Why Housing is Political - and What Regular Economic Theory Gets Wrong About It
HTML-код
- Опубликовано: 10 фев 2025
- Our episode today is one of our “Move Smartly Ideas” segment, in which my colleague and co-host, John Pasalis and I take a deeper dive into housing economic and policy issues. In our conversation today, we cover what John thinks experts get wrong about the very nature of housing as a good - which leads to poor outcomes for everyday consumers - and why housing is not just about the numbers - it’s political.
Contact Us
John Pasalis, President and Broker, Realosophy Realty, Toronto | Email: askjohn@movesmartly.com | X-Twitter: @JohnPasalis
Urmi Desai, Editor, Move Smartly | Email: editor@movesmartly.com | X-Twitter: @MoveSmartly
About This Show
The Move Smartly show is co-hosted by Urmi Desai, Editor of Move Smartly, and John Pasalis, President and Broker of Realosophy Realty. MoveSmartly.com and its media channels on RUclips and various podcast platforms are powered by Realosophy Realty in Toronto, Canada.
You can also watch this and every episode on our MoveSmartly RUclips channel here: / movesmartly
If you enjoy our show and find it useful, please subscribe and leave us a positive rating on whatever platform you are watching or listening to us from - thank you!
![Seungmin "그렇게, 천천히, 우리(As we are)" | [Stray Kids : SKZ-PLAYER]](http://i.ytimg.com/vi/kAzmhLHePqU/mqdefault.jpg)
Pasalis Heat Alert! 🔥🔥🔥John goes off on why housing is political @22:10 - Why don't we think about housing not being a business, the way we do our Canadian healthcare system 🤔~ Urmi
Very insightful, powerful analogy. Housing is a human need and as a society we need to do better for the next generation and the ones to come. Hard working Canadians deserve a clean safe home that they can call their own. Thanks John for your views and commentary.
I'm glad you enjoyed the video. Thank you for the feedback! I appreciate it
Maybe one of your most important videos John. Thanks for sharing and the discussion. This challenges current housing strategies in Canada, which is good.
Thank you! Glad you enjoyed it
Well explained and argued...I detest the economist's utopian deceptions. I don't want my home's price to fall too much.
cause you worked so hard for it to be overvalued?
Amazing Bold video! I hope you do more explainers like these, it is great awareness for us as citizens to understand. We can’t keep housing as a commodity if we want to solve housing.
Thank you for the feedback, I appreciate it. We'll definitely have more videos like this coming out
I really appreciate the perspectives you both bring. Thank you.
Love this
Canada needs to stop providing high leverage financing options to investors and speculators. 20% down and 80% financing was intended to allow average working Joe's in this country to be able to buy a home to raise their kids i.e. END USERS. If an investor needs to have 50% down payment and pay a premium interest rate to mortgage the rest of an investment condo,. the numbers won't pencil, to rent it out. When you eliminate leverage, real estate is an INFERIOR investment to the stock market. Leverage is what makes RE attractive and governments CAN and SHOULD control leverage for investment properties. The fear of course, is doing so will create a 20-40% downdraft in prices which is something the government doesn't want to see happen.
They don't care about financing options. Many people have a lot of money in Toronto. I don't think they buy a 3 or 4 million dollar property with a mortgage.
95 percent of all housing was built with private investor money (including the place you are living in right now), guess that means you need to be booted out of your place..... without investors putting up money to build things, there would be a fraction of the housing there is today (and therefore prices would be much higher).
@@GreenBeanGreenBean Housing was built with financing not with cash. The majority of our big banks book - is made up of residential RE financing.
Commercial property investors building multi unit dwellings don't get the same favourable terms as mom and pop investors speculating in Toronto's condo market. Repayment periods are shorter than residential loans, with terms ranging from 5 to 20 years - not 25 or 30 years.. This is wrong headed policy and has, when combined with ultra low interest rates, fueled a speculative boom in residential RE.
Take the leverage out of the RE speculation market, and you will return residential RE to its rightful participants... end users looking for a home. Big commercial developers and governments are the entities best suited to building rental accommodation.... not individual speculators who don't know how to manage the tenant relationship properly.
@rdefacendis pretty sure the 20 percent downpayment is cash... your first sentence is 1000000% wrong.... so is the rest of your drivel.
You literally need cash in order to even apply and then get financing.
Commercial players do indeed get the same good terms through the MLI select program which means you get insured financing. Why do you think PBR are a thing... it sure isn't because they are cheaper to build, both cost the same for lumber labor etc.
If you take the leverage out, nothing will ever be built again.... which means prices going up not down.
Literally everything you said is wrong 🤣.
You need to go check out Mexico or any of the carribean countries with no banks, 10 percent rates, and all houses are built with cash.... guess what the waterfront palace is still a mill.... guess what, you get a shack up in the foothills.
@@rdefacendis everything you said is 1000000% wrong. Just take a look at 🇲🇽 or the carribean countries that have no banks and all housing is built with cash. The waterfront is still a mil plus, you get a shack that would make your trailer park look like the Hilton.... because you won't ever afford a house without financing.
S&D was never the issue or you would have seen hundreds of thousands of normal people (not including druggies) living in parks & tents. We had/have enough homes for all the normal people.
The issue for the last 15 years is that low rates FOMO and TREMENDOUS amounts of speculation has created a MASSIVE bubble and now that bubble is popping...
Now that market sentiment has gone 180° prices are going to drop like a lead balloon 🎈
Let this man cook
Everything that goes into a house (lumber, shower faucets, piping, wages for construction workers) is a commodity.... and this guy thinks that housing isn't a commodity? get outta here.
Saskatchewan price to income is 2:1 if not 1:1 in places..... land and housing in Canada is cheap... ultra cheap.... just not in the 50 sqkms of Vancouver and Toronto.
Newsflash: Hawaii is always going to be expensive. Nobody wants to move to Louisana or Texas, that is why housing is cheap there (and the few areas of Texas that are growing like Austin is entirely due to people being priced out of California and moving to a blue area...the countryside of Texas has not gone up..... and in fact due to these reasons Texas is not a good comparison example). Compare Toronto to NYC, Vancouver to Seattle or California, Texas to Alberta...... not Vancouver to Idaho.... many things wrong with this video.
The people who think if you cant afford it that prices will come down... well I guess you can tell the Africans that because they cant afford food that the price of food will come down... that just aint the way this works. Cost of production dictates how many units are produced.... and if cost of production keeps going up (like they are for housing), prices aint coming down. Pretty sure eating is higher on the hierarchy of needs than having a mansion lol.
Actually everything this guy says is wrong lol (but fear not, lots of other tubers are the same)
Great episode 👏
Ive said this before, a lot of people were treating housing as an asset class. For asset class price is not controlled by supply. It's controlled by interest rate and economic outlook. The last two year proves my case. High interest, poor economic outlook in Canada, investor demand for housing died. Now the economic outlook is still poor despite interest coming down, thus investor hasn't returned.
Greed will ruin us all
A shelter doesn’t have to be a 5000 SF mansion with a covered swimming pool and a tennis court 😅
Supply of housing is inelastic in the short run but it not inelastic in the long run. This is a fundamental cause of real estate cycles (b/c supply is perpetually overshooting or undershooting demand) and is totally consistent with conventional economic theory and empirical observation.
Of course in cities like Toronto and Vancouver this natural short run inelasticity is exacerbated by policy. So it’s a factor.
Finally someone saying a reasonable thing about housing.
I know some Canadians buying properties in Texas(since you are talking about Texas right now coincidentally) and the question is why ? One thing is sure, :it's that they really don't need to buy a house in Texas. They are from Toronto (already owning several properties here). Sad, to see that so many Canadians are endlessly greedy, just for the sake of it. Those are the types of people messing up the market... Of course, those same people are probably going to say that 'foreign buyers shouldn't be allowed to buy in Canada'', while they do the same thing abroad., without any scrupulous. They are lucky the US government doesn't reciprocate and put a ban on them.
Meanwhile GTA RE agents markets Calgary homes to GTA investors to screw up Calgary's housing market. Horrible
Should put the blame on the banks that are funding all that leverage and debt. If any of the rent or air bnb stops those people go under super quick.
I'd be willing to bet the Canadians buying Real estate in Texas are not the same Canadians complaining about foreign investment. It's likely the ones buying in Texas have benefitted greatly from the foreign investment in dog crate condo scams
You think the investors make money! let assume you buy a house in North York for $1,500k. you could rent this one for $4000 a months. the landlord need to look after repair, property, tax , insurance and mortgage. carrying cost of this house at this market is about $15000 a month. If tenant for any stupid reason decide not to pay a rent the landlord need to wait about 1 years then usually nothing happen the landlord will be happy if the tenant is out. you tell me how much money this investor can make?
The only way investors (actually speculators) have made $ for years has been via price appreciation.
Not a bet I’m willing to make so i have not invested in any Canadian RE since 2007.
But yeah renters have a great deal - especially if they are renting detached homes in Vancouver or Toronto. They are massively subsidized bY LL
I don’t know much about the Texas RE market; but, other things equal, prices would almost certainly be significantly higher if they built significantly less there.
What happened with demand during this period of rapidly increasing supply? Was there big population growth/household formation? Did interest rates decline? Did incomes increase?
Housing markets do not defy economic principles/laws. Like Irmi suggests, supply and demand is just relatively complex when it comes to housing. And the reason why John doesn’t think supply and/or demand fully explain what’s happening is because he doesn’t seem to understand (or maybe he’s willfully ignorant of) this complexity
I means think of all these supply/demand variables: pop growth, effective purchasing power, irrational exuberance/speculation/FOMO, inelasticity of supply (exacerbated by NIMBY policy), home prices, rents, govt fees/taxes, constructions costs/inflation/currency debasement, supply of labour, etc.
You can’t just look at changes at one or two variables (while ignoring all the others) and conclude that supply and demand don’t matter because the outcome isn’t what you expected based on changes to the 1-2 variables you chose to pay attention to
One big thing that isn't brought up in regards to "markets where more housing is being built have higher price increases..." is the fact they havd much higher population growth. Some of the population growth is from immigration but much migration to Alberta and Texas is from more expensive provinces and states. The average want-to-be-homeowner has it easier in AB than BC but Albertans, particularly in Calgary, are having a harder time competing with investors and some cash-rich former Vamcouverites and Torontonians.
Very good podcast but I am a little disappointed that you didn't mention that fairly obvious reason for faster price appreciation.
Personally I would support:
- non-profit developments, including government support to keep up building if/when prices fall
- higher property taxes on non-purpose-built rentals, certainly when more than 3 or 4 single family homes are owned by an individual, couple, or company.
- particularly in low property tax rate provinces like BC: higher property taxes and reduced sales or income taxes.
Prices didn’t fall during covid b/c demand didn’t fall. Demand didn’t fall (it actually increased) mainly b/c interest rates suddenly went to zero which massively increased effective purchasing. When you increase effective purchasing you shift the demand curve to the right. Ie, you increase demand.
So, again, IT IS SUPPLY AND DEMAND
“Economics tells us that demand falls when the price goes up.”
Not necessarily. Economics tells us that demand will not change when prices increase if demand is perfectly in elastic. Demand is not perfectly inelastic for housing, but in recent years it has been relatively inelastic b/c interest rates have been low (ie, effective purchasing power high), population has increased a lot and we haven’t had a serious recession. Now that population is flat to declining, the economy is slowing big time, and effective purchasing power has declined a lot (due to higher interest rates) demand is waning. Which is, of course, translating into significantly lower home prices and rents - especially in real dollars!
Of course this is happening at time when new completions are very high, which is exacerbating the correction in rents and prices
SO IT ACTUALLY IS ABOUT SUPPLY AND DEMAND
A couple months ago there was an article in The Globe and Mail about the condo situation in the GTA with many people not able to close and precon sales falling off a cliff. I commented that if we have an affordable housing crisis, the federal government should direct or make funds available to CMHC for municipalities to bulk purchase units to add to their low income and market rate housing stock. The angry replies ranged from "you're a communist!" to "I don't want people on welfare with mental health and drug addictions living in my building that I paid a lot of money for!". I understand that this is the G&M subscriber demographic, but I know this is a widely held view in the GTA in my social circle.
I also know many people who were outraged during the pandemic that some people were buying up lysol wipes from Costco and reselling them at 10X the price on Amazon. These same people are anxiously waiting for emergency rate cuts from the Tariff fallout so they can scoop up another condo for their investment portfolio.
Housing is different from other needs since it varies so much on location and size. We have the largest homes per person from what I've seen. How do you decide who gets the large prime location houses?
Nailed it. 👏
Silly question: where did Urmi get the shelving behind her. I like it! Thanks 😂
The answer is government subsidized rentals in retrofitted government buildings. This will cover the shelter need as a basic necessity. The mansion will remain for those who want a mansion to “feel good”
2 properties max per SIN number. Get a job landlords.
Really stupid comment!!!
Ridiculous....
So half our MP's would need to sell properties ?
Homes are literally made from commodities
And lots of investments, other than housing, are necessities - energy, medicine, food, etc.
And, no, RE values do not have to increase for RE to be a good investment - if cash flow is adequate v ppty value (ie if the cap rate is high enough) RE can be a good investment even if it isn’t increasing in value. (Though I realize many RE speculators that are masquerading as RE investors believe increasing RE values are essential)
Can we plz audit all politicians 🙏
The ever increasing availability of debt over the last 40 years has caused the value of currency to decline. Working hard and saving did not create wealth, leveraging did. Nothing goes in a straight line, but my guess is that will reverse as fumble our way through the 4th turning.
These people, who "invest" in housing are not investors, they are leeches. Real investors, invest in factories, inventoons, production etc.
I understand the point you are trying to make but it really is just supply and demand! The issue is WHY it is in demand. That being said, Canada (gov and bank partnership) worked to create a system (though several actions) where homes became 1) easy leverage path to wealth 2) That paper wealth can then be used to augment their lifestyle beyond their earned income. If homes won't go up in value over the next 10 years (most likely now) then the demand will go down..... When +50% of the demand is not for shelter as home buyers are not now living in tents (they currently have shelter) they only want to increase their wealth. So, when that path is closed that leaves only the people that want their own home because they 1) want privacy 2) expanding family 3) live in a new area. There were always homes and then investments.... Canada chose to make homes investments for the public and now there is a price to be paid. I lived all over the world and over time, housing is ALWAYS 4-6 times income. Doesn't matter where but over time it always finds that point of balance. We are at 9-10(?). So either crash to affordability or like in the 90's 10 years of stagnant (numeric) pricing. Friends bought a place in the 90s and it took +12 years before it was numerically at the same price. (does not include loss through inflation. We have only 2 options.....
Those economists came to their conclusions based upon the fact that as the demand grew the trades would naturally grow on a supply and demand basis. We are not bringing in or training enough to come close to fill the demand needed. I highly doubt many moving to texas build houses or many of the 1m plus people that the federal government in canada let in do as well.
In saying the employement market has 40% of the workforce in our government with pay and benefits that are high and generally a workload a lot less than those in the trades. I bet if we lowered that percentage and encouraged more people into trades the housing market would start changing naturally.
Just something to think about, not the solution or the entire problem, just a part of it
You’re not getting a PhD if you keep attacking the ivory towers, lol
Tiny homes that need no permits, on crown land. Anyone can squat. America is using its land a lot smarter than Canada, they are spread out, we are clumped together. Canadians need to learn to become frontiersmen again.
No offense, but your analysis loses credibility when you take on a left-leaning socialist stance. Government involvement in everything-especially housing-is a problem. If the government stays out, we might go through a rough period, but eventually, the market will reach an organic equilibrium instead of relying on constant and unnecessary government manipulation.
Are you a baby? Do you wanna give up your healthcare in favour of an American style insurance model? Do you think socialism is when "gov't do thing"?
It will shift when people in Canada accept the fact that they can't have their own place and demand will go away, and so will speculators.
Years will go by with stagnant prices while wages catch up
The low rates, money printing and mass immigration created this problem and housing won't reach affordability until 2030.
The government is fully manipulating housing, on every level imaginable, Through population growth, money printing, CHMC, and any number of stimulus. Yes, if the government stayed out of everything, theoretically markets will reach an organic equilibrium. The population of Canada will never vote for these policies and the government will never dissolve CMHC. Within our current framework there are other solutions then the government sponsored fictionalization of housing. If provincial and local governments built some non-market housing it would help improve affordability, this approach would be easier than completely change our financial systems .
@@Stormshfter you can move over to Saskatchewan where price to income is 2:1 if not 1:1 in some places.... land in Canada is cheap, ultra cheap...... just not in the 50 sqkms of Vancouver and Toronto.
Newsflash: Hawaii is always gonna be expensive.... move somewhere else..
He wasn’t taking on a left leaning socialist stance. He was highlighting that our current way of dealing with housing is very right leaning libertarian at the moment. He wasn’t advocating for the left leaning solution. He was being honest about where we currently are. We can continue on that road or not. Each path has its pros and cons.