to go down.
And the benefits of having it tied up in an asset covered by things like, in certain jurisdictions, generous bankruptcy homestead exemptions and, in certain jurisdictions, financed by a mortgage in a no-recourse jurisdiction; there are downside risk protections attached to owner-occupied housing that aren't available elsewhere.
In a perfect world that would be true but in the actual world where lending is subsidized and tax-preferenced and the supply of housing is artificially constrained buying is just clearly a better scenario if you can do it.
Some people do this by comparing a 5:1 leveraged portfolio of the S&P 500 against a home purchase or something but that's not a real comparison that exists as a choice in the real world.
But our housing market is ridiculously overheated for other reasons.
The principal residence sale tax free thing is a huge deal in Canada, so as an individual I can see it in many cases (though you need to sell to access it).
That still doesn't help investors at all - which is confusing to me. It doesn't seem worth it to me to be a landlord of a standard duplex/triplex in Toronto.
The comparison against a leveraged portfolio is only true at day one. You are continually de-leveraging yourself. At the end of the mortgage term, it's comparable 1:1, no?
Renting has a bad name in North America because it is associated with insecurity, low-income situation, exploitation, etc.
But in reality most people here are just paying rent to the bank. Housing prices in southern Ontario are so high that there's no way most of these people will ever truly "own" their home outright.
While rates are historically low and a return to the rates of the 80’s would cause a lot of defaults, I think the market has tuned itself for maximum extraction of labour from those buying houses. You will pay as much as you can afford out of the income of your career to live in a desirable place.
There are many undesirable places with cheap land, few jobs near by, no amenities, schools, restaurants, etc. so everyone pays as much as they can afford because it is worth it.
But they are only allowed to afford what they can pay off with a 30 year amortization and meeting the stress test.
I’m considering moving to the Yukon.
There's hundreds of thousands of square kilometres of places to live in Canada, it's primarily a humid temperate climate (in Ontario and southwestern Quebec) no different than the midwest or other parts more like the US northeast and with huge sections that are prairie or poplar "parkland" like the Dakotas etc. You have to go really far north to find anything "uninhabitable."
Southern Ontario (where almost half of Canadians live) alone is 139,931 km² -- about the size of all of England (130,279 km²), or half of all of Germany -- and almost all highly arable land with copious fresh water and developed highway and rail networks. And it's further south than most northern US states, sitting at about the same latitude as southern Oregon.
There's lots of room to build. Stereotypes of Canada as a barren northern land are laughable products of American ignorance or Toronto-centric myopia.
I meant there are few desirable places to reside (to me and anyone I've ever known) on the basis of access to jobs, culture, major hospitals, higher education, etc.
Yes some people can live full and happy lives in Timmins, Ontario. But is anybody moving to Timmins from Vancouver because they're tired of housing prices? Not really. Thus, demand to live in places like the GTA are sky high (and I argue, deservedly so)
In the US there's at least one city in every state that I'd voluntarily live in. Most have several. The amount of choice there is insane.
While this is most obviously the case for southern Ontario, I think you'll find actually Timmins or Sault Ste Marie, etc. have gone up at precipitous rates as well. And elsewhere in the country:. Lots of people relocated to Nova Scotia during the pandemic, because housing was cheaper there, they handled COVID better, and they figured they could work remote forever. Housing prices have skyrocketed there, too.
The only place where this didn't happen is in Alberta, where low oil prices and other factors. caused a bit of a net emigration and lower housing prices for a bit and things were quite affordable there. That's now changing as the price of oil goes up.
In the end, there's boatloads of places for people to live in Canada, those places are growing, in some ways regaining a bit of the demand they had prior flattening out in the 1990s & 2000s. The problem is in general that industry and good paying jobs aren't necessarily coming with the people and they're creating an affordability problem for the existing "locals".
In the past people concentrated in the GTA and the lower mainland BC because of jobs jobs jobs. Remote is changing that a bit. For now.
If ghost cities are a real concern, you could punitively tax vacant housing that's not offered for lease or sale, and limit housing starts when housing offered for sale or lease was above some threshold price. Or you could do something like a deposit per housing start, paid back over time to the owner or occupant while occupied.
If well below, you haven’t an argument.
Given the billion of investment dollars and cheap loans avaliable, it might be physically impossible to build enough homes fast enougg for the prices to go down