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January 24, 2020 | I’m 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.

In the course of healing the nation this week, a certain pathetic blog made some recommendations about our house lust. For example, there would be less of it, and far more attractive, affordable, long-term rental units, if we stopped giving people a 100% tax break on real estate profits.

This is the reason why, today, I’m announcing I will not run for leader of the Conservative party. I’m unelectable. Dead meat.

Actually there are lots of reasons. Is the nation ready for a political leader who uses words like ‘moister’ and ‘horny’? I think not. Or who would rather have a dog than a kid? And admit it? That’s just weird. Or who’d parade his chiselled abs and washboard physique at media briefings? Off-putting, to say the least. Besides, I‘ve already been thrown out of the party once for being a bad robot, trying to create digital democracy and bringing average deplorables into the political process. Nobody in Ottawa wants that. And I’m, like, ancient. I remember when Kevin O’Leary had hair. When Justin Trudeau was born. When phones had wires. When conservatives were compassionate. This is the age of the new, new thing. That’s ain’t me.

So, liberated from having to be nice to anyone, let me get back to this week’s big topic: why we’re pooched.

Real estate is killing us. It’s been the case since this blog started. This week The Economist came to the same conclusion. By sucking most of the net worth of most people into a single asset in one city, on one street and using 20x leverage to get it, housing has caused households to become unbalanced and undiversified in their financial lives. We’ve ended up with historic levels of debt, at rates which will only rise in future. We’ve eschewed savings and investments for particleboard and glue. Moreover, we’ve grossly inflated the price of real estate and infected the kids with property desire, leading the next gen into an even worse pickle. Shame on policymakers. You have failed us.

There’s no way out now, it seems. Nobody’s going to vote for an iconoclast with facial hair, cowboy boots, a used bank and a Chow dog who says we must cure this affliction. It seems everyone wants to feed it. Even the Ploz.

This week outgoing Bank of Canada governor Stephen Poloz gave an end-of-career interview in which he mused how people in this nation might deal with the fact average families can no longer afford average homes. The solution, he says, is to share equity. To allow third-party investors to own a piece of people’s homes.

The Poloz idea: a family buys a portion of a house (maybe 50%), but occupies it fully. They pay a mortgage for half the value. The rest of the property is owned and financed by a speculator who receives a fee from the family, plus half the profits when it’s sold. The benefit to the family is living in a place they could never otherwise afford. The benefit to the investor is money. Profit.

“That’s complicated but that’s a solution to the affordability issue,” Poloz said in a media interview. “I’m thinking of it that way because it kind of gives me a clue of the sorts of things we could try to do to at least begin to address the affordability problem. We will not address it by wishing it away, or somehow building more houses.”

Alas, this is why we’re in such trouble. Our leaders have helped turn houses into investable assets and done all they can to increase demand – with first-time buyer credits, cheap mortgage rates, CMHC insurance allowing 5% down, the RRSP home buyer’s plan, tax-free capital gains, property tax deferrals and now the shared-equity mortgage. The Bank of Canada boss’s fix is appalling – increasing the demand for houses by pushing the agenda that they’re tradeable assets, not homes. A market in residential equity would soon result.

Nah, we need some bold thinking and leaders willing to hold back the tide. The reason Ottawa is giving families $22 billion a year in child support payments, has removed 40% of them from the tax rolls and if therefore facing a sea of deficits and future taxes is directly related to the cost of housing. Real estate is killing us. An indebted nation needs this lifeline to survive. And it’s an anchor on all.

So, Mr. Poloz, just retire. And put a cork in it. We’re done here.

The two reasons your daughter can’t afford a house? Interest rates kept too low for too long, inflating asset values and permanently indebting the middle class. Plus, a tax regime that fuels real estate speculation. By making house prices free we’ve encouraged a massive over-investment in a single asset class by citizens who now see it as their only hope and salvation.

Of course, you can never turn off a tap once it’s on. Every single benefit people receive from government becomes an entitlement. This is why we’re pooched. Leaders no longer lead. They sniff the wind and follow.

Right over the cliff.

Hence today’s bitter, shocking announcement. It’s a game I cannot play. Stephen Harper wanted zero down payments and 40-year mortgages. I fought. I lost. His boot print is still on my butt. At least I was right.


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January 24th, 2020

Posted In: The Greater Fool

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