Would copying New Zealand’s foreign buyers ban help Canada’s Mortgage Inflation Problems? – April 20, 2019,
Global News wrote an interesting article that you can read below titled: Affordable housing: Would copying New Zealand’s foreign buyers ban help? – Global News this article talks about trying to find a solution to Canada’s mortgage inflation problems. What unfortunately goes ignored is what makes Canada’s housing situation different from anywhere in the world.
Affordable housing: Would copying New Zealand’s foreign buyers ban help? – Global News
The first thing to understand about Canada is where we’re situated, we border with the United States, which in many ways especially as consumers gives us a tremendous advantage over Oceanic regions like New Zealand or Australia who in many ways have to have a freer market than Canada has, if they want to attract investment. This is not to say that New Zealand is better or worse than Canada, what I’m pointing out is that New Zealand is a lot smaller in terms of Landmass than it is in Canada. So New Zealand’s current landmass is 268,021 km², Ontario, Canada’s landmass is 1.076 million km², B.C’s landmass is 944,735 km². Now, if you look at those numbers, you can easily see something doesn’t seem right here.
Top 20 cities/towns ranked by US$ per square metre (June 2018):
- – Monaco: $49 000
- – New York: $34 000
- – London: $33 000
- – St Tropez: $32 000
- – St Jean Cap Ferrat: $31 000
- – Hong Kong: $28 000
- – Geneva: $26 000
- – Sydney: $25 000
- – Lake Como: $21 000
- – Porto Cervo: $21 000
- – Pebble Beach, Monterey: $21 000
- – Zurich: $20 000
- – Singapore: $19 000
- – Paris: $18 000
- – Nice: $18 000
- – Tokyo: $17 000
- – Melbourne: $16 000
- – Los Angeles: $14 000
- – San Francisco: $14 000
- – Miami: $14 000
source:Top 20 most expensive residential property markets worldwide – property24.com
Notice not a single Canadian city makes the list, the chart above is used to illustrate that properties in Toronto and Vancouver might be over valued
Six cities for having worse housing bubbles than anywhere else:
- Hong Kong.
- Munich.
- Toronto.
- Vancouver.
- London.
- Amsterdam.
source: Toronto, Vancouver among biggest property bubbles in the world, UBS says – CBC
Population Density Canada vs. New Zealand
Canada as a whole has a population density of just 4 people per square kilometers, which makes it the 228th most densely populated country in the world. New Zealand ranks fifteenth among the 30 OECD countries, with an area of 271,000 square kilometres. Consequently, its population density is relatively low, at 15 people per square kilometre. Wy bring up these stats? Because for the most part, the Canadian housing shortage is a myth, it’s always been a myth, the reality is Leftist, have always wanted society to be in debt because people in debt tend to vote for a bigger government. People with money or I should say people who feel rich tend to want the government out of their lives. People in debt, private and corporate tend to be open to government intervention into the economy.
As an example, if you’ve listened to Donald Trump, he’s for Low-interest rates and entitlements, although Trumps is viewed as a Billionaire, it’s important to understand that most people who are involved in real estate live off of debt and a low-interest rate environment is favorable to them, because their business model is entirely reliant on tenants making their monthly payments. Understanding this concept is why lobby groups prefer building condos over rental units. I bring this up because CMHC insures mortgages, CMHC (Canada Mortgage and Housing Corporation) a government agency protects bank profits from losses in the event of an economic downturn. This to me is the driving force in the Canadian economy which if isn’t corrected will make our economy extremely stagnant. It’s very important to understand that the Bank of Canada pays very close attention to debt levels and is currently backed into a corner it can’t get out of.
Now, as far as debt levels and overpriced mortgages go, Canada is far from being alone, what makes Canada different however is our lack of flexibility. There’s the equivalent to a minimum wage in the Canadian housing market, meaning that if housing prices for individuals dip below a certain level or if prices become stagnant Canada is headed for a world of trouble. I began this post writing about Canada bordering with the United States mainly to illustrate that unlike Australia or Oceanic regions we’re their lowered valued currencies to the US dollar are justified, Canada’s lower valued currency is not.
The Canadian dollar is artificially low, it’s been artificially low ever since Pierre Trudeau. If as an example you click and look at the historical data of the Canadian dollar ever since Pierre Trudeau took political office you’ll notice although some volatility that the Canadian dollar has been decreasing in value next to the Greenback unnecessarily.
Historical exchange rates graph – Canada and USA
Why do I say the Canadian dollar has been decreasing next to the Greenback unnecessarily? Consider searching Google for countries with the highest quality of life Canada is number 1 or usually makes the top 10, now looking at the list below, I want you to notice something.
- Canada. #1 in Quality of Life Rankings
- Sweden. #2 in Quality of Life Rankings
- Denmark
- Norway
- Switzerland
- Finland
- Australia
- Netherlands
Now, I used more than one source to show the reader that Canada ranks higher than the U.S and we neighbor with the U.S. Notice the other countries that make the list are either Scandinavian countries using the ‘Euro €’ or Oceanic regions like Australia. How could Canada have a better quality of life but a lower valued currency than the United States? It’s because we manipulate our currency, and well the bill date for this currency manipulation is getting closer with every passing day. I think Canadians forget that our public sector is able to ballon because of our currency manipulation. I also don’t think Canadians understand that if a Bernie Sanders type takes political office in the United States and real inflation it’s America, forcing their currency down, similar to when Obama was in office, everything in Canada goes haywire, especially now that Trump has called us out and pushed for reciprocal trade legislation.
I write about minimum wages all the time, the reason why wages are stagnant in Canada is that they were artificially inflated years ago. Eventually, real inflation caused by trade caught up, well the exact same thing happened to our housing market, it’s been inflated and one day, if it doesn’t crash, it will become stagnant and this is where Canada differs from most of the other countries, because the only way to stimulate wage growth at this point is to inflate or potentially hyperinflate the Canadian dollar.
No, big deal you say? Well, unfortunately for Canada we’ve replaced a lot of manufacturing with service sector jobs, which is ok for small countries like Luxembourg that have a landmass of 2,586 km² and a population density of 233 inhabitants per square kilometer. But when you’re Canada with 4 people per square kilometers and regulations that hurt development are you sure our current economic model is built to handle an economic downturn, inflating our currency will cause a plethora of new problems, especially when countries who invest in Canada actually see that we’re broke.
The assumption of most people who invest in Canada is that our debt is manageable and if there’s an economic downturn our leaders will do the right thing and make the working classes pay the bill. But what if start paying our bills with inflated, and permanently depreciated dollars, prices for imports will rise drastically and these costs will be passed onto consumers, import inflation is real inflation and once that spirals out of control you have a currency crisis, now if the BoC does the right thing and raises interest rates during that downturn that would cause a mortgage crisis in Canada or at least stagnation as fewer people will qualify to purchase real estate in Canada.
Sure, 100-year amortization could be introduced essentially turning Canada into a zombie economy, but unlike Japan, Canada doesn’t really make anything the world wants anymore. There’s no equivalent to Sony, Honda or Toyota in Canada and if our economy isn’t allowed to deflate, it means taxes will have to rise. Lastly, in the event, foreign buyers are banned and the current foreign buyers abandon their ‘investment’ properties, what do you think will happen to the Canadian economy? These are the disasters that protectionism breeds. Prepare yourselves accordingly!
Interesting times ahead.