Housing Gap II
Sat, 2008-02-16 20:30
#1
Housing Gap II
Sat, 2008-02-16 20:30
#2
Yes, the thread was getting long, so this is a continuation since it may still have some life, and seems to have moved a little from where it started.
Sat, 2008-02-16 21:18
#3
[Originally posted by brookmere:
[b] Did you bother reading that link in my post? This guy knows what he's talking about:[/b][/quote]
No I didn't. I think it's always courteous as well as a good idea to provide a summary in addition to brandishing the sourced hyperlink. Otherwise, what's the point? Besides, I know what bubble economics is about. And it stems from the fact that nearly all money and credit is created as interest-owing debt in Canada since 1988 to 1993. There's never enough money to pay the interest owed on loan principals or easy credit.
There is no interest-free government-created money anymore, and our Conservatives racked up one of the largest national debts in world history due to their bad economic policy-induced recession of the 1980's-90's. The Conservatives began cutting social programs, and the Liberals made the deepest cuts in their 1995 budget and handing a range of program spending to provinces and municipalities, including public housing and social welfare spending.
Our central bank has one blunt instrument for dealing with inflation. And U.S. and Canadian feds have one instrument for dealing with banks which lose money gambling on stock markets and foreign exchanges: taxpayer bailouts. The federal NDP stood opposed to deregulation in banking and subsequent bank bailouts in the 1980's and 90's.
quote:
[b]The prospects are bleak for Vancouver real estate as there are very few potential buyers out there, population growth is low, average incomes are below urban Canadian averages and we have a housing inventory that is projected to increase dramatically in the next 12 - 24 months.[/b]
Vancouver can't afford to replace its aging water and sewer works. So what else is new? There is a $130 billion dollar infrastructure deficit across Canada, and the Paul Martin Liberals claimed to have balanced the federal budget during their time in the sun. NDP'ers know full-well that was a terrible lie.
Sat, 2008-02-16 21:48
#4
You want a summary? Here it is:
Vancouver RE is as overvalued as any of the US markets which are now crashing, and will crash for the same reasons.
Happy?
quote:
The nature of the rental market is that, for an initial period, rents do not cover costs, but the market rents rise faster than the costs, and after an initial period(say 10 years) the shortfall is covered, then past shortfalls are recouped, and then a significant return is made. This has been the case as long as records have been kept.
That's just plain wrong. Historically there has been no shortfall from rent from day 1. That only changed in the 1970's as RE investing became speculation based rather than income based. Even now, there are many markets in Canada - even some big cities like Ottawa - where this is true today. It was even true in Vancouver as recently as 2001.
The fatal flaw in your reasoning is assuming continued inflation in rents, which can only happen if we have continued inflation in wages. You are also assuming that the bond markets are not going to anticipate future inflation, i.e. interest rates are not going to track inflation. Well how did that assumption work out in, say, 1981?
During the 1930's, you could rent out a house for [b]twice[/b] the ownership costs, because people had no expectation of rising RE prices.
It's attitudes like yours that have led to the current RE price bubble. I find it absurd that anyone on this forum, of all places, could defend the current overpricing of real estate which serves only to turn working people into debt slaves. The global RE bubble is the biggest financial scam ever perpetrated on working people, bar none.
[ 16 February 2008: Message edited by: brookmere ]
Sat, 2008-02-16 22:32
#5
quote:
Originally posted by brookmere:
[b]You want a summary? Here it is:Vancouver RE is as overvalued as any of the US markets which are now crashing, and will crash for the same reasons.
Happy?[/b]
So what's your point? Is there anything else you'd like to know about bubble economics and flawed ideology for self-regulating markets but were afraid to ask?
Sun, 2008-02-17 07:13
#6
I said: quote:”The nature of the rental market is that, for an initial period, rents do not cover costs, but the market rents rise faster than the costs, and after an initial period(say 10 years) the shortfall is covered, then past shortfalls are recouped, and then a significant return is made. This has been the case as long as records have been kept.”
To which brookmere replied:”That's just plain wrong. Historically there has been no shortfall from rent from day 1. That only changed in the 1970's as RE investing became speculation based rather than income based. Even now, there are many markets in Canada - even some big cities like Ottawa - where this is true today. It was even true in Vancouver as recently as 2001.”
Why do you think initial investments as down payments are necessary in any housing purchase and why do you think any old Tom Dick or Harry can’t just get some rental property on the assurance that the income from day 1 will cover all the costs? Because it won’t.
The purpose of the investor’s original contribution is not only to demonstrate some financial stability(that makes lending institutions happy) but also to lower the carrying costs(the rest of the mortgage, and initially perhaps even some of the operating costs, including longer-term Replacement liabilities). In most cases the investor won’t see any of that for a number of years(it is, after all, an investment) but then will see it returned as increased cash flow and as increased equity in the property(as the mortgage is paid down). That’s the way it works, that’s why people invest in property. There are occasional blips, but they don’t last long and usually end in some kind of disaster(vide, eg, the current sub-prime mortgage mess in the states or the AHOP nonsense of the late ‘70s-early ‘80s).
Brookmere: “The fatal flaw in your reasoning is assuming continued inflation in rents, which can only happen if we have continued inflation in wages. You are also assuming that the bond markets are not going to anticipate future inflation, i.e. interest rates are not going to track inflation. Well how did that assumption work out in, say, 1981?”
Well, it’s been so since the start of the last century(before that data gets pretty sketchy, although anecdotal evidence suggests it goes much further back, with occasion, cataclysmic, “corrections”). I get the impression we have a Cool Hand Luke “failure to communicate” - I’m just describing how these things work, not how I think they should work and I’m not quite sure how I’m making any assumptions about the bond markets(...usw....) Perhaps you’re confusing real rent levels with nominal ones - the history is that nominal rents have risen almost monotonically(will brief exceptions, like bits of the Great Depression), while real rents have varied widely, being static or depressed for longer periods. But with Equal Payment Mortgages(the Canadian norm) the relevant factor is the nominal rate.
Brookmere: “It's attitudes like yours that have led to the current RE price bubble. I find it absurd that anyone on this forum, of all places, could defend the current overpricing of real estate which serves only to turn working people into debt slaves. The global RE bubble is the biggest financial scam ever perpetrated on working people, bar none.”
Apart from ascribing an unfounded attitude to me(defending RE inflation? Where is this?), I sort of agree although I would put it more in the class of many scams, where understanding(not just objecting to) the mechanism of one may help identifying some of the others.
Sun, 2008-02-17 08:42
#7
quote:
Originally posted by brookmere:
[b]The fatal flaw in your[Rod Manchee] reasoning is assuming continued inflation in rents, which can only happen if we have continued inflation in wages.[/b]
Real Canadian wages have been in a holding pattern for 30 years.
quote:
[b]During the 1930's, you could rent out a house for [b]twice[/b] the ownership costs, because people had no expectation of rising RE prices.[/b]
And there were Canadians evicted from the their apartments in the 30's because they couldn't afford rent. Wages were low and unemployment high during the depression era. The rich had too much money and the working class not enough, and things ground to a standstill under laissez-faire capitalism in those days.
We've experienced certain Dickensian scenarios across Canada in recent years. There've been the odd story of infants dying of malnutrition and single young women leaving babies on the steps of city hall in Toronto in recent years. Canada's record on child poverty is one of the worst in the developed world.
And the ONDP did sink a modest amount of money into social housing in the 1990's. Mike Harris cancelled new public housing projects and handed them off to housing developers half-finished after 1995. Harris also spent $120 million dollars filling in excavation holes for Toronto's subway expansion started by Rae's government.
The market has failed to provide affordable housing for over 1.5 million Canadians. We need a national housing strategy as exists in other first world nations. It's pretty bad when New York City has more social housing units for seven million people than we do for all of Canada.
[ 17 February 2008: Message edited by: Fidel ]