Why do Canada and Australia have so few people?

Factual Questions
381

Heh, I’ve heard this sort of thing before, and it has never made sense to me.

Homeowners only care about high prices coming down in a couple of situation. For example, if they have an extant mortgage, or if they are counting on cashing that equity in somehow - downsizing for retirement, or using it as a piggy-bank for some sort of home equity financing.

People who actually own their houses and who are still working would love home prices to come down. Why?

First, the yearly tax they pay on their houses is loosely tied to the average value. Home prices go up, they pay more. Prices go down, they pay less.

More significantly - home owners may well want a better home - larger, in a nicer area, etc. If home prices go down across the board, this works out well for them. Sure the value of their own house goes down, but the value of the more expensive house they wish to buy goes down even more. They save a lot of cash, since what they care about is the total difference in price between the house they own and the house they want.

See, if you own your house outright, the price you could get for it is only of interest if you actually cash it in for some reason, or access its equity. If you don’t plan to, you don’t care (except of course for whatever effect that prices have on the economy as a whole). If you do plan to cash in, then which way you want prices to go depends on your plans - if to downsize, you want prices high; if to upsize, you want them low.

382

Your post is all full of logic … in the general case. The missing link is that the people who would least like real estate to come down in price are those who own a lot of real estate - more than they need to live in - as an investment.

And the primary members of this class are middle to upper class professionals in the prime of their working years - a category that coincidentally overlaps quite strongly with the general social class of politicians and newspaper owners.

If your average twenty-year-old on their first job scanning through the auction results had as much social and political clout as Rupert Murdoch, then the Received Wisdom on the subject would be quite different

383

:slight_smile:

Tell it to the mod, see where that gets you.

384

I dunno about that. Middle to upper class professionals in the prime of their working years (and I admit, I’m one :wink: ) would typically rather diversify their investments than own real estate as investment properties (the property they live in excluded) - unless they get carried away by bubble-think enthusiasm.

Owning real-estate is owning a single asset class. It is very risky for the small-time investor to do that unless they have some special market expertise. Again, one’s own house excluded - as it is investment and consumption in one. For the small investor, diversification is important.

There are small-time “flippers” out there all right - but most who make cash at it have some sort of insider take (there is a brewing scandal about real estate agents using their position to “shadow flip” properties in Vancouver, for example). If the average middle-upper income professional tried that, they would likely lose their shirts.

Most of the investment in Canadian real estate comes from overseas sources, who are motivated to sink cash into property as a way of shielding it from (say) the prying hands of the Chinese government. Their motives are only partly driven by market forces.

385

I just visited Florida, coincidentally.

Thing is, Florida is absolutely flat. Flatter than any pancake. Some parts are slightly below the water table, some parts are slightly above the water table, but it’s all wide open flat flat flat land.

Real estate in Florida is, in general, not particularly expensive. Because Florida is actually a pretty large area. Florida is only expensive on the coasts. If you want a property within spitting distance of a beach, you’re paying millions. A similar property a mile from the beach? Literally 1/10th the price. My mother in law lives in a dirt cheap retirement community in West Palm Beach. Drive 20 minutes to Palm Beach? You can’t find a house for less than a million, doesn’t exist. Anything on the coast or inland waterway is sky-high. And just a mile away are rows and rows of trailer houses and shacks.

Thing is, Florida is a hell-hole. Poverty. Violence. Mold. Swamps. Foul water. Heat. You can get dirt cheap land in Florida, what you can’t get is land that looks like a postcard of Florida. And this is simple supply and demand. There’s plenty of swampland in Florida, anyone who wants a double-wide a few miles from the coast can find something pretty cheap. Florida is cursed, though. Yeah, you can wear shorts and flip-flops year round. So what?

On the other side, I grew up in Alaska. And the problem for living anywhere outside of Anchorage or Fairbanks is, what do you do for a living? There are damn few jobs outside of a few cities. So it doesn’t matter if you could get a cheap house somewhere, because if you don’t have a job to pay the mortgage it doesn’t matter how cheap the house is. And so you live in Anchorage, even though housing costs in Anchorage are higher than the national average, because that’s where your job is. And so you have the exact same pattern found in Canada. There’s a big city, where everyone lives, a few middle sized towns where a few people live, a few villages scattered about where almost no one lives, and vast acreages where absolutely no one lives.

So why are there jobs in the big cities, and not in the small towns? If there were plenty of jobs, then the small towns wouldn’t be small towns anymore! They’d grow, people would move there, demand for housing would increase, and wow, housing prices would increase, and you’ve have the exact same situation in the new big city that you have in the old big cities.

386

There may be a difference in the economic climates of Australia and Canada here - owning investment properties is pretty common here in general. The combination of allowing negative gearing and giving a tax break for capital gains means that it’s a fairly simple way to income-shift … out of highly-taxed working income, and into not-so-taxed capital gains. Talking out of my ass I would have said probably about half the families in my kids yuppy inner-suburban school - that’s just a very rough estimate.

What’s not such a rough estimate though is that the ABS puts the rate of rental property ownership at, if I’m reading that correctly, a bit over 6% - that’s over all demographics. Politicians, on the other hand own lots of property. This analyst has it at 54% of MPs and 57% of senators.

There is a perception that because of this, the government is never going to let property prices drop if they can help it. That doesn’t exactly hurt the housing bubble either

387

What’s propping up housing prices above all else is historically low interest rates. Not sure how much control politicians in any one country have over that. :wink: If interest rates go up substantially, most individual property investors will be in trouble, if they purchased property leveraged by loans.

Here in Canada, for most people in the relevant income level, the government has created some reasonably attractive tax vehicles for parking money in - the RRSP (“Registered Retirement Savings Plan”) and TFSA (“Tax-Free Savings Account”). The difference is that the one defers tax on the money placed into it - while on the other, no tax is payable on gains at all (naturally, there are all sorts of conditions and limits on both).

I have no idea how common owning investment properties is in Canada. If they are common, I suspect the reasons are more emotional than rational - in that owning a tangible asset generating income (rather than columns of figures in a ledger) is reassuring.

388

HAMMER (to the crowd)
Florida, folks! Singing, dancing and entertainment! After the entertainment, there’ll be sandwiches. But, remember, if there are no lots sold, there’ll be no sandwiches. Florida, folks! Sunshine, sunshine! Perpetual sunshine all the year around! Let’s get the auction started before we get a tornado. Right this way. Step forward, everybody. Friends, you are now in Cocoanut Manor, one of the finest cities in Florida.

Of course, we still need a few finishing touches, but who doesn’t? This is the heart of the residential district. Every lot is a stone’s throw from the station. As soon as they throw enough stones, we’re going to build a station. Eight hundred wonderful residences will be built right here. Why, they’re as good as up. Better. You can have any kind of a home you want to. You can even get stucco – Oh, how you can get stuck-o!

Now is the time to buy while the new boom is on. Remember that old saying: “a new boom sweeps clean” and don’t forget the guarantee – my personal guarantee: If these lots don’t double in value in a year, I don’t know what you can do about it. Now then, we’ll take lot number twenty – lot number twentah – right at the corner of DeSoto Avenue. Of course, you all know who DeSoto was. He discovered a body of water. You’ve all heard of the water that they named after him, De Soda Water?

Now, this lot has a twenty foot frontage, a fourteen foot backage and a mighty fine garbage. Now what am I offered for this lot? Anything at all? Anything at all?

(1929, Marx Brothers The Cocoanuts)