How CMHC and Other FEDERAL Government Agencies Create Housing Shortages in Canada: Most Cranes in The Skies of Toronto are being used for CONDO developments (Housing UNaffordability explained) – October 23, 2022,
I stumbled on a YouTube video today, and I just had to write a post about it because it’s the PERFECT example of how the Federal Government creates MALINVESTMENT in the economy. Consider watching the video below, it’s local to Toronto, but it perfectly explains what’s going on in the Canadian housing market.
Canada is a very left-leaning country politically, and the because of this, a lot of Canadian cities and provinces were EARLY adapters of RENT CONTROLS. Even if the price control mechanisms of rent controls aren’t there, the Canadian courts will usually side with the TENANT over the landlord. Because of this, in most parts in Canada, rental-purpose housing is a BAD investment; it’s been like this for a very long time.
To solve PRIOR housing shortage problems created by the rent control crowd, the Federal Government of Canada, using Federal Crown corporations like the CMHC, devised a plan to fix the problem. Now, if you listened to or watched the video, you’ll notice that the reporter mentioned that Toronto has more cranes in the sky than Los Angeles.
Toronto, during the period of that video, had 230 cranes in operation, which is 5 times more than Los Angeles. To put this in its proper context, Los Angeles has a population of 3.97 million, and Toronto has a population of 2.94 million. Los Angeles has a homeless problem of about 41,980 people, whereas Toronto has a homeless problem of around 18,096(2021).
The numbers state that in Toronto For every 10,000 people in Toronto, 30 are homeless, whereas in Los Angeles 41,980 people are experiencing homelessness on any given night this year(2022).
Over 69,000 people are homeless in LA County, according to new LAHSA count
The situation is only slightly less bad in the City of Los Angeles, where LAHSA reported 41,980 people are experiencing homelessness on any given night this year — a 1.7% increase from 2020.
As we all know, California is a destination spot for a lot of homeless people, and the U.S in general, is far more GENEROUS to ILLEGAL ALIENS than is Canada. A lot of the housing problems in most parts of the United States are made WORSE by America’s special treatment towards illegal aliens. Although Canada has it’s own immigration problems, it’s nothing like America’s.
Also, in LA they have a lot more people on the ground EXPOSING what’s going on as it relates to homelessness than does Toronto. The homelessness problems in Canada, in general, don’t make the news; in the U.S, as an example, there’s a FoxNews that’s constantly reminding Americans of what to expect if they vote for Democrats, so there’s an INCENTIVE for people to be on the ground counting the number of homeless people in American cities. In contrast, in Toronto, the demand to count the homeless isn’t as high, infact a lot of people didn’t even know that SOME of the homeless in Toronto were being HOUSED in hotels.
Toronto set to close 3rd emergency homeless shelter
Toronto opened 27 new shelter spaces to respond to pandemic pressures. They provided shelter to around 3,200 people every night, the city estimated.
In LA it was controversial to consider EXPANDING upon something Toronto, with its 230 cranes-building condos, has already done.
If voters give the green light, every hotel in town – from a suburban Super 8 Motel to glitzy hostelries like the storied Biltmore – will be required to report vacancies and welcome homeless guests who have a voucher from the city. The hotels would be paid market-rate for the rooms. The measure would also have implications for developers, who would have to replace any housing knocked down to make way for new hotels.
In case you didn’t realize where I’m going with this, I want you to comprehend that Toronto is actually LOSING PEOPLE, so explain to me where this demand for new condo developments is coming from? Could it be that people are using Canada’s housing market like a stock market? I mean, let’s be honest, if you were offered a stock that was almost guaranteed to go up in price FOREVER, wouldn’t you at least consider it? Let me sweeten the deal; imagine you could buy a stock and only put 5% down while the private banks and the Canadian taxpayer took all the risk, wouldn’t that at least get your attention?
The FEDERAL government is involved in a lot of things in the United States, but it’s not as involved in its housing market to the degree the Canadian federal government is involved. In Canada, the federal government has gone as far as to offer Down Payment MORTGAGE Assistance Programs. Yes, this exists, there’s actually a growing and ever EVOLVING market for Down Payment Assistance Programs in Canada.
How Down Payment Assistance Works
There are a variety of programs available across the country, and in specific provinces, that will provide financial support to eligible first-time home buyers via grants, interest-free loans and more. These programs aim to assist home buyers who may otherwise struggle to afford a down payment, and help make their dream of owning a home a reality.
Different Types Of Down Payment Assistance
Down payment assistance can come in the form of tax-free loans, interest-free loans, one-time grants, rebates and even special insurance programs tailored to help qualified applicants get into their first home.
Why do I bring this up? Well, because if Toronto’s population is SHRINKING in size, yet there’s a record number of cranes in the skies of the city, I want you to comprehend what’s fueling the MADNESS, and trust me when I say that there’s more to the housing story than I can write about in this post. I’m merely trying to make the reader comprehend how the Canadian federal government created ARTIFICIAL DEMAND for Condos.
Because I believe in Capitalism, I’m not against condo development; I am against the Canadian FEDERAL GOVERNMENT getting involved in the process. First and foremost, the real driver of the condo market are these 5% down mortgages, which the PRIVATE BANKS in Canada would NEVER sign off for without Federal Government guarantees.
The Canada Mortgage and Housing Corporation(CMHC), which is a Federal Government State-owned enterprise, has a product that offers mortgage insurance, and in the event of a market crash, the Canadian taxpayer is on the hook for the bill. Now, if you’re a common sense investor, even if you put 50% down or even if you’re mortgage free, you feel SAFE with your investment because basically, CMHC almost guarantees that the Federal government will BAIL OUT the housing sector if it crashes.
Now compare a guaranteed CONDO BAILOUT vs. building rental purpose housing. If you were a developer, which would you prefer to build, IN DEMAND rental purposed housing or CONDOMINIUMS? Now, personally, I’d build a condominium because when you build a condo, you get to avoid a lot of municipal and provincial laws that revolve around the RENTAL MARKETS, and you can charge the condo buyer perpetual maintenance fees, which are like rental fees, to maintain your condo.
Now, in a common sense era, rental housing would be preferred, but Big Government incentivizes stupidity, and I bring this up to show you how economically better off LA is than Toronto once you remove the riff-raft. A lot of the problems in LA are the result of stupid STATE and local laws, whereas in Canada, it’s a FEDERAL government problem, meaning there’s no escaping the inevitable.
Just being honest, my bet on the Canadian market is that the Canadian dollar will experience HYPERINFLATION. Currently, the Bank of Canada is battling inflation by raising rates. Still, the EXPECTATION for most people in Canada is that, eventually, the Canadian government will SUCCUMB to inflation. You have to remember that the Canadian dollar, although considered one of the world’s reserve currencies, isn’t in as high demand as the U.S dollar, in which most global business transactions are priced in.
I bring this up because if Canada does experience DOMESTIC debasement of its currency, the rest of the world will barely notice. In the U.S, there is such a thing as Federal Government overreach; in Canada, Federal Government overreach for a lot of Canadians is still a novel concept. The Toronto housing market is indicative of STRUCTURAL PROBLEMS in the Canadian markets.
I’ve so far been impressed by the Bank of Canada governor Tiffany Macklem, who, to date, has raised rates. Still, the problem of central banking compared to markets setting interest rates is that Tiff Macklem could become dovish at any time; if there’s an economic downturn that REQUIRES higher interest rates, Tiff could decide to LOWER rates to appease the political establishment.
For many of us in the markets, we anticipate this will be the period in which the Canadian dollar will be DEBASED to prevent a market crash. This is why for a lot of people, even though they see RED in their portfolios, they’re NOT selling. I’ve been quite clear as to WHY I’m a dividend investor and looking at the disaster that is the Canadian housing market is the reason.
There’s a lot of MALINVESTMENT in the Canadian economy that you should be aware of; the housing market in Canada should be the most obvious; although it’s popular in Canada to BASH the Liberal Party of Canada, to date Tiff Macklem has been the best Bank of Canada governor I’ve observed in a long time and one of the mandates of the opposition Conservative Party of Canada is to get rid of Tiffany Macklem.
The Conservative Party of Canada has no plans to get the FEDERAL GOVERNMENT out of the housing market; in fact, the Conservative government plans on FIRING Tiffany Macklem, to PROTECT the housing market. This is something you should NOT ignore as Justin Trudeau becomes more unpopular. Because the systematic problem in the economy have already passed the point of no return and quite frankly, if this war on fossil fuels continues, interest rates SHOULD get a lot higher to combat it.
If any stupid politician REGARDLESS of their political stripes, decides to hire a DOVISH Bank of Canada governor, things WILL get ugly fast. I have a lot of respect for financial thinkers n the United Kingdom, who QUICKLY recognized that former CONSERVATIVE Prime Minister Mary Elizabeth Truss didn’t have it her to CUT GOVERNMENT SPENDING, but she wanted to CONTROL PRICES; their markets QUICKLY responded.
In Canada, to imagine a central banker who is NOT political is asinine, meaning that the potentially new Prime minister of Canada, Pierre Poilievre, would be wise not to replace Tiff with a dovish central banker because the Canadian economy is BUILT on price controls, if VOTERS and lobby groups who want PROTECTIONS from government vote for Pierre Poilievre, and he decides to engage in austerity, he’s going to have an ugly time as Prime Minister.
On the opposite end of my argument, if Pierre Poilievre attempts to create market liquidity while PROTECTING the housing market from failure, his time as Prime Minister he’s going to have an ugly time as prime minister. If I’m Pierre Poilievre, I’m not making any promises to any group, including SUPPLY MANAGEMENT.
As I’ve been writing for years now, Austerity measures are INEVITABLE at this point, and I don’t recommend that ANY politician make ANY promises to voters, instead a politician she just acts to shrink government; if it was me, I’d sell the CMHC to the private sector, promise the buyers of CMHC protections and then renege on them. Let the housing market crash and restructure, turning these condos into rental-purposed housing developments and slicing government waste.
All of this can happen as long as the politician doesn’t make the same mistakes Donald Trump made, which is to be loud, boisterous, and annoying; better to be quiet and unassuming; most voters have NO idea about how the economy works, meaning that who to blame for an economic downturn will be subjective, in fact, Pierre Poilievre could blame Justin Trudeau.
I don’t think Joe Biden’s blame games should be ignored; Joe Biden’s administration banks big on Americans being IGNORANT as to who is causing the economic downturn. Joe Biden frequently and blatantly lies on camera; now as a Conservative, you don’t have to lie like Joe Biden, but you could say Justin Trudeau was Prime Minister for a decade, and I can’t fix the problems he created overnight.
Fixing the housing market will be painful mostly for the investors, who bet big on government guarantees, but it will be fine for most Canadians who can enjoy DEFLATIONARY prices. With that said, yes, a lot of wishful thinking on my part; my investment portfolio is geared towards the OPPOSITE of what I wrote in the prior paragraph. I expect cowards, don’t judge Liz Truss; being the Prime Minister of Austerity is NOTHING fun!
Interesting times ahead!