Canada, CMHC, debt, economy, opinion, prices

Should incentives go to the supply or demand side?

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91 Comments

The Canadian Mortgage and Housing Corporation (CMHC) is Canadas national housing agency.

The front page of their website says this:

Backed by more than 65 years of experience, we work with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges, anticipate tomorrow’s needs, and improve the quality of life for all Canadians.

This is a bit vague, but let’s assume ‘today’s housing challenges’ includes the availability of affordable housing for all Canadians.

With this goal in mind there are two ways you could use government money to create incentives for housing: The supply side or the demand side.

CMHC works on both sides, but over the years they’ve shifted the bulk of their support to the demand side.  This means that instead of directly funding the construction of housing or providing incentives to builders, they provide support to the buyer mainly in the form of mortgage insurance for risky loans.  Of course this support is actually provided to banks to make their loans risk free, but the end result is that more people are able to pay a higher price for housing due to more availability of credit.

In concert with record low interest rates and a speculative mania this has driven housing prices to record highs in Vancouver and inflated prices across the country leading to talk of a national Canadian housing bubble similar to that seen in the US.

If we really want to use government to assist in the creation of affordable housing shouldn’t we be providing incentives to the supply side instead?  It shouldn’t be a stretch to understand that building more housing and providing less credit to home buyers would drive prices down making homes MORE affordable.

But nobody really wants to drive prices down do they?  So instead we get vague statements about housing challenges and smoke and mirrors attempts to improve ‘affordability’ by providing ever cheaper credit.

That hasn’t worked in any housing bubble yet, but hey! Maybe it’s different here!

 

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realist

@ deanbc

@ HAM Solo

Veblen’s observations on the relationship of real estate, the financial sector, and taxpayers are even more true today than in his own time (b 1857-d 1929). The expansion of government spending as a percentage of GDP has enabled larger and entirely new diversions of taxpayers’ money to the financial sector’s coffers. The sordid history of the public-private partnership over the last 25 years is an example of same, and well-documented in its British incarnation in the journal “Private Eye”. Indeed, Western governments can reasonably be viewed as functioning as an enlarging conduit of wealth transfer from taxpayers to financial/corporate interests, long before 2008 and more so since. Conservative interests are in fact the biggest beneficiaries of this arrangement, although one would never guess that from their rhetoric.

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deanbc

@HAM Solo: Very interesting account of your meeting. I work for an organization that would love to get evidence of investors saying their business model is charging the government $80/MW for something that costs them $30/MW to supply. Don’t suppose you could help me out? If so I’ll give you my email.

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deanbc

Actually one of the biggest things in the way of more affordable housing is the tax favoritism given to capital gains. If you build an apartment building and charge rent, you have to pay normal income tax on that rental income. But if you build condos and sell them, you earn capital gains and get a 50% discount. Also, the housing bubble has contributed to this. Housing sales are not just priced on their fundamental use value or rental value, but are priced expecting future price appreciation. You can’t reap the bubble-inflated price if you’re just expecting to use it for rent. The loose monetary policy and the insurance guarantee given by the CMHC helps bid up the bubble value. If CMHC continues to exist, they should really lower the criteria: for instance they should only insure the value up… Read more »

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deanbc

“Should incentives got to the supply or demand side?” It doesn’t matter which side, subsidies will end up benefitting the landowner, or the supply side. Economic theory will tell you that land is inelastic or in fixed supply – after all, they aren’t building any more of it and there is a limited amount of land within a given area. Economically, inelastic goods are different from consumer goods like iPads or whatever. In a competitive real estate market, people will pay what they can afford to live where they want. Subsidies to buyers will just bid up the market, while subsidies to sellers will just be pocketed and they’ll continue to charge whatever the market will bear. This was all dealt with by the classical economists like Adam Smith, David Ricardo, Henry George and more, and more recently by the… Read more »

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patriotz

@BLISTINGAGENT:
“the Conservatives are doing the correct thing at this point in time.”

But amortisations were always 25 years before the Cons took office. So by this standard they are the only ones who have done the wrong thing.

When Flaherty announced earlier this year that we would be going back to 25 year amortisations, Bob Rae noted in the House of Commons that this was a return to what existed in 2006 and suggested that indicated that the Cons’ lengthening of amortisations had been wrong. Flaherty replied that CMHC standards had to be adjusted to the needs of the day.

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Anonymous

@Anonymous:

Haha, so that’s what it means to “Live the Legend” in Vancouver.

Living in a badly designed overpriced condo watching the Cambie bridge traffic from the kitchen=living-room-den combo.

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Oh Oh

Question..

Anyone know if 4596 Windsor Street sold? If so for how much?

Cheers

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More Data Please

@Beuller: Idiot sons of foreign dictators.

When I wrote about the 22 year old uninsured West Vancouver Lamborghini driver who thought it was normal to negotiate fines with police, I had no idea that it would strike such a cord.

If you are concerned that people like this might be the new owner/managers of major Canadian firms please take a moment to read and sign the online petition to stop the China Canada investment agreement:

http://www.leadnow.ca/canada-not-for-sale

This agreement becomes binding on Canada in less than one week and there will NOT be a Parliamentary debate about it if you don’t make your voice heard now.

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Anonymous

@More Data Please: he is a cheena man

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Beuller

@More Data Please: All that is wrong with BC summed up in one news article. Sieze the car,sell it and use the proceeds to deport the idiot and his family.

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IamTheChimpman

If you bears weren’t such PUSSIES you’d be out there buying into the greatest real estate bull market in history.

What, exactly, are you losers waiting for?

You’ll never buy, priced out forever!!!!

I told you lumbering buffoons many times that the only true path to riches is buying into Vancouver’s housing bull market. I bet you regret not following my advice to great riches.

Chimpman

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IamTheChimpman

Jay, chill out, of course prices are rising – Aaron thinks so too!!!

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jay

This property was sold this month (after a year?), so Vancouver average sold price will increase:

5687 Chancellor Blvd (MLS:V970960)
Asking price: $7,898,000

http://m.century21.ca/Property/BC/V6T_1E4/Vancouver/CHANCELLOR_Blvd/5687

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Anonymous

That is a BAD kitchen design. There should be counter space on both sides of a sink. I’m not sure I would like the dishwasher being right next to the stove either.

Note the ad says “no smokers please”. Most ads just say “non-smoking” like if you smoke, you better go outside to do it. In this case, they don’t even want a smoker who smokes outside!

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Gustav

@paulb:

It would be cool to hit 19K before the end of month just for the fun sake.

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More Data Please

Uninsured West Vancouver $430K Lamborghini seized after owner couldn’t or wouldn’t pay $568 fine! He said it was “too much”. Did he really think he could negotiate the price down?

http://www.cbc.ca/news/canada/british-columbia/story/2012/10/24/bc-lamborghini-insurance.html

Financing charges must be hitting pretty hard now if he can afford $430K for the car but has no money for insurance and fines. What happens when the car runs out of gas?

What is the background of a 22 year old living in West Vancouver thinks that his vehicle doesn’t need insurance and that he can negotiate lower fines with police? Is that how it worked in the old country?

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G

Is it just me, but I see Mike Stewart’s ads so often. It’s on here, youtube, google, and etc.

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vangrl

“Oh yea, have fun using that sink to wash your pots and pans right up against the fridge wall…does anybody think about function anymore? ”

ugh, SUPER bad layout in kitchen, living room and bedroom. That sink placement is ridic. Bad angles for bed, couch, no wall for t.v….crap i’d be mad if i bought that sight unseen, no wonder they’re renting it out

http://vancouver.en.craigslist.ca/van/apa/3358380790.html

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mikeinseattle

Nice to see sales figures back to 70’s. Yesterday was a bit of a scare. Yesterdays sales figures was the highest in the last several months. My take: Quality of listings is crap. Product on the market is very weak. On west side, there are still some new home transactions happening in the 4.5 million dollar level on a 66×120 lot size. This in turn is putting pressure on the lot value keeping lot values at 2.7-3.0 million level. Still leaves about a half million dollar profit for the builder for a years work. Westside is going to go down kicking and screaming. Almost every lot has some sort of defect. Any softening on the westside will be in the south granville area between oak and granville, and between 57th avenue and 41st avenue. I agree the market is going… Read more »

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paulb

New Listings 168
Price Changes 142
Sold Listings 71
TI:18911

http://www.paulboenisch.com

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BLISTINGAGENT

I would agree that no one should vote for the Conservatives because they were in power when CMHC excesses were at their worst.

The problem for us bears is that no party has any record of opposing the CMHC, and the Conservatives are doing the correct thing at this point in time. Since doing the right thing is going to hurt some people (and regions, industries, etc.) I think it is only a matter of time before an opportunistic opposition starts to take the wrong side on the CMHC debate.

I predict I will have to spoil my ballot in 2015.

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kenny

patriotz: “What you or I or anyone else think the Liberals would have done is completely irrelevant.”

it is not irrelevant. if Liberals would do the same then we would know that we live in corporate/bankster kleptocracy.

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Anonymous

@ mclovin

Don’t get them upset.

http://www.youtube.com/watch?v=VWAIjYs9Lws

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HAM Solo

A little off topic here, but the government guarantee fiasco/gravytrain is not only limited to the housing market. Just came out of a meeting with the manager of an “Infrastructure Fund” that invests in “P3” and other “infrastructure” projects. Turns out that the projects in question include selling $30/MW hour power to government electric utilities for 20 years at a contract price of $80 … or funding the building of white elephant bridges like the Golden Ears where the private operators’ revenue is guaranteed by the government (guess what, the revenue projections, originally supplied by the private developers, were over-optimistic and the government has to subsidize the developers to the tune of $30M per year). “Guaranteed by the government” costs nothing to put in writing at the time, but costs billions to the poor shleps who pay taxes. And, importantly,… Read more »

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Best Time to Sell in 30 Years

Tsur don’t know dick

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