The Elephant on the Campaign Platform

fig. 1As we all know, BC has one of the biggest housing bubbles in the world. The collapse of the global housing bubble is directly responsible for the economic crisis we now find ouselves in. So we would expect BC’s political parties to spotlight this to demonstrate their grasp of economic issues, right? Wrong. None of the parties uses the phrase “housing bubble”, or even ventures the thought that maybe housing in BC is too expensive and prices have to come down.

At least the Liberals are giving us what we would expect. They have been cheerleading this bubble all along, so why should they stop now? But why the silence from the other parties?

The housing bubble is the greatest scam ever perpetrated on workers by the rich, yet the party of the workers, the NDP, won’t mention it. It’s also the biggest misallocation of resources ever seen in a market economy, yet the party of sustainable development, the Green Party, has nothing to say either.

What do the party platforms (available on their websites) have to say?

NDP platform:

“Pushing the federal government to change federal tax laws to encourage the development of market rental housing …  Encouraging new market rental and co-op housing through the Market Housing Partnership Program in concert with the private, non-profit and cooperative housing sectors.”

Developers build condos rather then purpose-built rentals because condo owners are willing to pay prices out of line with rental value. They cannot be incented to build rental housing unless the government takes the role of the condo specuvestors by supplying cheap capital. This is a subsidy to land owners and developers. It will not affect market rents.

Green Party platform:

“BC Greens will establish a provincial housing program that works with municipalities to build affordable housing or to purchase existing housing that can be moved into permanent rental housing.”

This is a subsidy to existing property owners and developers. If housing is not affordable prices must fall. The housing has to be rented out at market anyway. Purchasing existing stock does not affect rental supply.

“Commit 1% of the total provincial annual budget to solving the housing crisis.”

The “housing crisis” is simply one of inflated prices due to speculation. The government does not have to spend a dime to end speculation.

“Mandate BC Housing Corp to purchase units of market housing within current or stalled projects to provide an expanding pool of permanent below market and market rental housing”

Can you believe this? An outright handout to the developers. These projects will have to be sold anyway, either to owner-occupiers or landlords at prices they are willing to pay.

I am not trying to pick on the Green Party BTW. They have more policy planks on housing than the NDP so there’s more to criticise.

Both the parties are trying to fix a problem that does not exist. There is not a problem with general rental affordability. The problem is with people with special needs who cannot afford the market rent.

To be fair, both parties do advocate programs to assist those with special needs or to allocate public lands for non-market housing. This is a legitimate role for government. Subsidies for market housing are not. They only make it more expensive.

There is one simple, universal measure the government could take to remedy the discrimination against renters built into the property tax system – a refundable renter’s tax credit equivalent to the homeowner’s grant. This would also be largely self-financing, because by requiring renters to document their rent payments on their income tax returns it would put an end to evasion of rental income by landlords.

How can the provincial government put a stop to speculation so that housing prices reflect rental value and no more? Easy. A speculation tax. For any property sold within, say, 5 years of purchase, all capital gains are taxed 100% by the province. Exempt principal residences and purpose-built rentals. Problem solved.

The provincial government could also increase housing supply at no cost, by assessing for taxation unimproved land that has been approved for development by municipalities as though it already had improvements. This would provide an incentive for municipalities to approve land for development and make it economically unfeasible for owners to sit on raw land, and so increase housing supply.

Revenue from these policies could be earmarked for providing housing for those with special needs.

The Liberals simply want to pretend that the current housing bubble, which is already collapsing, is sustainable. The NDP and Green Party both advocate spending money on schemes that would not make housing more affordable. But effective measures to make housing more affordable could actually bring in money to the government.

What’s the better choice?

As to who to vote for May 12, that’s up to you. I must say that distasteful as it may sound, I would prefer to see the Liberals re-elected. I don’t want to see anyone else blamed for the collapse of Gordo’s house of cards. Perhaps after the “golden decade” has been revealed to be fool’s gold all the parties can start getting serious about what kind of sustainable economic future is possible for BC.

Your comments are welcome as always.

-patriotz

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realist
realist
11 years ago

Patriotz,

As usual, your observations are deeply thoughtful and highly knowledgeable. Please keep posting!

Anonymous
Anonymous
11 years ago

When do we ever hear realtors telling people NOT to buy? When do they ever advice buyers to wait because if they buy now, they will lock in a huge debt and with high mortgage rates down the road, their lifestyle will be severely ruined — no dining out, no travel, no Canucks playoff tickets, etc.? The world is in severe recession right now. Jobs are disappearing and no one sees a light at the end of the tunnel. In the meantime, these snake-oil salesmen with their media whores keep saying that it's a good time to buy. They must be trying to lure the newbies (first time home buyers) because the pros are certainly tuning them out. "When first-time buyers stop entering the market it's like sand in the gears of the housing market," says one snake-oil salesman. Translation?… Read more »

Boombust
Boombust
11 years ago

Patriotz,

That is ao similar to the black/white Chipman is capable of.

Anonymous
Anonymous
11 years ago

I like the idea of seeing the Liberals re-elected so no one else is blamed for the collapse of Gordo’s house of cards.

Some of you are articulate and visionary. Most of the candidates of all 3 parties are sad jokes.

RennieWhereRU?
RennieWhereRU?
11 years ago

Heard the morons on CKNW this morning (thought I might get some meaninful feedback on BOC rate cut); my own fault though, havn’t tuned into any Corus station because those info-mercials were driving me nuts. The response of those two clowns to the most simple question asked by that caller ensured I will tune out, hopefully until they go belly up – cant come soon enough and be more deserving.

Van Coffee
Van Coffee
11 years ago

Just to pre-empt your comment, I guess I should have quoted you as "perpetrated on the workers by the rich".

I still disagree with this statement – the "workers" perpetrated this on themselves by participating.

I love how people feel it is necessary to blame someone else for their own lot in life.

We all choose our own destiny in life.

Van Coffee
Van Coffee
11 years ago

“Perpetrated on the poor by the rich”…..

Are you kidding me you dolt.

Normally I am a fan of this blog, but if you think this bubble was anything but perpetrated on morons by morons, then you are surely mistaken.

I know lots of wealthy people renting apartments, and they didn’t perpetrate anything on anybody.

In any event, turning this into some rich vs. poor argument is a joke and you have lost a lot of credibility in my eyes.

realpaul
realpaul
11 years ago

The 'deflation' bugaboo is also being played out in Britian. The British Gov is using the same tired threats and recriminations there as ours is here. Thes bozo's just don't get do they, prices 'inflated because they artificially pumped the sticker prices with cheap payments. There never was any increase in value per se, it's all smoke and mirrors, and now that prices are 'deflating' the government is forecasting lower revenues…boo hoo.

http://www.dailyrecord.co.uk/news/business-news/2

Boombust
Boombust
11 years ago

Yes, indeed. I have been sparring today with a realtor I connected with through Crigslist. His ad included all the usual pluses.

Naturally, I had to set him straight. And, naturally, he got his back up and sent me an "unpleasant" e-mail.

So, I replied…

You know what? These dunces won't get it in a million years.

Soon enough, they'll be whining, "What happened?"

realpaul
realpaul
11 years ago

Anon: #48, it’s sound s like Mr.Levy was trying to cover all his bases by talking out of both sides of his mouth until Big Bill Good kicked him under the table and whispered ” Don’t piss off our only advertisers!!!!”. Levy quickly did an about face and read the party line off a que card held up by the producer. Only an insane person could not read the signals coming out of the real economy ( underlined by the statements of the BOC this AM) and conclude that it was a ‘good time to buy real estate”. No, this is a time to save, not spend….DUH!! This real estate advertisers comedy reminds of an old market joke which goes in part, – a guy is continuing to buy large amounts of shares in a company based on his brokers… Read more »

dingus
dingus
11 years ago

vanbanker:

What I was getting at was whether some future government will eventually cap the 5k a year, realizing that by 2051, a 60 year old will be able to have tax free income on a capital base of $220k (leaving aside compound growth of the base if contributions have been made annually).

Anon
Anon
11 years ago

From another blog: Heard business guy Michael Levy (sp?) on the Bill Good Show (CKNW 980) this morning. I'm quite surprised how much he went on about the doom-and-gloom still to come in our economy and how unemployment is set to go up higher, etc, etc; it looks like even the MSM is not trying to pull the wool over our eyes there anymore. However, even more interesting was when somebody called in and asking Levy, "If you are so negative about the economy, why is your CORUS radio network making public service announcements telling Vancouverites to go out and buy homes??? Wouldn't it be a bad time to buy homes???" That's when Levy starts insisting that its now a "great" time to buy a home in Vancouver because there has supposedly been a lot of lower-market action recently. Oh… Read more »

realpaul
realpaul
11 years ago

The biggest lie in the GOC's AM % policy statement was that 'inflation' was decelerating. Bwhahahahahahah, has anyone gone to the grocery store latley? What about everything else you've had to purchase for immediate consumption. These Bozo's are stuck on this 'selling optimism and confidence' nonsense and in thier grand scheme of maintaining inflation they are choosing to advertise the housing market as an investment as opposed to a millstone in a current economy that obviously wants desperatly to reset itself . I think you might rename the bullshit GOC policy as 'pushing on a string'. " Quote As troubling for the policy makers is an inflation rate that they said Tuesday will crater to an annual rate of negative 0.8 per cent in the third quarter. The Bank of Canada is mandated by law to keep inflation advancing at… Read more »

VanBanker
VanBanker
11 years ago

"dingus Says: April 21st, 2009 at 11:33 am On the fairness issue, at least one thing has happened that mitigates the unfairness of the PRE. My beef over the past few years was that homeowners got their windfall tax free, whils the rent n save crowd paid income tax on their meager earnings. Obviously creating the incentive to buy as much house you can possibly afford, and eschew saving. The TFSA goes a long way to rebalancing that, presuming the annual limit of $5000 remains cumulative on into the future." The $5000 limit is cumulative indefinitely, so if you invested $5000 in 2009 and it was worth $20,000 in 2010 and you pulled it out, you could still re-invest up to $25,000 tax-fee in 2010 ($20,000 you removed plus $5,000 additional for the year). This is great, I think they… Read more »

Anonymous
Anonymous
11 years ago

#40

Good thing you've been here to stop the decline of prices Dave.

Hopefully you can be as correct going forward as you have been since you started posting here.

dingus
dingus
11 years ago

I agree with patriotz' general approach. That is, there governments shouldn't be directly intervening in particular markets, thought there are things they can do to adjust the incentive structure that would prevent things from getting out of hand, as well as things to increase fairness for owners vs. renters. My thought on taxation of principal residences was to cap the principal residence exemption at, say, CPI + 2% per year. So that short term windfalls are taxed, but there probably wouldn't be a huge hit for the long term owner. patriotz (or it may have been someone else) has commented on this idea previously, and raised the problem of deducting for mortgage interest. If it's a cap, not full capital gains, maybe this is less of an issue. The other point was around how to treat capital improvements to the… Read more »

pricedoutfornow
pricedoutfornow
11 years ago

"Bank of Canada slashes interest rate to 0.25% Central bank says recession will be deeper and last longer than thought" REALLY…..who would have thought??? And just a few months ago those in charge were saying "Canada will not have a recession" They keep talking about "stimulating the economy" but what people don't seem to realize that by consistently lowering interest rates for the past 5 years, they already HAVE been "stimulating the economy" for at least five years! So you've got to think hmmm…what's so wrong with the economy for the past 5 years or more that they've had to keep on stimulating the economy? There must be something seriously wrong the economy for them to have to do that for such a long period of time. And it's not working anymore, we can't take out any more debt than… Read more »

observer
observer
11 years ago

http://business.theglobeandmail.com/servlet/story

Bank of Canada slashes interest rate to 0.25%

Central bank says recession will be deeper and last longer than thought

Dave
11 years ago

patriotz:

I agree that there is an oversight problem, but I don't think STV is the solution. That will only encourage more pork barrel policies.

I think we would be better served by doubling or tripling the size of the Auditor General's office.

Anonymous
Anonymous
11 years ago

Hoho it takes you kids that long to figure it huh!

When the foreign developers all congregated here since 7-8 years ago, you should have smelled rat. Why on earth would they come here when they made good money back home and easy with 10-20% slipped under the table.

Read "The Ascent of Money"

Dr Topper
Dr Topper
11 years ago

You're nuts if you think that all manner of fringe parties in the legislature are somehow going to make things better. Have you taken a look at Italy lately? (http://en.wikipedia.org/wiki/List_of_political_parties_in_Italy ); nut-job parties have really done a lot for the stability of their political systems? Good God! STV is the worst possible political system ever invented! The best system is the run-off where the losers drop off the list and re-votes are held until a clear winner (more than 50% of the popular vote) is decided! This is in contrast to the Canadian System where all the parties generally suck and voters inevitably end up voting against a particular party rather than for a particular party. Politicians are warm to STV as it allows for an ever expanding pork barrel. In the end, it doesn’t matter; house prices will drop… Read more »

RennieWhereRU?
RennieWhereRU?
11 years ago

We need to fund the abolition of payroll, PTT, GST and at least halve income taxes by flattening and increasing Land Taxes. Due to the nature of land values capturing any new benefits to society (a cool cafe or factory), all reforms are discounted by the potential that is locked up in higher rents. Its time for pissing in the wind policies to end.

/dev/null
/dev/null
11 years ago

Great insight as always, patriotz. Jesse (#3) – I think many would be surprised at how curious CRA is of rather small bits of undeclared income. I've heard that our slimey PM's home reno tax credit is of interest to them. Making sure that the claim you make for your new deck is being declared by the guy who built it. Perhaps not the the stimulation Steve-o had in mind…