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Comment by mabbo | Hacker News Reader

I bought a condo in Toronto in 2015 for $592,000 CAD. I live here and quite like it. It's been my home for eight years.

Similar units in the same building now sell for $1.2m.

This means that my family's wealth has increased by $75,000 per year just from owning our home. That's more than the median income in Canada!

I don't say this to gloat. I say this as an example of how badly wrong things are. Nothing about this is sustainable. If it continues for another decade, we can presume no young person today will ever be able to afford a home.

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> This means that my family's wealth has increased by $75,000 per year just from owning our home.

Sort of, but in practice not really (particularly when interest rates are higher, like now). The only meaningful way to realize that extra wealth is to sell. But then you’ve got to live somewhere, but everywhere else has (on average) gotten proportionally more expensive too. The only way to really capture that wealth is to downgrade or to go to an area that has underperformed, neither of which are typically appealing options, nor are they generally aligned with our notions of “increased personal wealth”.

What’s really happened is that non-homeowners have effectively gotten effectively poorer since their only options are to pay increasingly-large rents or buy at inflated prices.

> The only meaningful way to realize that extra wealth is to sell. But then you’ve got to live somewhere

Which is one of many reasons we're considering leaving Toronto

The only way to really capture that wealth is to downgrade or to go to an area that has underperformed, neither of which are typically appealing options, nor are they generally aligned with our notions of “increased personal wealth”.

There are people doing that. I know of multiple people who have sold their $1m++ houses in the city and moved out to retire on farms. Their property taxes and total cost of living went way down and all of that real estate wealth turned into cash.

A lot of Ontario license plates here in Alberta these days.

Do you mean that there are a lot of Ontarians temporarily staying in Alberta for less than 183 days, or that a lot of those newly minted former-Ontarians Albertans arrived in the last 90 days[1]?

[1] https://www.alberta.ca/transfer-vehicle-registration

No, this is purely wealth, it's not a "sort of" it's the actual real wealth just like a bag of diamonds in a safe.

Indeed, homes are some of the most liquid form of wealth, easily leveraged with loans to buy even more property. And home values are one thing that governments are most likely to protect through drastic policy changes. Sure, you can take out a loan backed by your diamonds, but it won't be on terms as good as that of your home.

Home wealth really is one of the strongest forms of wealth there is, and people trying to pretend it is not have no concept of how lucky they are, or even what wealth really means.

People without this wealth are forced to pay their rent to others, who accept both the rent and then the real estate gains.

> People without this wealth are forced to pay their rent to others, who accept both the rent and then the real estate gains.

I note this in that not owning results in being beholden to increasing rents and at a cost disadvantage in buying a future home.

But the property value gains are hard to realize in a meaningful way. Yes, you can potentially leverage your equity into acquiring more homes. But real estate gains have traditionally lagged the stock market. So as you continue this cycle, you increase your leverage dramatically while investing in highly-correlated and slightly underperforming assets.

Meanwhile, little of these gains are able to be used for actual lifestyle improvements until you start unloading these properties.

Well the location is the lifestyle. If the homeowner doesn't value the location as much as all the wealthy people clamoring for a spot in the neighborhood, yet they still hold onto their home, it truly is a bad allocation of resources among people.

None of these homeowners would even consider the option of selling their home and renting it from the purchaser, because it is so obviously a bad idea in every way. But their blindness to the alternative is also indicative of just how amazing a form of wealth is.

Super wealthy people are always convincing themselves that they are not wealthy, because they always see others with a higher level of lifestyle. I knew an older man who had built an empire of hotels, but because he wasn't Hilton, he always felt like a failure despite never flying commercial, owning mansions across the world, and being surrounded by servants at his beck and call.

When people have raised their wealth without their lifestyle "changing," yet they can now move nearly anywhere else and have a massive lifestyle improvement in consumption, without the location they were in, they somehow trick themselves into thinking this is not wealth.

> they still hold onto their home, it truly is a bad allocation of resources among people.

The above statement assumes that a home is nothing but a cold investment decision.

A home is a place to live and a neighborhood to grow older in. It is not an "allocation of resources".

People hold on to their home because they like it there, they like the neighbors, their kids like their friends in the area and so on. It is not a financial decision. It's a home. This is often lost in these discussions.

A home is all those that things, but it's also a scarce resource that costs a lot to build and that we don't have enough of. So for every market inefficiency we accept on the basis that a home is special (which isn't wrong!) we accept some level of people dying in the streets, or young people being pushed out of their hometowns, or families never being started.

We don’t have to accept it to this degree though. We have options available to limit who can participate in local markets, and to what extant. A foreign billionaire with loose ties at best to the locations in question should not be eligible to buy houses as they please as “investments”, in fact I find it a strenuous ask to allow local billionaires to do the same. I certainly wasn’t happy to hear a Silicon Valley billionaire moved back to my area and started buying up land in a vain attempt to “revitalize” the area, only to sit on it for the last 5 years.

The problem is that enforcing any sort of restrictions would be warped to disproportionately affect the 99% while the 1% would use loopholes to continue doing as they please. So it would probably be more pragmatic to eat the rich and their lackeys before anything else.

I think you are forgetting the most common way people realize this: sell house for gain, use money to afford down payment on nicer home, perhaps enough to end up paying a similar monthly payment in the end. People act like you need to go from paid off house to paid off house but thats hardly the case. Partially paid off house to even less paid off house is common especially if you know you will be working for another few decades.

I’m not forgetting this. The house was a store of wealth. Assuming your house went up 50% in value, it’s reasonable to assume a better house in a nicer area also went up by something near 50% in that time.

This is an assumption, but on average this is true.

If that’s the case, the extra wealth you have for purchasing the new home was simply having a convenient way to store your down payment while saving additional money each month in the form of your principal.

Some people do actually realize a good part of their gains by retiring to the countryside and keeping the lion’s share of their RE gains. But this is something you get to do more or less once, and it’s something generally done in one’s twilight years. Nothing to sneeze at of course, but it again doesn’t really dovetail with the notion of a means to become practically wealthy.

Uh, home equity lines of credit are a thing in most places. They certainly are in the US!

Also, renting out rooms. Also ‘granny flats’, etc.

HELOC isn't free money. You have to pay it back. Unless you're suggesting that you use the money to make bets.

That's a pretty common investing strategy. Take a HELOC, invest the money in index funds or whatever, and take a tax write-off for the interest. As long as the average return beats the HELOC rate (minus tax deductions) you come out ahead.

Someone noted it as an investment strategy (which is one way), but I was specifically using it to address the ‘you don’t get the money until you sell’ element.

You pull money out of the HELOC, which does give you access to the equity. You then pay it down similar to a mortgage, at very low rates.

You just cashed out some of the ‘inaccessible’ equity by using it as loan collateral.

You’d still get to live there, and any gains in equity will be 100% yours. But you have cash now, with low payments and low interest to pay it back. If you do sell, proceeds could go right into paying it off.

There are similar ways to setup second mortgages, etc.

> real estate gains have traditionally lagged the stock market

Does that take into account the relative ease and long term leveraging in real estate vs. the stock market?

Considering the above scenario where real estate is gaining at 75k per year. A wealthy individual could easily leaver themselves to 75*5 = 375k/yr. Using the starting cost of a home at 600k, this would equate to an average rate of return of about 300%

Such rates of returns are simply impossible in the general stock market without getting very lucky.

You can lever yourself in the stock market too.

Not with 30-year lock-in in rates and with a similar commitment to avoiding margin calls for that long if your bet goes poorly in the short term.

My parents bought their house for $150k in Miami in the 90's. They sold it last year for 800k. Then moved to a cheaper town in central Florida where they got a place for 200k.

> ...actual real wealth just like a bag of diamonds in a safe.

Vs. the grim reality:

https://fortune.com/2023/09/03/diamond-demand-falling-lab-gr...

And if this was happening to home values, there would be a panic in the legislature and all sorts of policy to stop it and preserve home wealth.

Which is one of the reasons it rubs me so wrong when people think their homes are not a form of wealth.

Homes are a form of wealth. They are not a liquid form of wealth, and they are more practically a store of wealth for the overwhelming majority of your life.

The one way to generally extract this gain in wealth is to downgrade (e.g., retire to a quiet place in the boonies), and that’s generally a one-time option and not something everyone wants to do.

Liquidity isn't a yes no thing, it's on a spectrum. The legal structures around housing, in addition to the financial products, many invented by legislative force (e.g 30 year fixes rate mortgages), mean that one access cash via real estate much more easily than many other assets, without even having to transact that asset.

This is a remarkable feature of real estate as wealth.

While there are other forms of wealth with more liquidity, housing wealth and real estate really are up near the top of the ones that give a person access to cash.

Nice example of supply/demand and why we just need to build more units.

It's not, though. Since 1970 home prices in the US have gone up 16x and the S&P 500 has gone up 44x. Adjusted for inflation, that's 2x for houses and 5.5x for stocks. And you don't have to sell your stock if you have to move (and take a 6% hit on RE agent commissions) or pay money to maintain it. You can borrow against it whenever you want with just the click of a button. Of course housing sounds like a great form of wealth when you compare it to the hilariously bad investment of a bag of diamonds in a safe.

These calculations ignore that most homes are eligible for extreme amounts of highly protected leverage. Sure, you can trade on margin on the stock market, but you are subject to margin calls, which is not the case with a home.

So multiple that 16x by the typical 4x-5x leveraging, and homes turn out to be really great. And since the transaction fees and the non-existence of index funds in the 1970s made it harder to invest in the stock market at a small scale, and homes were a much better investment.

Add on to that that everybody needs a place to live, and your home acting as an investment vehicle with equivalent performance to the US stock market, and people from the 1970s have had had an amazing deal that younger people have not had access to.

But you have to put that capital in anyway because house leverage is amortizing. Margin debt is not.

All that leverage absolutely crushed investors in the 2008 housing crash, and is again now ruining people who had poor or nonexistent interest rate hedges.

The idea that it’s easy or natural to make money via leveraged housing had ruined many people.

This isn't really a thing in the US right now. Less than 10% of mortgages are adjustable. The share of ARMs in 08 was much, much higher.

*/1 ARMs are insane and shouldn't be allowed in the market.

*/5s or even */3s offer an interesting option, depending on terms.

Yup, people don't realize that leverage works both way. It's not a freebie.

The difference here is that you would make 44x from the spare change you can save every month after paying for rent, not from a loan worth >5x your yearly salary.

A loan which you have to pay back with interest. So unless home prices are rising faster than interest rates, you're losing on that deal

Or, you know, you rent out the place.

And if you are your own landlord (ie a homeowner) you can pretend your rent is whatever you want, but the market rent is what one should impute as the value of that rent.

Which you can still lose on. Most major markets in the US now rent below cost to own.

Yes, but:

1) Historically they have.

2) Most people in the US that haven't purchased very recently are locked in at very low rates. Only 9% of mortgages are over 6%. 61% of outstanding mortages are <4% [0].

3) There are a lot of incentives (and the ability) for governments to ensure home prices continue to increase, although at a rate lower than they are now.

4) We spent over a year with inflation that is double most people's mortgage rates.

5) You have to live somewhere regardless; the alternative is renting. For most of the country, at least until very recently, that was a worse option.

[0] https://apolloacademy.com/the-distribution-of-mortgage-inter...

You are looking at avg gain. I can tell you anecdotally that over the past 25 years there have been markets that have barely budged at all in median prices, and markets that have seen fold change gains in median home prices. In some markets you are doing a lot worse than the index, in others you handily beat the index and these are generally the ones people bemoan in cost of living articles in the media.

> Indeed, homes are some of the most liquid form of wealth

"Liquid" means fast to sell without giving a deep discount. Homes are far less liquid than listed securities.

> And home values are one thing that governments are most likely to protect through drastic policy changes

100%. Home owners are one of the most selfish voting blocs out there, and will punish politicians for not perpetuating unsustainable policies at the expense of the greater social good. That makes it a very good investment, at least until society completes its transition away from capitalism to a new kind of feudalism.

Indeed, homes are some of the most liquid form of wealth, easily leveraged with loans to buy even more property

They absolutely aren't.

Transaction costs are very high (6%), the time required to sell can be months.

Borrowing against a house is not the definition of a "liquid asset". By that same logic a complex equity with no market could still be "liquid" because you could borrow against it.

> Indeed, homes are some of the most liquid form of wealth

Real estate is not a liquid asset by the definition of that term. Example:

https://www.investopedia.com/ask/answers/032715/what-items-a...

(Jewelry (as in your diamonds) are not liquid assets either.)

A primary residence is even less liquid for the reasons PP stated. Sure, you can sell it but then what? You still have to live somewhere so you can't use that money for something else, you'd have to buy another home at which point the money is locked up in real estate again. The only time you can extract that wealth into cash is if you can downsize to a much smaller home, or move to a much cheaper area.

So yes, a primary home is real wealth, but it is as far from liquid as any form of wealth can be.

Except when interest rates are near 0%, you can take a loan against the house and use as leverage to buy more stocks (or property).

> The only meaningful way to realize that extra wealth is to sell

This is true only on first approximation. On second approximation rent prices are positively correlated with property prices. This means that rent_amount / mortgage >>> 1 and if you rent the place out you can essentially get passive income. You are correct that you still need to live somewhere and that is going to come at a cost which will eat up the passive income, but effective rent will still be lower.

Another option is to realize that lower mortgage compared to equivalent rent means that extra cash is freed up towards other things. This can either be extra investments every month, experiences such as traveling the world, or even a lower paying job with a lot less stress.

The problem these days, though, is that the equity in House 1 is often needed to buy House 2 if you move, otherwise you're dipping into your nest egg for a second down payment, which is not financially wise. Equities generally have a higher rate of return than real estate.

Also, multiple homes mean multiple maintenance bills, and also the potential for bad tenants wrecking the place. I had a rental property in the past and had to spend multiple thousand dollars staging it for sale because, renters generally DGAF about maintenance, and property managers get lazy and do the bare minimum to get it rented.

I don't see the problem here. You aren't entitled to ownership of multiple houses. Being forced to sell one house in order to buy another one sounds like working as intended to me.

But that’s entirely my point. It’s hard to actually realize these gains in practice since when you sell your house, the increase in value is absorbed by buying your next residence, which has on average also inflated in value.

Unless you move somewhere the cost of living isn't crazy, and pocket the difference.

That’s a one-time trick, and it only really works if you were already wealthy enough to own in a HCOL area to begin with.

Plus “moving to a less desirable area” doesn’t really dovetail with most people’s assumption of “increased personal wealth”. It is sometimes a good option for retiring somewhere cheap, which absolutely reflects a real increase in net worth. But it’s far from liquid worth and requires steep compromises not everyone is a fan of.

My point was that "rent it out and print money" doesn't always work. I did it with a home I owned, but that was also a period of time where I was a) bouncing around the country renting the roof over my own head and b) waiting to sell after taking it in the shorts value-wise during the Great Recession. I was never underwater, but would have taken a huge capital loss for awhile if I'd sold.

You aren't entitled to ownership of a single house, either.

This is an English sentence with grammatical structure, yet no coherent meaning.

If I can be approved for a mortgage or have cash on hand, and have someone agree to sell me a house, and I sign a contract with them to purchase said house on such-and-such a date, and I fulfill my end of the deal and don't default on the contract, then yes, I am entitled to ownership of a single house. Because I bought it fair and square, and it's now legally mine. Just like if I were to stop making payments on said house, the bank would then seize it, and then I wouldn't be entitled to own that house any more, because I defaulted. This is not rocket science.

Not necessarily. Home Equity Lines of Credit (HELOC) are a thing. My admittedly overly simplistic understanding is that the higher the valuation of your house, the higher line of credit you can borrow against it, thus the incentive to keep valuation high even if it's unrealized.

It's not just the valuation of the house it's debit to equity.

In a $100k home where you owe $80k the HELOC would be like only $10k - and the rate would be less good.

In the same home where you owe $20k (have $80k equity) you could borrow $50k at a better rate.

They would still need to pay back the HELOC using actual cash, not unrealized gains from estimated home value. Seems like an extremely small benefit.

A large part of the 2008 housing crash in the US was driven by HELOCs where the borrower ended up not being able to repay or refinance. Such loans can be a good way to access the value of the home, but only at the expense of reduced consumption while paying the loan off or reduced payout when it finally selling.

It works out to effectively way more than $75k/yr in realizable income because, in the US at least, long term capital gains on your primary residence are heavily tax-advantaged in a way that income isn't.

Even better in Canada since capital gains on your primary residence is not taxed at all.

Same in the UK

This entire thread is unsophisticated people bemoaning (or celebrating) things they don't understand. A median that is going to be less than 1 house for a 30 year old, and maybe 3 in the average lifetime, so truly, what do they know? 90th percentile is probably 10 trades. It's garbage in, garbage out, and it's why there is zero progress made on any of these issues.

Nobody forces you to buy, or sell, a house. And if you feel strongly about the politics of the issues, try to get elected.

It's one of the only assets available to "normal people" that is highly leveraged (yet also protected in many ways).

So that 200-something-thousand-dollar increase is on a downpayment that may have originally just been 200K or less.

Short-term "stepping up" through a series of properties can be much more wealth-building than, say, renting + investing in stocks. The longer you stay in one place the less advantageous the returns are over just putting the down payment in the market, but then having a concrete asset has its own benefits even then.

tl;dr your wealth should be measured as "1 house" not in dollars.

Canada’s housing market is much more vulnerable to “popping” than the US because everyone’s mortgage rate resets every 5 years.

Let me know what happens to prices when everyone has to pay 8% soon.

Unless legislation changes, investors will just scoop up the sales and keep property values high. It's a pessimistic take but I don't see any deviation from this path (in Canada and the US).

Investors paying 8% can’t make the math work either.

They're not getting mortgages. All cash purchases are extremely high right now (roughly 30% of all home sales in the US). They can fleece us for "modest" rent increases every year, conveniently just less than 8%, while property values stay high because these investors are able to gobble up the housing stock.

Without legislation dissuading this behavior, home ownership will continue to be increasingly difficult for working people.

I think the only good news I heard in this area in the US, is one of the big companies doing this was going bust because they screwed up their calculations for how much to offer when buying homes. So if the companies just can't make the math work and go bust that would also be a good outcome here.

Pretty sure investors buying have dropped by 50% according to /r/rebubble

"All cash" just means "no contingency on financing". It rarely means "will not be financed".

IT just differently mortgaged. It's not a direct mortgage, but the company that's buying these had to raise the capital one way or another. And if the company didn't buy a house, they have the choice in investing it in something else. If the bonds are paying 8%, the company must believe that the house will return even more which is pretty hard.

Why would they use cash when they could buy 5x the amount of houses by spreading the cash buy into 5 down payments? It’s likely less than 5 if you’re putting 30% down for investment properties.

Why would they pay 8%? Surely they can get margin at a cheaper % somewhere other than a retail mortgage if they are a professional investor or firm.

But as the quote says, the market can remain irrational longer than you can remain solvent.

Who are they going to sell to for more at 8% rates?

No, investors won't scoop them up, just like in 2008 in the US, where there were screaming deals to be had for years yet housing was regarded as radioactive for years after the crash.

I've lived through 2 housing crashes in 20 years in the US, and personally suffered both times, while there's been 0 in Canada. Maybe this time it's different? Maybe, but probably not.

we've been in ZIRP for nearly 20 years so yes it's quite different right now

Losses will be socialized like they always are. Homeowners are too politically powerful. No government will let them bear the costs of their decisions.

> Homeowners are too politically powerful.

Could you be more specific, in what ways does one homeowner have more votes than one renter? Or if there are special elections where only homeowners can vote, could you give some citations to those?

AFAIK everyone gets one vote, regardless of home ownership status. Am I wrong?

For whatever reason, homeowners in Canada are much better at mobilizing to vote than non-homeowners.

Probably because non-homeowners are busy working 60+ hours a week to pay the rent seeking homeowners

Those wealthy enough to own homes are more likely to have the time (especially if retired!) to be able to organize, communicate with their representatives and assuredly to vote in an election.

In contrast the poorest working class people (renters) that are struggling just to survive, are more likely to be so busy working multiple jobs, commuting etc, that they literally do not have the time to vote in an election.

Additionally because of this, the two parties that have traditionally formed government, rarely even acknowledge the issues of the working poor, which means that the working poor are even more dissuaded from participating in the process, because regardless of who wins they can be assured that neither party is interested in policy change that would help them.

The picture you paint is that homeowners are the independently wealthy rich people with tons of idle free time, while renters are all very poor working multiple jobs.

In reality the vast majority of homeowners are regular working professionals, working those 50-70 hour weeks to pay the mortgage.

Yes, and 2/3 of the households in Canada are home owners.

Toronto’s change in COL is high, but the absolute COL just isnt that high compared to other major cities. Your home price doubled in 8 years which is high but not crazy for a strong housing market. Thats a 9% annual growth rate. On par with the historical SP 500 rate.

Also for reference, everone should know 592k CAD is 433k USD and 1.2M CAD is 880 USD.

By all means it’s expensive and has changed relatively fast. But Toronto isnt even top 25 for most expensive cities. Most rankings ive seen dont even have it in the top 50. I think people are surprised by this because its changed fast and feels expensive but in reality its cheaper than the major metros in the US, mich of Western Europe, China, Japan, SK.

> If it continues for another decade, we can presume no young person today will ever be able to afford a home.

In Toronto. Welcome to having a large, growing city. Generally speaking young people dont buy homes in NYC, Tokyo, London, Hong Kong, SF, and about 50 other places. Probably 2/3rds of the world population are living in metros like this.

Part of the issue is wages have lagged behind the market, so hearing that housing merely has followed the market is like a wet blanket when the issue is a lack of wage growth to match asset growth.

It’s not just Toronto, housing prices and overall CoL are soaring all over Canada, and wages are stagnant.

The major issue isn’t that the absolute cost of living is high, it’s that the difference between cost of living and wages is increasing too fast. A median wage earner literally can’t save a down payment for a house because the amount they need is too growing too fast.

But you’re right that other major world cities even worse... in Taipei where I’m living now, home ownership is simply out of the question for most people unless they have family support to get a mortgage.

It’s a global problem.

> This means that my family's wealth has increased by $75,000 per year just from owning our home. That's more than the median income in Canada!

This is a pattern we also see in Europe. Homeowners, largely older, get richer and richer by just standing still, while at the same time controlling politics so that fiscal policy supports this and new construction is made expensive by regulations.

It surprises me that Canada, with a relatively younger population, has similar issues.

Is the same issue in Australia. However it increasing has become a supply and demand issue, where housing supply has not kept up with immigration policy.

The same is in New Zealand as well. Canada, NZ, and AU all have a points-based immigration system, which awards points to education and skills in white-collar areas. Over 40 years these systems have grown the population, but has kept trades out. The result is it's now more expensive than ever to build. It's not the only reason, but it sure contributes. All three of these countries have insane housing prices.

Uh, Australia imports loads of blue-collar labour under their points system.

Its kind of true of capitalism in general that its easier to get ahead by owning valuable things rather than being an employee. I think that would be true of any economy that is growing, which is most of them.

Earned vs unearned income.

Taxes on unearned income (i.e. income from simply owning something) have eased over time relative to taxes on earned income (i.e. income from actual productive activity).

Those that argue against wealth taxes on the basis that they discourage hard work and productive activity are often hypocrites in my opinion. They are usually more interested in maintaining a system that has a tendency towards concentration of wealth instead of promoting a system that encourages positive contribution to overall wealth (i.e. societal progress).

Property markets are a glaring example of this.

Sort of. Picketty writes that it’s about the capital to labor replacement ratio. If you can replace labor with more capital (I.e. robots, automation, tools/equipment - etc), then wealth is going to tend to concentrate. With the speed of technological innovation today, this is largely the case.

> Taxes on unearned income (i.e. income from simply owning something) have eased over time relative to taxes on earned income (i.e. income from actual productive activity).

Over what time period? Canada didn't even have capital gains taxes pre 1972.

Looking a bit more recently, after Canada added capital gains taxes, Chretien cut the inclusion rate by 50%.

>This means that my family's wealth has increased by $75,000 per year just from owning our home. That's more than the median income in Canada!

I live in Toronto as well, and did penny pinch from the time I graduated (2016) to buy to buy my 1st condo here in 2020. I keep hearing statements like these, but if we're being honest unless this was an investment property, a 2nd home or you were moving away to a different city altogether, money is only made on paper. While the condo price has gone up, so has the prices of all the other houses. If you were to sell your condo to realize your gains, the next property you buy has gone up proportionally as well.

Ok, but people who did not buy a home ten years ago still have to compete in the same housing market, and they didn't earn an additional $75,000 every year from their labor.

First, I know it fully well how bad the housing market here is.

Second, that's my point, unless it's an investment property or if you're selling and leaving the city altogether, you haven't actually earned $75,000/year.

> Second, that's my point, unless it's an investment property or if you're selling and leaving the city altogether, you haven't actually earned $75,000/year.

Yes, you have. You can take loans against your property value, for example. But even if you sell and put the money right back into another inflated asset, you still actually earned it.

Sure, you can take out HELOC against it, and but you're playing a very dangerous game when interests do rise. That has literally been happening right now.

Yes - the point is, by staying in your house you are now consuming more housing than you were before, even though it’s the same exact house.

The wealth is quite real - it just doesn’t feel that way since the experience of it doesn’t change

He has, that's the point. He has an extra $75,000 per year that can go into a new home, than those who didn't have a home to sell.

Nothing about these gains are imaginary. Imagine this person rented the entire time instead of buying. They did buy, so let's imagine they decided to sell today and rent instead. How did they just convert those imaginary gains into real ones?

Because the rents have gone up equally in the city? I rented a 1 bedroom condo back in 2017 for $1700/month. The same unit is around $2600/month now. So the price to either rent or purchase the same unit in the city has gone up significantly regardless.

Okay but they'd be paying the higher rate regardless. On the hypothetical "rent the whole time" track they have much less money than the "bought ten years ago" track they actually took. In both cases housing costs more, but in the latter they have hundreds of thousands of dollars more in easily liquified assets.

You’re still missing the point. The gains are real - you not willing to give up your house to realize them) or insisting that you need another house in exchange) doesn’t make them not real.

Yes, every other homeowner is sitting on the same gains, so relative to them, it feels like nothing has changed. But relative to the non-owners, you have been given a free handout of wealth. Which you are « consuming » by staying in the same house you were in before.

If the rent has gone up, then your house you live in is now producing 2600 dollars of value per month rather than 1700 (even though it feels like nothing has changed to you)

Exactly. You need a place to live, and other places to live have become more expensive too, but you own more of the place you live thanks to appreciation. You don't have to sell it either to realize the gains, you can borrow against it to make more money for instance, opportunities they certainly wouldn't have had without the appreciation.

You have gotten $75k/year though.

Take two people X and Y, both have $500k in the bank. X buys a house with it, Y sticks to renting. A few years later, they want to move to another place with the same costs. X's house now sells for $1M and he is able to buy a new place for the same money, thus his new house effectively only cost him the $500k he had spent years ago. Y, having not bought a house previously, now has to pay $1M, which he does not have.

Let's be clear: none of the condo or homeowners "deserve" these economic gains, they are merely a wall that is raised ever higher to ensure that new entrants to the country are forced to pay their wages to existing homeowners' valuations.

Which is what makes complaints that it somehow doesn't benefit homeowners all the more outrageous: saying that "sure I'm on the other side of this wall, but I can only use my wealth to stay in this side of the wall" minimizes an absolutely huge unfair advantage you have over people unlucky enough to be born after you or not have wealthy parents.

Also (in general) I don’t think most people would be so sanguine if their condo lost $75k/yr over 8 years.

Not to even get into how weird it is that something that is literally in worse condition at the end than the beginning, just like a car, increases in value instead of decreasing. And even more that this is the assumption, despite it being based entirely on demand and not at all on quality.

This is the scary bit for me. It doesn't take much imagination to speculate that homes are possibly dramatically overvalued at present and current prices are unsustainable. This can't end well.

The only time home prices collapsed was when the mortgages underlying them were shown to be funny money. This is largely not the case right now, at least in the US. I can't speak for Canada, but the US largely has a supply problem which can't keep up with demand.

My house lost about 60-70k from the top one of the years (I suck at timing the market). I couldn't care less - I'm not going to sell it anytime soon, and this price is imaginary anyway, and the imaginary price recovered half of it since then, and I still have no idea how much it would be priced when I am going to sell - but I'll be worrying about it then, no point in doing it now. Of course, if that happened every year for 8 years, that would probably be weird, but that would also mean I could buy houses with my pocket change by the end of it.

This is more or less how housing works in Japan outside of Tokyo and maybe a couple other places and I would say they’re doing a lot better than Canada.

That's like saying no deserves economic gains by investing in the stock market. You are complaining you were too young and not rich enough to buy Microsoft or Apple shares from the start and feel you will never catch up to those.

Write your own story. Find a city with home prices similiar to Toronto 40 years buy and wait. Toronto 40 years ago was very different from the city you know. You had farm land, military bases, going to Yorkdale by bus was two bus tickets. Toronto has grown the people who bet on Toronto were rewarded. It could have went the other way if Quebec didn't almost leave Canada which moved invest from Montreal to Toronto. The Toronto stock exchange at the time was mainly mining financing.

No, the stock market is exactly the opposite of real estate investing. Land is finite, capital is not.

Speculation on land value is non-productive, whereas capitalization of productive economic firms is precisely the definition of economic productivity.

Real estate gains, when they are not from development, are all rentierism, the enemy of economists of all sorts.

We are so far from exhausting usable land that this argument is ridiculous. There will be more cities. 3rd tier cities will become 1st tier cities (and probably vice versa). Go invest in a city or town wisely (and don't forget to be lucky!) and you will be rewarded.

Land is all about location, and what is near it.

The idea that you could build out in a field ignores the true value and the true finiteness of land, the geography of agglomerations of skill and people.

Also drive around and you'll find that not all land is created equal. Much of Canada muskeg, tundra, and just awful places to be, which is why no one lives there.

British Columbia looks big on a map, turn on the topographic layer and oops it's all mountain. No wonder everyone lives in a handful of tiny valleys. And oops we flooded tons of the valleys for hydro power too, further driving down the actual available prime land one can live on.

If no one lives in a place there's usually a good reason.

Are there any examples of 3rd tier cities becoming 1st tier?

The situation seems the opposite, the NYC/SF/LA/London/etc are entrenched.

Dubai wasn't much 30 years ago.

https://www.businessinsider.com/dubai-in-1990-is-totally-unr...

Sorry, I meant 1st tier cities becoming 3rd tier.

Detroit

Isn’t it really expensive to live there?

Also, while Dubai is flashy, I wouldn’t really consider it a first tier city in terms of actual living. The urban planning is not human scale at all and they just defaulted to highways and skyscrapers.

Or Shenzhen.

But I think he means western examples. San Diego maybe?

and that's the main issue with Canada, there's not enough houses being built. And no interest in doing so, apparently

40% of Federal MPs are landlords. Haven't got figures for Provincial MPs or Municipal representatives but I'll wager a substantial amount are landlords too.

Yes but we're not running out of land in any meaningful sense of the word. There is nothing at all preventing you from investing in the development of a yet undiscovered area and betting it will blow up. If you're not choosey you can buy land so cheap it might as well be free if you want to start from scratch too. If your bet comes to fruition you'll be richer than god and you'll be the catalyst for so much growth and economic development it will make the stock market blush.

We are completely out of land in Canada and elsewhere, because prices are going through the roof, because the thing that matter most about land is location.

Land is not fungible, you can't exchance an acre of downtown Vancouver for an acre in a rural area. Nobody would ever confuse the two when it comes to economics!

Land value is all about access, about who is near by, about what natural resources are near by. When real estate prices go up without construction, land value is increasing.

In the US, restrictive zoning limits workers from moving into productive areas and being able to use their labor for more productive ends. This has been a tremendous drag on our GDP, while simultaneously concentrating wealth into the unproductive hands of landowners.

The first paper to point this out made big errors, leading to an underestimate of this effect:

https://www.econlib.org/a-correction-on-housing-regulation/

This is the difference between gains from land use and gains from the stock market: one reduces overall wealth and concentrates wealth to those with the most; stock market investing does the opposite.

This is only true if your definition of land is constrained to the teeny tiny fraction of land that is already developed into highly desirable cities. Which in real estate terms is like trying to buy a stock at its peak and complaining it's expensive.

I am in no way saying that burdensome regulation hasn't artificially limited the growth of existing metro areas and caused a bubble driven by artificial scarcity but the idea that there's nowhere to invest in at the ground floor where it's cheap is absurd. This happens in cities on a smaller scale already. The nice areas are too expensive so young artsy people move where its cheap, make it better, and then it becomes a good area -- repeat.

If you invested in the development of say, Akron Ohio with the goal of tipping the scales and starting flywheel of metropolitan growth and your bet pays off not only will you be filthy filthy rich but you'll create brand new economic activity and real growth. Of course fighting over the same 100 sq miles is a zero sum game.

As an individual laborer your choices are obviously limited to where you can find work but as an investor the sky is the limit.

>>If you invested in the development of say, Akron Ohio with the goal of tipping the scales and starting flywheel of metropolitan growth and your bet pays off not only will you be filthy filthy rich but you'll create brand new economic activity and real growth.

SF billionaires seem to be thinking along the same lines. If it worked for Las Vegas, perhaps they can make it work for a brand new SF-adjacent town.

[1] https://www.nytimes.com/2023/08/25/business/land-purchases-s...

>the stock market is exactly the opposite of real estate investing. Land is finite, capital is not.

This is where you go wrong.

Unlike posters defending real estate "investment," I'll criticize you from the opposite end: capital markets are a disguised form of the same old rentierism.

Watch out, lest you become a Clevinger.

> You are complaining you were too young and not rich enough to buy Microsoft or Apple shares

You don't need to buy tech stocks to avoid becoming homeless. You do need to rent/own at least one home though.

It's like saying no one deserves anything but an hourly wage, and damn anyone that actually builds something.

And yeah, it was "easier" yesterday than today, given today's knowledge of the winners. Today is easier than tomorrow, if you know tomorrow's winners.

The internet / pop-culture narrative of "everything is against me, I'm too late, and there's nothing I can do about it" is actually great for people that want to go out and do something about it. The competition is sitting around bitching on Reddit.

Oh come on - the wealth realized here wasn't gained by building more for everyone, but by making sure others don't build their homes so the exiting owners gain wealth without actually creating anything.

And if voting NIMBY they're pulling the ladder up, denying their neighbors the same benefit. Strikes me as parasitic behavior.

I was generally taught to buy only what one needs and can maintain, and work for wealth. Maybe naive, but the rent seeking and praise of extractive wealth is noxious the more I learn to recognize it.

People deserve the fruits of their own labor. They do not "deserve" to charge rent to others. And appreciation of real estate without productive labor to improve that particular parcel is collecting the work of others.

The wealth was not generated by the person doing anything, but by all the activity occurring around them! Adam Smith despised landlords and wealth accumulation based on land-ownership for exactly this reason. They’re a parasitic drag on market economies that shifts capital from productive activities to unproductive ones (i.e. speculating on real estate).

“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”

Nah the competition is glorifying and engaging in rent-seeking behavior.

this strategy goes down the drain for any profession that relies on being on one of the big cities to thrive. What do you suggest for those people?

What do you mean by "deserve"? It looks like you are making some kind of hidden morality market, where market gains are or should be distributed according to some kind of moral merit, based on unspecified criteria. But no market in the history of humanity has ever worked that way. I think it's safe to assume none ever will. So what's the point? Yes, it's not "fair" that some people are born in better circumstances and some in worse, some are lucky and some are not, so what? Yes, the son of Bill Gates has a huge "unfair advantage" over me whose parents are not billionaires. So what?

The point is, the more that gains are distributed randomly in society (and not due to productive effort or doing something useful), the more unstable a society becomes.

Sort of how the Weimar hyperinflation in the 1920s (which exacerbated the feeling that things are unfair) set the stage for the rise of Hitler in the 30s.

If taken to the extreme, it leads to the collapse of law&order.

It’s also why feudal systems were inherently unstable and suffered many uprisings.

Weimar wasn't random in any way or form. A lot of purposeful action went into making Weimar what it was, and the subsequent events what they were. It wasn't the result of random distribution of gains, it was a result of many purposeful actions of many people. Inflation included of course.

The randomness depends on the perspective - I'm sure that for the people in power or in the know it was not random, but to a random peasant/worker in Germany, it probably seemed pretty random.

Same as stock market investing - you can say that the profits are due to smart investing, but you can't ignore all of the centralized decision makers that put their thumb on the scale (i.e. 2008 bailouts?), which preference specific outcomes. In fact, this intervention makes the resulting disparate outcomes worse than random in the eyes of many people (i.e. people are more willing to accept the winner of a random lottery than a lottery that they believe was rigged).

Are there cheaper places in Canada? In the US, if you can work remotely, you can get better and bigger house 2x-3x cheaper than, say, around the Silicon Valley or any similarly priced cities, and still earn hi-tech salary. Of course, you need a remote-friendly job (which may cut off some opportunities) and you need to agree to live in a place that is not the first destination for every fashionable band out there, but it's possible.

Historically, the maritimes (Atlantic) provinces and Manitoba and Saskatchewan were relatively dirt cheap, but their home values have skyrocketed since covid and WFH, especially in Nova Scotia.

Yes this is possible but can come with significant challenges.

Seems like the biggest affordability gains has come from people moving entire provinces. There's been a huge exodus out of Ontario and into the relatively more affordable Alberta and Nova Scotia.

In general prices of homes in the few medium and small towns in desireable provinces like Ontario and BC have also exploded upwards, so while sure in absolute terms there are "more affordable" homes in other smaller towns, the gap isn't quite so big as one would think. The very low supply of homes in smaller towns have also kept their prices lofty.

IMO Canada in comparison to the USA seems to not have nearly as many medium and smaller cities one could downshift to.

In many parts of Canada it very quickly becomes remote and rural. Outside of the Vancouver there are a handful of small towner but quickly you'll find "towns" so small that the only store in "town" is the combination gas station/liquorstore.

The problem here is 1) low supply of homes 2) few if any services.

I don’t wish to pry in asking this but…

How do you afford something that high? Were you coming into this with a trust fund or are you one of those 300k+ per year engineers? I make 130k and feel my 220k mortgage (7.5% interest sadly) is scary.

Every time I watch one of those House Hunter type shows in Canada or just look at the home prices in my old home in Charleston I’m boggled by purchases.

No, this was all our money.

But we're a double STEM couple with no kids (at the time). We're also the most boring people you'll ever meet, so our expenses are low.

We saved up a 20% down payment after a few years together. And interest rates were 2.5% at the time, so the payments were manageable.

The long and short is "make lots of money and live like you don't".

(That said, a year ago I was a 300+ developer, which is part of how we paid off the rest of the mortgage in 7 years.)

I didn't even think it was realistic to get above 200k CAD in Canada, but now it's not even realistic to land a job. Strange time in this country. Beautiful summer here in BC though :)

There's a few companies offering good money, when hiring starts again.

There's the typical Amazon, Google, Uber who pay decently (though Google is only in Waterloo and no remote). Shopify was paying well because they wanted to grow quickly and outbid on top talent elsewhere, but that blew up in their face (I was in the 20% laid off in May).

2 years ago Instacart offered me a ridiculous total comp for remote Canada, but it was mostly paper money- pre-IPO stock that will be worth something, someday, maybe.

Instacart has claw back clause. So if you happened to be laid off or piped, your paper money will become paper

Google is in Montreal, too

Ya, it's just tough out there. I was laid off in April, haven't worked for a Canadian company since 2020. We'll see how it goes.

So that means you only put down 118,000 CAD and you were leveraged up

Your family wealth didn't increase by 72,000 CAD/year it increased by 135,000 CAD/year

but I see, you paid it off. you didn't have to, the option was to just make the minimum payments and sell, could have used your big income for other things but now I'm just reminded why its not interesting to listen to boring (your words) mortgage holders.

if you plug those numbers into an affordability calculator, you'll see that 18k/130k is very very very sane. I mean, I've paid that much in rent on less income.

> How do you afford something that high?

Another simple answer is to have renters. It's not glamorous, it means people are in your space, but when it's necessary, it's necessary.

Some of this might be your expectation of housing costs? A 220k mortgage, even at 7.5% interest, is still affordable on a 130k salary. This works out to < 25% of your after-tax income which is pretty average or maybe lower than average (unsure if most affordability stats are quoting pre or post-tax income).

tbh the hypernormalization of needing to go in debt and pay interest for a home is extremely scary, regardless of the rate

It's been that way for almost a hundred years. It's not so scary when interest rates and values have stayed relatively steady (as they have in most of the post-ww2 era in inflation-adjusted terms). All that seems to have fallen apart around the year 2000 (when interest rates were made lower than they should have been).

To the extent that government tinkering in the lending market ends up making housing more expensive, we should at least treat it as a policy failure.

I don’t understand what that 220k mortgage actually bought… a broom closet? A parking space? A tiny house in a countryside town far from anywhere?

The 220k is the value of the mortgage and not the original purchase price; there was most likely a downpayment at time of purchase. Or, they recently renewed their mortgage and the remaining amount owing is 220k.

An interesting thing to understand is that your apartment is "worth" 1.2 only because someone is willing to buy it for that much. Sounds like you are s young family, who are your new neighbors? Are they folks like you or are they the proverbial foreign investor?

Because the way I play this out... imagine you list your apartment for 1.2 but nobody can afford it so it stays unsold. Your neighbor lists for 1.1 and it doesn't sell either because nobody can afford that. Eventually you go oh shit it's never going to sell, lower it to 1.0. You play that game until it's low enough for somebody to afford it.

It's kinda crazy to think about it but the reason homes are so unaffordable is precisely because enough people CAN afford them at this price. So yeah I am curious, who are your new neighbors?

>> If it continues for another decade, we can presume no young person today will ever be able to afford a home.

I mean, the US isn’t as bad as Canada (as the article states), and this is already the case here. Most young people who manage to buy a house either get substantial help from parents, or buy in the middle of nowhere because they are able to capitalize on having a WFH job. Everyone else is stuck renting, at least until their parents die (if they have homeowner parents that is).

I bought a home in Woodstock, Ontario for about 525k in 2019. Last year comparables sold for almost $1M. And now they’re back down to about $600k.

Family wealth going up is somewhat written in fake money. Especially if you’re paying a mortgage with a rate that might renew at double.

Toronto is still super desirable but I think there’s real risk, versus it being a guaranteed good investment the way the boomer generation has been hammering into us about real estate. Can you imagine buying a home at $900k, only for it to fall 33% in value and your mortgage interest payments double?

Huh, that low in Woodstock, eh?

We're considering moving to London (ON) to be near family and friends, since we're both remote workers anyway. Interesting to hear the prices down there are falling.

Woodstock is an incredible city to raise a family. And it’s literally on the 401 and 403. Highly recommend you investigate a bit and consider it.

If you aren’t raising a family you’ll find Woodstock to be devoid of stuff to do for adults unless you hate people.

Can you list some reasons that make Woodstock an incredible city to raise a family? I am curious

It’s smaller so it’s generally just lower stress. You can comfortably walk to Southside park from most neighbourhoods. Amazing splash park and family pool and playgrounds. Good schools. Less traffic means less anxiety with letting kids be independent. I love being able to drive literally anywhere in 7 mins and making unprotected left turns during “rush hour” without waiting an eternity.

A lot of good programs, especially at the library. There’s a great robotics program at the highschool level. Lots of sports leagues… it’s kinda wild how many quality ball parks there are here (with fences and clay infields and lighting). Good hockey arena. Good curling program for adults and kids.

Both my partner and I volunteer at schools and they’re generally great. Filled with teachers who care quite a lot.

It feels like what Waterloo was when I grew up there in the 90s. I love seeing roving bands of kids on bikes without parents in tow.

Of course a lot of it is subjective. Everyone has to make their own decisions.

Thanks! Do you work remotely?

Yep, for about five years now. I can’t cay much about the commute other than you’ve got decent access in three directions of southern Ontario. My neighbour goes to Toronto daily and woof… he leaves at like 5am to avoid the traffic.

>>My neighbour goes to Toronto daily and woof… he leaves at like 5am to avoid the traffic.

And therein lies the rub. The 401 and 403 (heck, even the QEW and most other major highways) were (and still are!) so congested that it was a deciding factor to moving away from Toronto.

The only other place that reminded me of my days in sitting endlessly in stop-and-go traffic on major highways in Toronto was LA, which is a different major North American city famous for its gridlock.

Or, they'd do 60-year mortgages. US already has 30-year more or less universally, and those are actually backed by the state. I don't see why they can't move to 60 years. Let the next generation deal with the fallout, this is the tried and true recipe, has been working for nearly a hundred years by now.

> If it continues for another decade, we can presume no young person today will ever be able to afford a home.

You want to lay blame? 30% of all homes in the last year have been bought by speculators and rental investors.

That’s right… one in three homes were bought by someone who will never live in it, but who has hoarded it in order to ransom it back to the community for more than it’s worth, thereby denying another working-class family the ability to exit the rental market and contributing directly to our housing problem.

No wonder shit is so out of whack here.

> I don't say this to gloat. I say this as an example of how badly wrong things are.

I think it's a global phenomenon. I own an apartment in an European country and I also saw my neighbors selling theirs for 2 or 3 times what I paid for mine. The same trend can be observed in basically all European capitals. I don't think this is a Canadian problem.

I think it's dangerous to jump straight to witch hunts. First the scapegoat was golden visas, then it was Airbnb's, then "the rich" whatever that means, and now the Canadian government too? Which one is it?

Same here. Bought a house for 700.000 euros in the Netherlands. 4 years later got valued at 1.100.000. I guess its a global issue we have. Housing either renting or buying is extremely difficult for starters. Once you are in the game its relatively easy to move arround. But as a starter impossible.

I think whats important to note is that increase in value is on paper. Market is already dropping a fair bit and is in a situation where prices could descend another step down in the short term as everyone has to refi their 5 yr mortgage and make some financial adjustments

Not only that...but compare the increase to the "median renter's income" and the divide is even wider.

if it continues for another decade? It's already unaffordable now

Thing is, your wealth actually hasn't increased. You still only have 1 condo unit of wealth regardless of its nominal currency value and you have to live somewhere. So if you sold it you'd just have to buy another unit or house somewhere anyway.

But this collective delusion that the house prices of homeowners has gone up is a huge part of the problem, in part because if house prices halved, it would be a huge problem but probably not as large as people think, mainly because people can largely just walk away from underwater mortgages (in Canada AFAIK).

The only people who benefit are those hoarding real estate, not individual homeowners. This is the core problem with neoliberal private property.

There's no inherent need to have a condo in Toronto; you always have an option to cash out and rent, or cash out and buy at a cheaper location - and in both of these cases the absolute value of the increase matters a lot.

And where is that cheap place to live in Canada exactly?

Toronto (or the GTA more specifically) was the cheaper version of Vancouver. Now the average house price is north of C$1m in a country where average wages are a fraction of that.

People live in cities often because that's where the owrk is. A lot of people like it too. Some jobs can be remote. Many can't. You can't be a nurse or a mechanic or an EMT or a firefighter remotely. Toronto needs all those so-called "essential workers" too. Where are they supposed to live?

The general pattern has been in Canada (and the US and other places) is that you have starter homes like condos and then you buy a house when you want or need more space (eg you have children). The commenter I replied to buy a condo for just shy of C$600k. At that time maybe a house they might move up to was $900k. $300k is a lot but probably doable. Now their condo is $1.2m that house is probably $1.5-2m. It's actually more relatively unaffordable than at the time they bought their condo.

You see what I mean when rising prices for a basic necessity you cannot live without actually don't increase wealth?

They do increase wealth, it’s just that the prices of your preferred consumption basket (houses in this case) increases even faster (an important nuance).

Wealth is defined as the purchasing power across all possible consumption baskets - not just the one that you want though. So if you measure the value of your house in bananas, or oranges, or bars of chocolate, it’s value has definitely gone up.

In a cheaper location outside of Canada, $1m is sufficient to never ever have to work in your life - that is one impact of the absolute numbers, because at this level of wealth suddenly there are other options than having to live where the high-paying jobs are.

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