Housing Bust 2017

Leveraging, renting vs owning, making an investment or buying a home?
User avatar
patriot1
Gold Ring
Gold Ring
Posts: 4084
Joined: 28 Feb 2005 03:53

Re: Housing Bust 2017

Post by patriot1 » 14 Mar 2017 17:09

Is the B.C. property levy on ‘foreign buyers’ a new head tax?
This premise is bogus and inflammatory, since the head tax was a tax on immigrants, but the foreign buyers RE tax does not apply to any immigrant.

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 14 Mar 2017 19:49

Ben Rabidoux has a locked twitter account so I'm going to post a few screenshots instead of links. Ben runs a specialty market research firm providing independent macroeconomic analysis to institutional investors. Key areas of specialty include housing and credit trends.

Image
Image
Image

fundamental
Silver Ring
Silver Ring
Posts: 405
Joined: 30 Aug 2005 11:26

Re: Housing Bust 2017

Post by fundamental » 15 Mar 2017 13:59

Wouldn't some sort of "rent control" slop down the price appreciation ?
“Courage is what it takes to stand up and speak. Courage is also what it takes to sit down and listen.” - Winston Churchill

User avatar
patriot1
Gold Ring
Gold Ring
Posts: 4084
Joined: 28 Feb 2005 03:53

Re: Housing Bust 2017

Post by patriot1 » 15 Mar 2017 14:11

Doubt it, since a bubble by definition is when asset prices are not determined by earnings (i.e. rents).

Ontario does have rent controls for sitting tenants, although there is no control for rents for new tenants. I don't know what kind of rent controls Ontario had during the late 1980s bubble, but I do know that during the Vancouver bubble circa 1980 rent controls that carried over to new tenants were still in effect.

User avatar
kcowan
Diamond Ring
Diamond Ring
Posts: 12530
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Housing Bust 2017

Post by kcowan » 15 Mar 2017 18:19

We are under rent controls from 1997 when we rented our 3300 sq.ft. penthouse in West Van. Our rent is less than double the 97 price and they have replaced everything.
For the fun of it...Keith

Just a Guy
Silver Ring
Silver Ring
Posts: 337
Joined: 01 Dec 2014 19:28

Re: Housing Bust 2017

Post by Just a Guy » 16 Mar 2017 09:36

Rent and housing prices are not interlinked (something novice landlords often discover the hard way).

Rents are based on what the rental market can afford to pay (basic supply and demand), not what the costs are for the landlord.

If you overpay for a property, you can't charge more for rent. Long term landlords, with more equity, can afford to keep their rates lower. If you overpay, even if that means paying market rates as far as home sales, you lose money.

If you're really lucky, and you haven't overpaid too much, interest rates stay low, etc. Eventually, after years of losses, your equity gets paid down enough that you can maybe start to earn a profit in the long term and maybe even recover your losses from earlier.

Anyway, the market dictates the prices you can charge, not the landlord.

User avatar
adrian2
Diamond Ring
Diamond Ring
Posts: 11247
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Housing Bust 2017

Post by adrian2 » 16 Mar 2017 11:53

Just a Guy wrote:Rent and housing prices are not interlinked (something novice landlords often discover the hard way).

Rents are based on what the rental market can afford to pay (basic supply and demand), not what the costs are for the landlord.
Indeed.

I would extend the above to the house prices:
House prices are based on what the buyers are allowed to extend themselves, i.e., the buyer will bid it up as much as allowed by his bank for a monthly payment that chews whatever percentage of his income. In other words, contrary to popular belief, low interest rates are bad for first time buyers, they will still get the same mortgage payment for the first 5 years (or whatever), but they will pay higher absolute prices compared to the case where interest rates were higher.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 16 Mar 2017 12:24

https://twitter.com/ac_eco/status/842406043330174977

A house in Markham sold for nearly $2M. It is now listed for rent at $2280/month. That's enough to cover property taxes but doesn't leave much room for the mortgage payments.

As ac_eco pointed out, this is either a wild bet on further price appreciation, or this house is a safety deposit box for a foreign investor who doesn't need a mortgage. My bet is on the latter.

User avatar
Koogie
Gold Ring
Gold Ring
Posts: 1162
Joined: 09 Mar 2012 16:44

Re: Housing Bust 2017

Post by Koogie » 20 Mar 2017 13:01

Koogie wrote:
14 Mar 2017 09:13
I think the bigger issue has always been Canadians diddling the system rather than foreigners. Don't we all know someone who in the past has sold a rental house, second home or cottage and declared it as a primary residence ? The incidence of that happening must have been many magnitudes higher than foreigners mucking about. They have closed that massive loophole finally.
Tax Toronto home-flippers, not foreign buyers, Scotiabank says
~ Levy on speculators better than tax on foreign buyers, economists say

http://www.theglobeandmail.com/report-o ... e34343222/
Buy very little, sell even less.

kombat
Silver Ring
Silver Ring
Posts: 847
Joined: 26 Feb 2007 09:23
Location: Ottawa, ON

Re: Housing Bust 2017

Post by kombat » 20 Mar 2017 14:30

No Fixed Address: Stuck in your housing situation in Toronto? New proof it's a 'vicious circle
In September 2016, the renters were first pre-approved for a mortgage of $550,000. But then the federal government tightened mortgage rules, and the new stress test pushed them out of the market. (That stress test requires buyers to prove they could still make their payments if the interest rate were to jump to 4.64 per cent for a five-year loan.)

"We dropped $100,000 within a month," said Whitehead. "When we started saving five years ago, $500,000 could probably get something and it would be fairly decent — not huge by any means. But now, we only see condos."
They seem oblivious to the motivation for the rule change: To improve affordability and bring prices down to Earth, not allow marginal buyers like themselves to overextend themselves into stratospheric debt.

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 20 Mar 2017 20:03

Koogie wrote:
20 Mar 2017 13:01
Tax Toronto home-flippers, not foreign buyers, Scotiabank says
Why not both? Is Scotia afraid to lose a revenue stream?

A recent policy paper by Ryerson City Building Institute proposed two cooling measures for Toronto market:

1. Foreign Buyer Tax like the one implemented in Vancouver.

2. Progressive Property Surtax.
Progressive Property Surtax

The basic idea is to have a progressive property surtax that can be offset by income taxes paid. It would be levied annually on properties above a certain threshold in value (say $800,000), and only apply to the value of the property above that threshold. Seniors who had paid into the Canada Pension Plan at a high rate for 5-10 years would be exempt from the tax. The rate could start at 1 per cent for the first $1 million above the threshold (to $1.8 million, say) and rise to 2 or 3 per cent thereafter. So a house worth $2 million might have an annual surtax of $14,000.

The surtax is designed to hit those who own expensive property based on foreign income or wealth, and/or those who have aggressively evaded taxes. Recent immigrants who arrived in Toronto with wealth but who participated in the local economy and paid taxes would be effectively exempt from the surtax. The surtax would make no distinction based on nationality or anything along those lines. Instead, the premise would be that ownership is encouraged for anyone earning income in Canadian labor markets, while ownership based on foreign wealth or illicit income is discouraged (or forced to pay a penalty). A salutary side-effect would likely be to discourage the holding of many properties as investments, at least at the higher end of the market.

This proposal has several strengths: it would be very hard to evade; it would tax “previously arrived ” foreign ownership ( it would be retroactive ) ; it would discourage future foreign ownership by those who had no interest in participating in the local labor market; it would harm very few people for whom we might feel sympathy (for the vast majority it would miss them entirely, in terms of the effective exemption structure); and it could generate major revenues in the short-term. Most importantly, the tax would alter expectations. Torontonians would come to recognize that subsequent demand for housing would be primarily local, not foreign, and thus that prices were likely to fall. In combination with a foreign-buyer tax, this could reduce demand and reverse expectations in a powerful way.
Interesting idea but it's likely too radical for our cowardly politicians.

User avatar
patriot1
Gold Ring
Gold Ring
Posts: 4084
Joined: 28 Feb 2005 03:53

Re: Housing Bust 2017

Post by patriot1 » 20 Mar 2017 20:33

ig17 wrote:
20 Mar 2017 20:03
Progressive Property Surtax...Interesting idea but it's likely too radical for our cowardly politicians.
In fact it's being advocated by the BC NDP.

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 20 Mar 2017 21:00

patriot1 wrote:
20 Mar 2017 20:33
ig17 wrote:
20 Mar 2017 20:03
Progressive Property Surtax...Interesting idea but it's likely too radical for our cowardly politicians.
In fact it's being advocated by the BC NDP.
Great. I hope this policy has legs.

zeno
Silver Ring
Silver Ring
Posts: 144
Joined: 17 Jun 2008 23:47

Re: Housing Bust 2017

Post by zeno » 20 Mar 2017 22:05

Progressive Property Surtax

The basic idea is to have a progressive property surtax that can be offset by income taxes paid. It would be levied annually on properties above a certain threshold in value (say $800,000), and only apply to the value of the property above that threshold.
Would this also catch wealth inherited in the form a home? I couldn't inherit a million dollar house and just live in it and play x-box (or read books and play the clarinet). The taxes would be too onerous. If so, I can imagine this being unpopular with established multi-generational wealthy families, who tend to be big political contributors.

User avatar
adrian2
Diamond Ring
Diamond Ring
Posts: 11247
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Housing Bust 2017

Post by adrian2 » 20 Mar 2017 23:07

ig17 wrote:
20 Mar 2017 20:03
The basic idea is to have a progressive property surtax that can be offset by income taxes paid. It would be levied annually on properties above a certain threshold in value (say $800,000), and only apply to the value of the property above that threshold. Seniors who had paid into the Canada Pension Plan at a high rate for 5-10 years would be exempt from the tax. The rate could start at 1 per cent for the first $1 million above the threshold (to $1.8 million, say) and rise to 2 or 3 per cent thereafter. So a house worth $2 million might have an annual surtax of $14,000.

The surtax is designed to hit those who own expensive property based on foreign income or wealth, and/or those who have aggressively evaded taxes. Recent immigrants who arrived in Toronto with wealth but who participated in the local economy and paid taxes would be effectively exempt from the surtax.
Correction as per first paragraph: Recent immigrants who arrived in Toronto with wealth but who participated in the local economy and paid taxes would be effectively exempt from the surtax, if they are now seniors.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 20 Mar 2017 23:10

adrian2 wrote:
20 Mar 2017 23:07
Correction as per first paragraph: Recent immigrants who arrived in Toronto with wealth but who participated in the local economy and paid taxes would be effectively exempt from the surtax, if they are now seniors.
If you arrive and start paying income taxes, you don't need to be a senior to be exempt. Quote:

"The basic idea is to have a progressive property surtax that can be offset by income taxes paid."

User avatar
adrian2
Diamond Ring
Diamond Ring
Posts: 11247
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Housing Bust 2017

Post by adrian2 » 20 Mar 2017 23:18

ig17 wrote:
20 Mar 2017 23:10
adrian2 wrote:
20 Mar 2017 23:07
Correction as per first paragraph: Recent immigrants who arrived in Toronto with wealth but who participated in the local economy and paid taxes would be effectively exempt from the surtax, if they are now seniors.
If you arrive and start paying income taxes, you don't need to be a senior to be exempt. Quote:

"The basic idea is to have a progressive property surtax that can be offset by income taxes paid."
What if you retire early and you live frugally, not drawing too much from your nest egg (regardless how long you've been here)?
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 20 Mar 2017 23:42

adrian2 wrote:
20 Mar 2017 23:18
What if you retire early and you live frugally, not drawing too much from your nest egg (regardless how long you've been here)?
Then you have a choice to make. Pony up for the property surtax, or sell and move to a cheaper area that is not subject to surtax.

Just a Guy
Silver Ring
Silver Ring
Posts: 337
Joined: 01 Dec 2014 19:28

Re: Housing Bust 2017

Post by Just a Guy » 21 Mar 2017 09:34

Funny how people who can't control themselves always call for the government to try and control them...

People seem to forget that housing prices are driven by supply and demand rules for the most part. It's not the owners asking ridiculous prices which drive up housing, its buyers willing to pay the prices. I see people desperate to get into the market everyday, overpaying because they have "affordable payments", as opposed to something being affordable.

That's not an owner issue, that's a buyer issue.

If there is less demand, the prices will come down...look at Calgary right now. Of course, home owners are now the ones screaming that something needs to be done to protect their "investment" I'd bet. Maybe the government should step in and regulate minimum pricing? You scoff now, but wait until the crash happens across Canada all at the same time...

I've never seen government policy stop stupidity. Try as they may.

ig17
Gold Ring
Gold Ring
Posts: 2275
Joined: 21 Feb 2005 20:54

Re: Housing Bust 2017

Post by ig17 » 21 Mar 2017 09:52

Just a Guy wrote:
21 Mar 2017 09:34
People seem to forget that housing prices are driven by supply and demand rules for the most part. It's not the owners asking ridiculous prices which drive up housing, its buyers willing to pay the prices. I see people desperate to get into the market everyday, overpaying because they have "affordable payments", as opposed to something being affordable.

That's not an owner issue, that's a buyer issue.
Chicken and egg. A buyer today is an owner tomorrow. Property Surtax on the owners makes property ownership less attractive. All else equal, the surtax should curtail the demand from buyers.

User avatar
adrian2
Diamond Ring
Diamond Ring
Posts: 11247
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Housing Bust 2017

Post by adrian2 » 21 Mar 2017 11:52

ig17 wrote:
20 Mar 2017 23:42
adrian2 wrote:
20 Mar 2017 23:18
What if you retire early and you live frugally, not drawing too much from your nest egg (regardless how long you've been here)?
Then you have a choice to make. Pony up for the property surtax, or sell and move to a cheaper area that is not subject to surtax.
Hopefully it will not come to pass.

"The road to hell is paved with good intentions"
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

User avatar
kcowan
Diamond Ring
Diamond Ring
Posts: 12530
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Housing Bust 2017

Post by kcowan » 21 Mar 2017 12:57

It sounds pretty complex. I guess it is a complex problem they are trying to fix.

It seems weird to be trying to solve a capital gains problem with property tax.

How does this solve the rampant problem of foreign dad buying the property and installing wife and grandma with the kids collecting welfare? This has been going on for 30 years!
For the fun of it...Keith

kombat
Silver Ring
Silver Ring
Posts: 847
Joined: 26 Feb 2007 09:23
Location: Ottawa, ON

Re: Housing Bust 2017

Post by kombat » 21 Mar 2017 12:57

I understand the motivation, but the policy seems like a misguided attempt to punish the wealthy, in my opinion. I'm philosophically opposed to the concept of a tax on owning property on the face of it, but I understand that it's fair for services used by a property (street lighting and snow clearing, emergency services being available, etc.) to be paid for by the beneficiaries, i.e., the owners of said property. But if my neighbour's house is worth 50% more than mine, they're not using 50% more snow clearing, or 50% more protection by the fire department. Why should they pay 50% more tax?

If the goal is wealth redistribution, I see property ownership as a pretty poor method of achieving it. Once you've bought property, you should own it, and should be free to live on it without the government constantly tapping you on the shoulder and saying, "Come on, do you really need all that space? If you're going to keep it, then we're going to expect you to keep ponying up an unfair share of the neighbourhood's costs, year after year, as long as you want to live here."

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 17174
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Bust 2017

Post by AltaRed » 21 Mar 2017 13:06

I prefer to see this as trying to focus housing for shelter purposes, not for speculation, flipping, safe haven for foreigners, etc. We don't need the greedy in the housing market causing pain for those needing shelter. So I generally support programs to punish these people.

Canmore (at one time and perhaps still) had a municipal bylaw against more than X% of their new housing being for weekenders (mostly Calgary types). Don't know how successful that was/is (and how that could be effectively policed) though. Ultimately, a 30% fall in housing prices in places like GTA and GVA could send the flippers and speculators packing, if not into insolvency.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

User avatar
adrian2
Diamond Ring
Diamond Ring
Posts: 11247
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Housing Bust 2017

Post by adrian2 » 21 Mar 2017 13:20

AltaRed wrote:
21 Mar 2017 13:06
I prefer to see this as trying to focus housing for shelter purposes, not for speculation, flipping, safe haven for foreigners, etc. We don't need the greedy in the housing market causing pain for those needing shelter. So I generally support programs to punish these people.
What would be the rationale of punishing early retirees living frugally vs. those past age 65 (or whatever the threshold for being a "senior"?
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

Post Reply

Who is online

Users browsing this forum: No registered users and 2 guests