Sunday, April 24, 2011

CMHC and the Calgary Herald - a new low

Regular readers know that IMVHO Canwest has helped to destroy most of the integrity of Canadian Journalism, now that new owners are in charge of the till, I had hoped for better things.

Well what do you all make of this?

It sure reads like an ad for the CMHC. Yet there is no mention of it being an advertisement. At the bottom it says copyright Calgary Herald.

In fact I am sure it is an ad, even if it is disguised to look like an article (a very poor fawning one at that), by the Canwest organ.

An ad makes the sin even worst. Not content with placing you, the tax-payers at risk, not content with helping inflate the property bubble to the detriment of the younger generation, the CMHC is now spending your money telling you how smart and great they are.

Disgraceful - is the only word that comes to mind.

Tuesday, April 12, 2011

The bank of Canada sits pat

No change form 1%

Even Europe which contains some of the most bankrupt countries in the western world, moved up to 1.25%.

Meanwhile the B of C says that we are near their target of 2% inflation. How we can be at 2% when housing, food and gas are up several multiples of that is beyond me. How the three biggest costs inputs can be up 5-10% and yet the over-all number be 2%?

Even if assume their 2% is even near the mark- which I doubt. That means that this recovery is being taken out of the hides of conservative investors.

You would have to get a 4 year GIC at ING (which pays some of the best rates) to make sure that your after tax return matches inflation. And that doesn't even allow your money to grow, just keep up.

However would you really want to lock your money up for 4 years? It depends if you think the B of C can hold the rate at 2% or if they will lose control and we could be at 4-5% in a couple of years.

And Marc Carney, with a straight face, lectures us about borrowing less and saving more.

Sunday, April 3, 2011

Now is the time to speak up...

There are few times when our potential political representatives are interested in our opinions. This is one of those times. From what I have read of the major parties plans so far, affordable housing is not at the top, or anywhere near the top of - the 'big issues.'

It is up to us to move it up there.

Remember what we want is NOT to crash the housing bubble. We just want sanity. We want a situation where people do not have to go into precariously high levels of debt to afford to buy. We want the government to level the playing field, and pay as much attention to us potential future buyers as the Real Estate lobby groups.

The crash of housing brought the US to the verge of depression. Policy-makers saw this bubble unfold before their eyes and did nothing about it. Let us not go down exactly the same path.

Here in my very humble opinion are some ideas which (if not too late already) could at least help stabilise housing going forward:

1) Changing the Taxation of housing 'flips' from Capital gains to fully taxed as income.

The lower Capital gains tax rate, is meant to reward those who risk capital and invest, and in so doing add to the prosperity of society. For example a business owner or a stock market investor. In the first instance, a business owner is adding to employment and taxation. They do have the most tax benefits when they sell, including exemptions. Rightly so

Being a share-holder is a less virtuous form of investing. They provide their capital for companies ( and of course allow insiders to cash out :)) and therefore they only have capital gains tax rates. Again, this is appropriate.

Flipping housing has no virtue at all. A speculator, removes housing stock from the limited supply. This is often kept empty, so that it may retain maximum re-sale value (since the goal of the speculator is short term capital gains and not income from the property). The property is then sold to another speculator or end-user, without adding anything appreciable to the economy. In fact the only possible benefit I can possibly see from this activity is that it supports pre-sales and so gives the developer more comfort in starting projects. However, as we saw, once prices move down (as in 2009) the speculators will find every possible loop-hole to exit the position, leaving the project floundering or in the hands of lenders.

All sales should have to be reported directly to Revenue Canada by one party in the transaction- eg Realtor, lawyer or notary.

2) Canada is not the Real Estate bank of the world.

In my building we have owners from China, Taiwan, the Middle East and Israel, Russia and Germany. Most of them are empty and not rented out. I can only assume they have been purchased for investment or for 'emergencies' since Canada provides stability. Some may argue that they are ideal owners, since they are paying the local taxes and not using services. However this form of absentee ownership makes life more difficult for the rest of us living here and providing this stability.

Firstly, like most countries, we should have some restriction of property ownership to those who live or wish to live in Canada. There are many countries desperate for investment money eg in Central America who will allow non-residents with money to buy any amount of land, other wealthier countries have restrictions is place to try and prevent bubbles. We should be in the second category and not the first.

A city where, for example, 10% of it's prime down-town housing stock is owned by investors from China will not enhance that City 'livability'.

Furthermore there should be higher taxes on suites and homes which are left empty. This is obvious. These properties are mostly down-town or on the Westside or in West Vancouver. The result is that employees, unable to reside near their place of employment put added burden on the subsidized transport systems.

3) Interest rates are at artificially low rates for too long.

As the Governor of the Bank of England and several US Fed members have admitted (and even Mark Carney has alluded to), keeping interest rates below inflation for such a prolonged period is punishing savers and rewarding speculative activity. There is no point for the Bank of Canada or the Finance Minister to extol saving, when they punish the prudent. The ridiculously low rates pushes money into speculation, and it is the cause of the huge wind-fall profits of the banks, who can pay savers a pittance and lend at much higher rates.

Carney says his fear of raising rates is the further rise of the Canadian dollar. However Australia has a rates 4X higher, and is in a similar situation as us- with a commodity boom and massive investment from China and still their dollar has remained in line with ours. So this is a fallacious argument.

4) The CMHC has become the enabler of the housing bubble.

The actions of the CMHC, which the government is finally trying to control, has transferred an unacceptable amount of risk to the tax-payer. The banking industry is strong because we have assumed the riskiest mortgages.

Everyone has a right to housing, No one has a right to own a house. The actions of the CMHC, have in fact, made the first goal less achievable by enabling those who cannot and should not afford to buy, to get into mortgages and help sustain high prices. The same game plan that was followed in the US by Freddie and Fannie Mae to such disastrous consequences.

People say it is different here as we have recourse mortgages instead of the non-recourse in the US. In my opinion, it makes very little difference either way. If someone cannot pay, they cannot pay whatever the fine-print.

5) Renters are tax-payers too.

As the US is now finding out - high ownership levels are not a good thing particularly when the prices are falling and sellers cannot sell. It restricts the ability of people to be mobile and move where the jobs are, because they are tied to the house.

There is no reason why all the benefits and inducements are tied to home-owners. They already get all their gains from their primary residence tax-free, and when the recession came there were the home-owner renovation credits. What about renters, who are tax-payers and often lower income, why are they left out?

Why not allow all moving and associated costs that a renter has to incur when their landlord asks them to leave (usually so they sell or raise rents) to be tax-free?

6) More control is needed of the lending industry.

Canadians are protected from other potentially damaging activities eg anti-smoking ads. How about anti-debt ads??

We have a constant barrage of advertisers from banks, to private lenders extolling consumers to withdraw what little equity they have accumulated in their homes and use it to supplement their income or use it to go on a holiday.

This is exactly the folly that got the US in a mess. We are following them every step of the way, a perfect example of those who ignore history are destined to repeat the same mistakes.

Our per capita consumer debt has now surpassed the US. a fact that should send chills through all candidates spines. Do they really want to be our representatives when this blows up and THEY are held responsible for doing nothing when they could have curtailed it.

OK readers, here are a few of my ideas. I am sure you have more and better ones (please feel free to share them).

At the least lets get this critically important matter on the agenda. If we have a further growth and explosion of this housing bubble- it will affect everything else. We can kiss our over-bloated health budget good bye and we will have to cut all program spending spending just to bail out the CMHC and the banks.

We need to act now. At the least, please print out the list, add your own, and make time to discuss them with your candidates.

AND if any of them dare say that this would be excessive government interference in an industry, tell them that there has been nothing but interference....from the extension of mortgage terms, to increasing the CMHC borrowing and making it's lending rules even more lax, to the mild changes which the Government announced late last year and then gave three months for the industry to have a last push to squeeze even more debt onto consumers backs and onto the tax-payers ledgers.