I live in Toronto as well, and did penny pinch from the time I graduated (2016) to buy to buy my 1st condo here in 2020. I keep hearing statements like these, but if we're being honest unless this was an investment property, a 2nd home or you were moving away to a different city altogether, money is only made on paper. While the condo price has gone up, so has the prices of all the other houses. If you were to sell your condo to realize your gains, the next property you buy has gone up proportionally as well.
Which is what makes complaints that it somehow doesn't benefit homeowners all the more outrageous: saying that "sure I'm on the other side of this wall, but I can only use my wealth to stay in this side of the wall" minimizes an absolutely huge unfair advantage you have over people unlucky enough to be born after you or not have wealthy parents.
Write your own story. Find a city with home prices similiar to Toronto 40 years buy and wait. Toronto 40 years ago was very different from the city you know. You had farm land, military bases, going to Yorkdale by bus was two bus tickets. Toronto has grown the people who bet on Toronto were rewarded. It could have went the other way if Quebec didn't almost leave Canada which moved invest from Montreal to Toronto. The Toronto stock exchange at the time was mainly mining financing.
And yeah, it was "easier" yesterday than today, given today's knowledge of the winners. Today is easier than tomorrow, if you know tomorrow's winners.
The internet / pop-culture narrative of "everything is against me, I'm too late, and there's nothing I can do about it" is actually great for people that want to go out and do something about it. The competition is sitting around bitching on Reddit.
I was generally taught to buy only what one needs and can maintain, and work for wealth. Maybe naive, but the rent seeking and praise of extractive wealth is noxious the more I learn to recognize it.
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
You don't need to buy tech stocks to avoid becoming homeless. You do need to rent/own at least one home though.
Speculation on land value is non-productive, whereas capitalization of productive economic firms is precisely the definition of economic productivity.
Real estate gains, when they are not from development, are all rentierism, the enemy of economists of all sorts.
The idea that you could build out in a field ignores the true value and the true finiteness of land, the geography of agglomerations of skill and people.
British Columbia looks big on a map, turn on the topographic layer and oops it's all mountain. No wonder everyone lives in a handful of tiny valleys. And oops we flooded tons of the valleys for hydro power too, further driving down the actual available prime land one can live on.
If no one lives in a place there's usually a good reason.
The situation seems the opposite, the NYC/SF/LA/London/etc are entrenched.
https://www.businessinsider.com/dubai-in-1990-is-totally-unr...
Also, while Dubai is flashy, I wouldn’t really consider it a first tier city in terms of actual living. The urban planning is not human scale at all and they just defaulted to highways and skyscrapers.
But I think he means western examples. San Diego maybe?
Land is not fungible, you can't exchance an acre of downtown Vancouver for an acre in a rural area. Nobody would ever confuse the two when it comes to economics!
Land value is all about access, about who is near by, about what natural resources are near by. When real estate prices go up without construction, land value is increasing.
In the US, restrictive zoning limits workers from moving into predictive areas and being able to use their labor for more predictive ends. This has been a tremendous drag on our GDP, while simultaneously concentrating wealth into the unproductive hands of landowners.
The first paper to point this out made big errors, leading to an underestimate of this effect:
https://www.econlib.org/a-correction-on-housing-regulation/
This is the difference between gains from land use and gains from the stock market: one reduces overall wealth and concentrates wealth to those with the most; stock market investing does the opposite.
I am in no way saying that burdensome regulation has artificially limited the growth of existing metro areas and caused a bubble driven by artificial scarcity but the idea that there's nowhere to invest in at the ground floor where it's cheap is absurd. This happens in cities on a smaller scale already. The nice areas are too expensive so young artsy people move where its cheap, make it better, and then it becomes a good area -- repeat.
If you invested in the development of say, Akron Ohio with the goal of tipping the scales and starting flywheel of metropolitan growth and your bet pays off not only will you be filthy filthy rich but you'll create brand new economic activity and real growth. Of course fighting over the same 100 sq miles is a zero sum game.
As an individual laborer your choices are obviously limited to where you can find work but as an investor the sky is the limit.
SF billionaires seem to be thinking along the same lines. If it worked for Las Vegas, perhaps they can make it work for a brand new SF-adjacent town.
[1] https://www.nytimes.com/2023/08/25/business/land-purchases-s...
Do you see why?
This is where you go wrong.
Unlike posters defending real estate "investment," I'll criticize you from the opposite end: capital markets are a disguised form of the same old rentierism.
Watch out, lest you become a Clevinger.
Sort of how the Weimar hyperinflation in the 1920s (which exacerbated the feeling that things are unfair) set the stage for the rise of Hitler in the 30s.
If taken to the extreme, it leads to the collapse of law&order.
It’s also why feudal systems were inherently unstable and suffered many uprisings.
Same as stock market investing - you can say that the profits are due to smart investing, but you can't ignore all of the centralized decision makers that put their thumb on the scale (i.e. 2008 bailouts?), which preference specific outcomes. In fact, this intervention makes the resulting disparate outcomes worse than random in the eyes of many people (i.e. people are more willing to accept the winner of a random lottery than a lottery that they believe was rigged).
Second, that's my point, unless it's an investment property or if you're selling and leaving the city altogether, you haven't actually earned $75,000/year.
Yes, every other homeowner is sitting on the same gains, so relative to them, it feels like nothing has changed. But relative to the non-owners, you have been given a free handout of wealth. Which you are « consuming » by staying in the same house you were in before.
If the rent has gone up, then your house you live in is now producing 2600 dollars of value per month rather than 1700 (even though it feels like nothing has changed to you)
Yes, you have. You can take loans against your property value, for example. But even if you sell and put the money right back into another inflated asset, you still actually earned it.
The wealth is quite real - it just doesn’t feel that way since the experience of it doesn’t change
Take two people X and Y, both have $500k in the bank. X buys a house with it, Y sticks to renting. A few years later, they want to move to another place with the same costs. X's house now sells for $1M and he is able to buy a new place for the same money, thus his new house effectively only cost him the $500k he had spent years ago. Y, having not bought a house previously, now has to pay $1M, which he does not have.
Seems like the biggest affordability gains has come from people moving entire provinces. There's been a huge exodus out of Ontario and into the relatively more affordable Alberta and Nova Scotia.
In general prices of homes in the few medium and small towns in desireable provinces like Ontario and BC have also exploded upwards, so while sure in absolute terms there are "more affordable" homes in other smaller towns, the gap isn't quite so big as one would think. The very low supply of homes in smaller towns have also kept their prices lofty.
IMO Canada in comparison to the USA seems to not have nearly as many medium and smaller cities one could downshift to.
In many parts of Canada it very quickly becomes remote and rural. Outside of the Vancouver there are a handful of small towner but quickly you'll find "towns" so small that the only store in "town" is the combination gas station/liquorstore.
The problem here is 1) low supply of homes 2) few if any services.
How do you afford something that high? Were you coming into this with a trust fund or are you one of those 300k+ per year engineers? I make 130k and feel my 220k mortgage (7.5% interest sadly) is scary.
Every time I watch one of those House Hunter type shows in Canada or just look at the home prices in my old home in Charleston I’m boggled by purchases.
But we're a double STEM couple with no kids (at the time). We're also the most boring people you'll ever meet, so our expenses are low.
We saved up a 20% down payment after a few years together. And interest rates were 2.5% at the time, so the payments were manageable.
The long and short is "make lots of money and live like you don't".
(That said, a year ago I was a 300+ developer, which is part of how we paid off the rest of the mortgage in 7 years.)
There's the typical Amazon, Google, Uber who pay decently (though Google is only in Waterloo and no remote). Shopify was paying well because they wanted to grow quickly and outbid on top talent elsewhere, but that blew up in their face (I was in the 20% laid off in May).
2 years ago Instacart offered me a ridiculous total comp for remote Canada, but it was mostly paper money- pre-IPO stock that will be worth something, someday, maybe.
Your family wealth didn't increase by 72,000 CAD/year it increased by 135,000 CAD/year
but I see, you paid it off. you didn't have to, the option was to just make the minimum payments and sell, could have used your big income for other things but now I'm just reminded why its not interesting to listen to boring (your words) mortgage holders.
Another simple answer is to have renters. It's not glamorous, it means people are in your space, but when it's necessary, it's necessary.
Let me know what happens to prices when everyone has to pay 8% soon.
Without legislation dissuading this behavior, home ownership will continue to be increasingly difficult for working people.
Could you be more specific, in what ways does one homeowner have more votes than one renter? Or if there are special elections where only homeowners can vote, could you give some citations to those?
AFAIK everyone gets one vote, regardless of home ownership status. Am I wrong?
Probably because non-homeowners are busy working 60+ hours a week to pay the rent seeking homeowners
In contrast the poorest working class people (renters) that are struggling just to survive, are more likely to be so busy working multiple jobs, commuting etc, that they literally do not have the time to vote in an election.
Additionally because of this, the two parties that have traditionally formed government, rarely even acknowledge the issues of the working poor, which means that the working poor are even more dissuaded from participating in the process, because regardless of who wins they can be assured that neither party is interested in policy change that would help them.
In reality the vast majority of homeowners are regular working professionals, working those 50-70 hour weeks to pay the mortgage.
I mean, the US isn’t as bad as Canada (as the article states), and this is already the case here. Most young people who manage to buy a house either get substantial help from parents, or buy in the middle of nowhere because they are able to capitalize on having a WFH job. Everyone else is stuck renting, at least until their parents die (if they have homeowner parents that is).
This is a pattern we also see in Europe. Homeowners, largely older, get richer and richer by just standing still, while at the same time controlling politics so that fiscal policy supports this and new construction is made expensive by regulations.
It surprises me that Canada, with a relatively younger population, has similar issues.
Taxes on unearned income (i.e. income from simply owning something) have eased over time relative to taxes on earned income (i.e. income from actual productive activity).
Those that argue against wealth taxes on the basis that they discourage hard work and productive activity are often hypocrites in my opinion. They are usually more interested in maintaining a system that has a tendency towards concentration of wealth instead of promoting a system that encourages positive contribution to overall wealth (i.e. societal progress).
Property markets are a glaring example of this.
Over what time period? Canada didn't even have capital gains taxes pre 1972.
Family wealth going up is somewhat written in fake money. Especially if you’re paying a mortgage with a rate that might renew at double.
Toronto is still super desirable but I think there’s real risk, versus it being a guaranteed good investment the way the boomer generation has been hammering into us about real estate. Can you imagine buying a home at $900k, only for it to fall 33% in value and your mortgage interest payments double?
We're considering moving to London (ON) to be near family and friends, since we're both remote workers anyway. Interesting to hear the prices down there are falling.
If you aren’t raising a family you’ll find Woodstock to be devoid of stuff to do for adults unless you hate people.
A lot of good programs, especially at the library. There’s a great robotics program at the highschool level. Lots of sports leagues… it’s kinda wild how many quality ball parks there are here (with fences and clay infields and lighting). Good hockey arena. Good curling program for adults and kids.
Both my partner and I volunteer at schools and they’re generally great. Filled with teachers who care quite a lot.
It feels like what Waterloo was when I grew up there in the 90s. I love seeing roving bands of kids on bikes without parents in tow.
Of course a lot of it is subjective. Everyone has to make their own decisions.
And therein lies the rub. The 401 and 403 (heck, even the QEW and most other major highways) were (and still are!) so congested that it was a deciding factor to moving away from Toronto.
The only other place that reminded me of my days in sitting endlessly in stop-and-go traffic on major highways in Toronto was LA, which is a different major North American city famous for its gridlock.
Sort of, but in practice not really (particularly when interest rates are higher, like now). The only meaningful way to realize that extra wealth is to sell. But then you’ve got to live somewhere, but everywhere else has (on average) gotten proportionally more expensive too. The only way to really capture that wealth is to downgrade or to go to an area that has underperformed, neither of which are typically appealing options, nor are they generally aligned with our notions of “increased personal wealth”.
What’s really happened is that non-homeowners have effectively gotten effectively poorer since their only options are to pay increasingly-large rents or buy at inflated prices.
Indeed, homes are some of the most liquid form of wealth, easily leveraged with loans to buy even more property. And home values are one thing that governments are most likely to protect through drastic policy changes. Sure, you can take out a loan backed by your diamonds, but it won't be on terms as good as that of your home.
Home wealth really is one of the strongest forms of wealth there is, and people trying to pretend it is not have no concept of how lucky they are, or even what wealth really means.
People without this wealth are forced to pay their rent to others, who accept both the rent and then the real estate gains.
Vs. the grim reality:
https://fortune.com/2023/09/03/diamond-demand-falling-lab-gr...
Which is one of the reasons it runs me so wrong when people think their homes are not a of wealth.
The one way to generally extract this gain in wealth is to downgrade (e.g., retire to a quiet place in the boonies), and that’s generally a one-time option and not something everyone wants to do.
This is a remarkable feature of real estate as wealth.
While there are other forms of wealth with more liquidity, housing wealth and real estate really are up near the top of the ones that give a person access to cash.
I note this in that not owning results in being beholden to increasing rents and at a cost disadvantage in buying a future home.
But the property value gains are hard to realize in a meaningful way. Yes, you can potentially leverage your equity into acquiring more homes. But real estate gains have traditionally lagged the stock market. So as you continue this cycle, you increase your leverage dramatically while investing in highly-correlated and slightly underperforming assets.
Meanwhile, little of these gains are able to be used for actual lifestyle improvements until you start unloading these properties.
None of these homeowners would even consider the option of selling their home and renting it from the purchaser, because it is so obviously a bad idea in every way. But their blindness to the alternative is also indicative of just how amazing a form of wealth is.
Super wealthy people are always convincing themselves that they are not wealthy, because they always see others with a higher level of lifestyle. I knew an older man who had built an empire of hotels, but because he wasn't Hilton, he always felt like a failure despite never flying commercial, owning mansions across the world, and being surrounded by servants at his beck and call.
When people have raised their wealth without their lifestyle "changing," yet they can now move nearly anywhere else and have a massive lifestyle improvement in consumption, without the location they were in, they somehow trick themselves into thinking this is not wealth.
The above statement assumes that a home is nothing but a cold investment decision.
A home is a place to live and a neighborhood to grow older in. It is not an "allocation of resources".
People hold on to their home because they like it there, they like the neighbors, their kids like their friends in the area and so on. It is not a financial decision. It's a home. This is often lost in these discussions.
The problem is that enforcing any sort of restrictions would be warped to disproportionately affect the 99% while the 1% would use loopholes to continue doing as they please. So it would probably be more pragmatic to eat the rich and their lackeys before anything else.
This is an assumption, but on average this is true.
If that’s the case, the extra wealth you have for purchasing the new home was simply having a convenient way to store your down payment while saving additional money each month in the form of your principal.
Some people do actually realize a good part of their gains by retiring to the countryside and keeping the lion’s share of their RE gains. But this is something you get to do more or less once, and it’s something generally done in one’s twilight years. Nothing to sneeze at of course, but it again doesn’t really dovetail with the notion of a means to become practically wealthy.
Also, renting out rooms. Also ‘granny flats’, etc.
You pull money out of the HELOC, which does give you access to the equity. You then pay it down similar to a mortgage, at very low rates.
You just cashed out some of the ‘inaccessible’ equity by using it as loan collateral.
You’d still get to live there, and any gains in equity will be 100% yours. But you have cash now, with low payments and low interest to pay it back. If you do sell, proceeds could go right into paying it off.
There are similar ways to setup second mortgages, etc.
Does that take into account the relative ease and long term leveraging in real estate vs. the stock market?
Such rates of returns are simply impossible in the general stock market without getting very lucky.
So multiple that 16x by the typical 4x-5x leveraging, and homes turn out to be really great. And since the transaction fees and the non-existence of index funds in the 1970s made it harder to invest in the stock market at a small scale, and homes were a much better investment.
Add on to that that everybody needs a place to live, and your home acting as an investment vehicle with equivalent performance to the US stock market, and people from the 1970s have had had an amazing deal that younger people have not had access to.
The idea that it’s easy or natural to make money via leveraged housing had ruined many people.
*/5s or even */3s offer an interesting option, depending on terms.
And if you are your own landlord (ie a homeowner) you can pretend your rent is whatever you want, but the market rent is what one should impute as the value of that rent.
1) Historically they have.
2) Most people in the US that haven't purchased very recently are locked in at very low rates. Only 9% of mortgages are over 6%. 61% of outstanding mortages are <4% [0].
3) There are a lot of incentives (and the ability) for governments to ensure home prices continue to increase, although at a rate lower than they are now.
4) We spent over a year with inflation that is double most people's mortgage rates.
5) You have to live somewhere regardless; the alternative is renting. For most of the country, at least until very recently, that was a worse option.
[0] https://apolloacademy.com/the-distribution-of-mortgage-inter...
"Liquid" means fast to sell without giving a deep discount. Homes are far less liquid than listed securities.
100%. Home owners are one of the most selfish voting blocs out there, and will punish politicians for not perpetuating unsustainable policies at the expense of the greater social good. That makes it a very good investment, at least until society completes its transition away from capitalism to a new kind of feudalism.
They absolutely aren't.
Transaction costs are very high (6%), the time required to sell can be months.
Borrowing against a house is not the definition of a "liquid asset". By that same logic a complex equity with no market could still be "liquid" because you could borrow against it.
Real estate is not a liquid asset by the definition of that term. Example:
https://www.investopedia.com/ask/answers/032715/what-items-a...
(Jewelry (as in your diamonds) are not liquid assets either.)
A primary residence is even less liquid for the reasons PP stated. Sure, you can sell it but then what? You still have to live somewhere so you can't use that money for something else, you'd have to buy another home at which point the money is locked up in real estate again. The only time you can extract that wealth into cash is if you can downsize to a much smaller home, or move to a much cheaper area.
So yes, a primary home is real wealth, but it is as far from liquid as any form of wealth can be.
This is true only on first approximation. On second approximation rent prices are positively correlated with property prices. This means that rent_amount / mortgage >>> 1 and if you rent the place out you can essentially get passive income. You are correct that you still need to live somewhere and that is going to come at a cost which will eat up the passive income, but effective rent will still be lower.
Another option is to realize that lower mortgage compared to equivalent rent means that extra cash is freed up towards other things. This can either be extra investments every month, experiences such as traveling the world, or even a lower paying job with a lot less stress.
Also, multiple homes mean multiple maintenance bills, and also the potential for bad tenants wrecking the place. I had a rental property in the past and had to spend multiple thousand dollars staging it for sale because, renters generally DGAF about maintenance, and property managers get lazy and do the bare minimum to get it rented.
Plus “moving to a less desirable area” doesn’t really dovetail with most people’s assumption of “increased personal wealth”. It is sometimes a good option for retiring somewhere cheap, which absolutely reflects a real increase in net worth. But it’s far from liquid worth and requires steep compromises not everyone is a fan of.
If I can be approved for a mortgage or have cash on hand, and have someone agree to sell me a house, and I sign a contract with them to purchase said house on such-and-such a date, and I fulfill my end of the deal and don't default on the contract, then yes, I am entitled to ownership of a single house. Because I bought it fair and square, and it's now legally mine. Just like if I were to stop making payments on said house, the bank would then seize it, and then I wouldn't be entitled to own that house any more, because I defaulted. This is not rocket science.
In a $100k home where you owe $80k the HELOC would be like only $10k - and the rate would be less good.
In the same home where you owe $20k (have $80k equity) you could borrow $50k at a better rate.
There are people doing that. I know of multiple people who have sold their $1m++ houses in the city and moved out to retire on farms. Their property taxes and total cost of living went way down and all of that real estate wealth turned into cash.
Which is one of many reasons we're considering leaving Toronto
Nobody forces you to buy, or sell, a house. And if you feel strongly about the politics of the issues, try to get elected.
So that 200-something-thousand-dollar increase is on a downpayment that may have originally just been 200K or less.
Short-term "stepping up" through a series of properties can be much more wealth-building than, say, renting + investing in stocks. The longer you stay in one place the less advantageous the returns are over just putting the down payment in the market, but then having a concrete asset has its own benefits even then.
Also for reference, everone should know 592k CAD is 433k USD and 1.2M CAD is 880 USD.
By all means it’s expensive and has changed relatively fast. But Toronto isnt even top 25 for most expensive cities. Most rankings ive seen dont even have it in the top 50. I think people are surprised by this because its changed fast and feels expensive but in reality its cheaper than the major metros in the US, mich of Western Europe, China, Japan, SK.
> If it continues for another decade, we can presume no young person today will ever be able to afford a home.
In Toronto. Welcome to having a large, growing city. Generally speaking young people dont buy homes in NYC, Tokyo, London, Hong Kong, SF, and about 50 other places. Probably 2/3rds of the world population are living in metros like this.
The major issue isn’t that the absolute cost of living is high, it’s that the difference between cost of living and wages is increasing too fast. A median wage earner literally can’t save a down payment for a house because the amount they need is too growing too fast.
But you’re right that other major world cities even worse... in Taipei where I’m living now, home ownership is simply out of the question for most people unless they have family support to get a mortgage.
It’s a global problem.
But this collective delusion that the house prices of homeowners has gone up is a huge part of the problem, in part because if house prices halved, it would be a huge problem but probably not as large as people think, mainly because people can largely just walk away from underwater mortgages (in Canada AFAIK).
The only people who benefit are those hoarding real estate, not individual homeowners. This is the core problem with neoliberal private property.
Toronto (or the GTA more specifically) was the cheaper version of Vancouver. Now the average house price is north of C$1m in a country where average wages are a fraction of that.
People live in cities often because that's where the owrk is. A lot of people like it too. Some jobs can be remote. Many can't. You can't be a nurse or a mechanic or an EMT or a firefighter remotely. Toronto needs all those so-called "essential workers" too. Where are they supposed to live?
The general pattern has been in Canada (and the US and other places) is that you have starter homes like condos and then you buy a house when you want or need more space (eg you have children). The commenter I replied to buy a condo for just shy of C$600k. At that time maybe a house they might move up to was $900k. $300k is a lot but probably doable. Now their condo is $1.2m that house is probably $1.5-2m. It's actually more relatively unaffordable than at the time they bought their condo.
You see what I mean when rising prices for a basic necessity you cannot live without actually don't increase wealth?
Wealth is defined as the purchasing power across all possible consumption baskets - not just the one that you want though. So if you measure the value of your house in bananas, or oranges, or bars of chocolate, it’s value has definitely gone up.
I think it's a global phenomenon. I own an apartment in an European country and I also saw my neighbors selling theirs for 2 or 3 times what I paid for mine. The same trend can be observed in basically all European capitals. I don't think this is a Canadian problem.
I think it's dangerous to jump straight to witch hunts. First the scapegoat was golden visas, then it was Airbnb's, then "the rich" whatever that means, and now the Canadian government too? Which one is it?
Because the way I play this out... imagine you list your apartment for 1.2 but nobody can afford it so it stays unsold. Your neighbor lists for 1.1 and it doesn't sell either because nobody can afford that. Eventually you go oh shit it's never going to sell, lower it to 1.0. You play that game until it's low enough for somebody to afford it.
It's kinda crazy to think about it but the reason homes are so unaffordable is precisely because enough people CAN afford them at this price. So yeah I am curious, who are your new neighbors?
You want to lay blame? 30% of all homes in the last year have been bought by speculators and rental investors.
That’s right… one in three homes were bought by someone who will never live in it, but who has hoarded it in order to ransom it back to the community for more than it’s worth, thereby denying another working-class family the ability to exit the rental market and contributing directly to our housing problem.
No wonder shit is so out of whack here.
Similar units in the same building now sell for $1.2m.
This means that my family's wealth has increased by $75,000 per year just from owning our home. That's more than the median income in Canada!
I don't say this to gloat. I say this as an example of how badly wrong things are. Nothing about this is sustainable. If it continues for another decade, we can presume no young person today will ever be able to afford a home.