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July 8, 2019 | Watch Out

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

They’re coming for you.

The escalation in house prices has been a theme here for a decade. So have been the club-footed responses of politicians. On balance, governments made it worse. They blindly incentivized first-time buyers. Allowed mortgage rates to fall into the ditch. Green-lit Airbnb to ghost-hotel thousands of units, jacking rents and prices. Then, panicked and pressured by house-horny Mills, they taxed investors and stress-tested the kids. The result is a mess. The market is dismal. Prices are still too high. Affordability’s awful. Public policy has been a failure. And it could soon get worse.

For example, this autumn a push begins to allow all municipalities in BC to tax people for ‘empty houses.’ Of course, that doesn’t really mean empty. They could be cottages, chalets, seasonal residences, hobby farms, secondary homes for students or business pieds-à-terre. It’s really just a new excuse to tax, with the socially-acceptable by-products of funding affordable housing and shafting ‘rich’ property owners.

Meanwhile Vancouver, the only city daft enough to already tax people for owning second properties they don’t want to rent out, is being sued by those it wrongly ensnared. Turns out the tax applies to just 1.3% of the 183,000 properties in Vancouver. Only one-tenth of the 25,000 ‘vacant’ homes that were supposedly dark.. The total number of properties forced back into the rental market by the new tax last year is estimated by the city to be (wait for it)… 80.

And yet for that piteous result, local government sucked $38 million from 2,500 owners. Not hard to see why White Rock wants an empty-houses tax, or that other towns will follow. Even Toronto’s bureaucrats have been studying a tax of their own for more than a year.

Alas, this is but the tip of the berg.  Just a small reminder Canadians have no legal right to own property, and are therefore powerless to repel political assaults.

Did you notice the new research done by StatsCan? Last week the federal agency breathlessly reported almost 40% of Toronto condos are not owner-occupied. So what? Isn’t this where rental housing now comes from – the loins of investors?

Here was the media/political spin:

The new statistics offer further evidence that people now view housing as an investment, and not necessarily as a place to live, said Andy Yan, of Simon Fraser University in Vancouver. Yan said the data shows that housing prices have “decoupled” from income, and are instead driven by access to capital – giving investors a clear advantage over average Canadians. “It’s not about supply or demand any more,” said Yan. “It’s: who are we building for?” In Toronto, Canada’s most populous city, investor-owned properties are contributing to rising condo prices and a crunch on affordable rental housing.

Guess where that’s headed? Just wait for the next gen of rental legislation or suite of taxes on real estate wealth designed to ‘curb speculation’ and penalize those risking their capital to provide tenant accommodation while reaping a return. Now that moisters are the largest voting bloc – and they want what the wrinklies have – it’s war.

Yes, evil rentiers, there are better places for your money. They’re coming for you.

The dog days of summer continue on this canine-addled blog as we throw over space to the woeful captives in the comments section. One mere mention of this offer resulted in a torrent of submissions. So for a few more days yet you’ll have to endure each other, and not just me.

Here’s Nick, from London. To make up for being a crappy poet, he has two dogs – Olli, whose 10, and three-year-old Guinness.

  Lurker here for years, but it’s time I buck up,
And write you a post, after a diligent suck up.
Garth you’re a wizard who owns this perfectly pathetic blog
Providing helpful, amazing, and much needed dialogue
From loans and laws to golden labs,
Flawless advice and hard chiseled abs.
We all deserve you as much as we deserve dogs.

The Good

I live in London with my now wife, we met in 2011,
She is now thirty four and I’m thirty seven.
We had years to learn to save but also have fun,
Now three months ago we had our first son.
$70k mortgage today on my $100k house – in ‘08,
Today worth $400k as things now wildly inflate.
$20k savings, $130k RSP, and $120k TFSA,
Together combined we make 200 K.
We own a ’18 Toyota SUV before I forget,
It’s fully paid and I’ll add, there is no other debt.
Took a while but we are finally hitting peak career,
2018 we were able to save $65 thou for the year.
We are happy, cheap living, no doubt we’ve been in a groove,
But this busy neighborhood sucks and it’s past time to move.

The Bad

Despite all our sacrifice, scrimping, hard work and slaving,
We feel no further ahead than people’s leveraged pile o’ bricks saving.
That’s just how it is.  It’s not unique and not looking for pity.
We are just dying to move and get out of the city.
Ideally we want land, and a bigger house, with more kids to come,
It doesn’t feel like a smart move with what this market’s become.
Debt piled on, then a melt or crash and – Boom, we’d succumb,
Net worth in the shi***er, and we are back to square one.
I’m numb thinking about it, and trying to keep my composure,
I’ve just spent too many years patiently avoiding overexposure.
Now the family clock is ticking, and you say ‘buy if you can afford it’.
Likely we can, we’ve spent many hard years working towards it.

The Rant

Excluded the frills, secluded we stayed,
shooed away bills, staying shrewd everyday.
With all we’ve accrued… brewed, stewed, chewed homemade food.  We’ve done everything right, but still would preclude the future we knew we wanted pursued.  Actions correct, but wrong attitude.  Should have been wooed by wood particles glued.  Viewed debt as free cash till the accounts came unglued.  Why stay subdued?   Buy every house that you viewed!  Up your owing each time your mortgage renewed.  Go get your self a ‘Debt rocks!’ tattooed in the nude (if you’re in the mood).
Upon further review, I don’t want to sound crude.  Steerage will boo and I’ll be misconstrued.  Yea, lately savers have been screwed, but I guess that’s not new.  Before I conclude, I’ll throw it to you comment crew.  Don’t be rude but, please tell us, what would you do?
– Risk being skinned, throw caution to wind?
– Wait for the crash, buy with cash?

And finally for today, here’s Alastair, a digital Millennial and crypto maniac.  This guy has even mutated his pooch…

  With the Greater Fool having an Open Mic night, I thought I’d discuss millennials’ favourite topic after house porn and questioning Garth’s wisdom: Bitcoin. Coincidentally, it’s Garth’s least favourite topic after house porn and having his wisdom questioned.

I’d like to explain first what Bitcoin is and then why it has value.

Simply put, Bitcoin is digital cash. It’s the equivalent of directly handing someone a $20 bill online (goodbye Paypal and Visa). It’s secured by cryptography (fancy math) so you know that unlike other digital goods (ahem MP3s) it can’t be copied and double-spent (which was an ancient internet nerd problem). And it’s decentralized so no government or corporation can stop Bitcoin transactions from occurring.

So where’s the value? Because of scarcity (cap of 21 million) Bitcoin can act as a hedge against hyperinflation (if you don’t think that can happen, book a trip to Venezuela). You can send any amount of money to anywhere in the world in minutes without an intermediary taking a cut (no huge fees or waiting five days for the wire order). It can’t be easily seized by governments, allowing financial freedom to those living under oppressive regimes (book another trip to Hong Kong) and it allows billions of unbanked individuals (the world’s poorest) to enter the global marketplace.

And I’m not the only one seeing Bitcoin as a valuable part of— dare I further antagonize Garth?— a balanced portfolio. Big names such as Fidelity are beginning to offer insured Bitcoin custodian services, paving the way for institutional investors to seamlessly purchase Bitcoin. In the coming years you’ll even be able to buy Bitcoin as easily as an ETF.

So what will the price be? No idea. I’ll leave that guesswork to analysts with pointier heads than my own. All I know is that tomorrow the price will be greater than zero (because Bitcoin has value).

Was it a bubble? Absolutely and probably will be again. Trading occurs in an unadulterated free market so when FOMO hits, it hits like a Garth insult: hard.

Can it be stolen? Yes, if you keep your Bitcoin on an exchange then you’re trusting that exchange (bad idea) – but nobody has ever been able to hack a Bitcoin address (see that fancy math stuff).

I could go on forever about Bitcoin but I see Garth holding the Wrap it Up sign so I’ll finish by saying Bitcoin isn’t perfect. There are challenges such as scalability (number of transactions every ten minutes), debate about whether it’s a store of value or a currency (or something else altogether), and usability for non-technical users (think about dial-up internet vs the ease in which you connect today). But from all the available evidence, Bitcoin looks to be here to stay .

Keep calm and Bitcoin on.

Mic drop.

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July 8th, 2019

Posted In: The Greater Fool

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