this post was submitted on 28 Aug 2023
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Housing will never be affordable as long as it's treated like an investment.
The government could solve the housing crisis, and then they'd have to deal with the crisis of elderly citizens who were counting on selling their homes for 2 million dollars to fund their lifestyle in retirement.
They're going to pay a lot of lip service towards building housing these next 20 years without actually doing anything, because doing something would negatively impact property values.
It literally was affordable just fine when it was treated as an investment before, back in the '90s. It's always been treated as an investment. What happened is we stopped building enough of it.
If you stop making enough food, people starve.
If you stop making enough housing, people go homeless.
Population growth of adults has gone up, while housing production of bedrooms has gone down.
I don't get why this is complicated.
I thought the pandemic gave everybody a very harsh lesson about what happens to prices when we stop making stuff (two words: chip shortage) but I guess lessons are hard.
The only way it makes sense as a financial investment is if population continues to grow and homes values continue to rise above inflation - it's inherently unsustainable.
Seriously, a simple though would show how bad of an idea financializing a basic human need is.
Homes are infrastructure.
No, this is revisionist history. The 90s were part of a nearly 15 year period when house prices were flat in Canada. For quite a few years your return would have been negative. People in the 90s were not thinking of their house as their retirement account.
We did stop making enough housing, but it’s precisely that artificial scarcity that is making people treat it as an “investment”. If we make enough, it will not be treated primarily as an investment anymore, which is how it should be.
The 90s followed the extremely high interest rates, which were why housing was flat. People couldn't easily buy in, so demand was reduced.
But that just further corroborates the point: when housing was at its most affordable it was not considered a good investment.
It’s also important to note that housing remained flat even when interest rates went down, partially because of a healthy stock of non-market and market housing.
Yes, that's how investments work. They are less money at the beginning and then grow over time. If you want apple stock to be affordable like it was in the 90s you'd need to harm the investments of everyone who has already bought it. If you want housing to be affordable you need to hurt the property values of everyone who already has a house.
Not necessarily. They also can give income, so a taxi company can invest in a taxi even though cars depreciate, because they get returns on it that way.
I don't know why we don't have enough houses, but it's not because you can't make money as a landlord.
Owning a home IS an investment. Renting is not.
Nobody would want to own a home if they didn't get some kind of return on investment when it came time to scale down/retire/put it in your will, etc.
"Affordable housing" should really be "affordable renting".
EDIT: if you're going to downvote, at least explain why. This is the reality of the housing/rental market we all live in. Don't shoot the messenger.
Do you get a return on investment directly in merely owning a car? No, of course not. People still buy cars. (To avoid confusion: cars open other economic opportunities, but just sitting on a car by itself is not an investment.)
On the other hand, if cars did become an investment, people would hoard cars and they would be less affordable for people who actually use cars productively. High real estate prices are similarly hurting the economy.
Great analogy with cars, I'm definitely going to steal that one.
Cars and homes are two totally different things. Why even compare the two?
Also, some people do buy cars to resell at a profit. The vintage and classic car industry is one example of that.
Houses are an investment because they sit on land that increases in value over time. Some people don't even profit from the sale of their house, but from the sale of the land.
What is the argument, then?
Stats Canada makes it clear that rental housing is affordable for those making less than the median income (25% of expenses spent on housing), and that most mortgage holders are not spending more than 30% of their household income on housing.
By definition, it's all affordable if you aren't making well below the median income for an individual (which is $32,000 after tax).
Can we use more low-cost housing? Absolutely.
I've never argued against that, but I think people need to understand the definition of affordable housing and what that actually means.
When you profit off of merely sitting on land, you are essentially leaching off of society. Economists call this “economic rent”, which is a kind of theft where a person gains from the productive activity of others, without producing anything of value themselves. This is why the nickname for a land tax is “the perfect tax”. You didn’t “produce” anything from the increase in real estate price. Like a car, your house structure itself is actually a depreciating asset and is worth less every year.
This is different from a productive investment like a share in a company, because a company can use that money to invest in useful capital, like factories or workers. This is why Canada’s obsession with real estate “investment” is causing the economy to contract in terms of GDP-per-capita.
Your last few paragraphs denying that there is a housing affordability crisis in Canada is completely and ridiculously outside the mainstream. Literally no expert agrees with you.
I'm not arguing for "sitting on land", and this never came up in any of these threads, so I'm not sure where you're going with that.
Land, whether you use it or not, is subject to tax, so it's not "theft".
Two different forms of investment.
I quite literally quoted what Stats Canada data says, and that's being applied to the universal definition of "affordable housing". Experts can disagree with the stats all they like, but it's not "me" who came up with them.
If you don’t profit from sitting on land, then real estate is not a profitable investment. Prices should be flat. Still lots of reasons to own your own home, but leaching the productivity of others isn’t one of them. If you think that is good, then we’re in agreement?
Your personal interpretation of Stats Canada is like personally interpreting Ivermectin studies. Every expert across the political and economic spectrum, from left to right, thinks that there is a housing affordability crisis. It’s scary that people like you, who deny that there is even a problem, exist.
Explain.
Land has value, and sometimes it goes down, but it usually goes up. Whether you are actively using the land is completely irrelevant because someone will pay you to make use of it.
I don't think that people should be allowed to hoard large amounts of land for the purpose of selling it later on, so there should be regulations put in place to prevent this.
But calling a farmer who isn't actually using their land and who wants to sell it at a profit to some developer "leaching" seems harsh.
That's unfair. I'm going by the universal definition of "affordable housing" set by these experts, while using Stats Canada data to illustrate that the majority of Canadians can afford housing (rental).
You can disagree or claim that I deny there's a problem, but perhaps we are using different criteria here.
What definition of "affordable housing" are you going by, and what data are you using to support the idea that Canadians can't afford housing?
I find that the biggest challenge to discussing affordable housing is that some people have wildly different ideas of what that means.
You're being downvoted because this is the attitude that got us into, and is keeping us in, this mess. Let us be precise with terms: housing is not a speculative investment. You don't buy a house because you presume it will appreciate 100-1000% by the time you sell it. That attitude leads to the paradox that the government is unable to stop: you either build/allow affordable housing, lowering prices and crashing people's speculative investment, or you restrict new home building through restrictive zoning and NIMBYism run wild, letting houses appreciate to the point of unaffordability.
You buy a house to live in long term: to buy it back from the bank and own it all to yourself. You have right to sell it for an equal or roughly price tracking rate with inflation. That's a good investment. Every Canadian has the right to buy affordable housing. Saying affordable housing is affordable renting is not only reductive but downright prejudicial: people don't rent because they're poor. They rent because they want the freedom to move without selling a house. They rent because they are building lives as students or young families or their careers. They rent because they choose to invest their money in something other than house equity. And all the real, concrete policies which help new homeowners (ie building more housing) help renters: these two groups are not at odds with each other.
Do people buy homes expecting that they will *lose * value over time?
Yes, I do think people BUY homes (as opposed to renting one) because it WILL gain value over the life of ownership. Someone living in a house for 50 year should be able to sell it and live off the earnings until they are dead. Why not?
I agree, but not every Canadian understands the expectation of what "affordable housing" really means.
It's generally recognized that "affordable housing" means housing that does not exceed 30% of a HOUSEHOLD income before tax.
Stats Can says that people with mortgages allocated 1/3 of their goods and services spending to shelter costs ($30,000 / year) with $17,000 going towards mortgages.
By comparison, renters only spend 25% of their spending towards rental payments ($12,200).
Both would still be considered "affordable housing", yet it's clear that someone making a median income would realistically be able to afford rental housing, and not homeownership.
Yes! I completely agree! Renting is not a downgrade from homeownership, but it is distinctly different. That's why I'd argue that owning a house is an investment, while renting is not (although, renting allows you to invest in other areas).
We need more affordable rental space, so that every Canadian who earns an income can afford a place to live.
I simply think it's unrealistic to believe that every Canadian could ever be able to afford to buy a house with an individual income below the median ($32,000).
I did not downvote, but I'd like to offer my point of view.
I think this is a superfluous distinction. Purchasing real estate can be an investment vehicle if you aim to recoup the investment through appreciation (land speculation) or income generating usage (like rentals). It may also not be an investment if you just want to purchase a property to live in it - this is a passive asset, much like a car. You can "rent" your car (and time) to the gig economy, and car prices can rise and you can make a profit by selling one, but in a stable supply market that's not the norm so cars are generally not regarded as investments. Conversely, renting retail space for commercial usage is an obvious example of income generation on top of a rented property, so rental costs are a factor in other types of investments.
Plenty of people want to own a home regardless of financial returns. Ownership has its perks, there are plenty of people willing to pay for it. It is a bit of a luxury good nowadays, but one that is very entrenched in most cultures as a symbol of "making it".
Oh so you wouldn't want to own a home if it didn't pay well? Yeah. Same. And why should I get so shafted for wanting to live in a small apartment as opposed to 'investing' in a home?
A home is meant to be a depreciating asset like a car is. You need to maintain and repair it in order to sell it. You live in it, therefore it would be okay to pay a bit for it, buuuuut thanks to government subsidies and bankers and housing shortages, you are guaranteed to profit.
I don't support downvoting you. I disagree with you, but you've made a concise and detailed argument for neoliberalism.
It is. Granted, it has become crazy expensive to buy a new home, so the used market has risen to compensate. Actually, we've seen the same thing happen in cars recently. New cars have become crazy expensive, so the used car market has gone up in price too.
But that's outside of investing. Nothing says depreciating capital cannot be an investment. Consider a widget that cost $100 to buy and after one year is completely worn out and worth $0. But that widget during its useful life produced trinkets that you were able to sell for a profit of $120. There you go, a 20% return on investment, even though the capital is now worth nothing.
Cars and houses will always fundamentally be investments as long as they remain useful tools of production.
Houses are literally subsidized into being safe investments. The neoliberal government has decided that this is best for business.
Housing is only a safe investment if it keeps its occupants productive (e.g. allows one to take a job by living nearby). The job market is strong right now, but we'll see how safe those investments are when that starts to turn...
But, if you truly believe what you say, why aren't you buying one of those $100,000 homes in Newfoundland? Anyone can afford that. If the government is going to protect you, how can you lose?
I could be wrong here but I believe that your parent comment is talking about how investments are guaranteed by the government in case of some kind of market shift.
A car and a home are two very different things, so they can't be compared here.
Even the land your home is on increases in value over time, and I've yet to see a home in good condition that's worth less than the amount it was purchased for. Unless you're talking about those ghost cities in China.
What exact reason would you give to devalue a perfectly good home?
With respect to depreciation they are quite comparable. Deprecation is just the reflection of the remaining lifetime value of something.
Depreciation just tends to be more obvious in cars, because:
A home in good condition has approximately the same remaining lifetime value as a new home, so that stands to reason. Not to mention that with ever more stringent building codes, new construction cost has gone up, up, up. The used market always follows the new market.
Land does, but that's independent of the home. I mean, they are usually sold together, but the buyer will determine their utility value independently. Two identical houses will not fetch the same price if one of them sits on more desirable land.
And the remaining lifetime of a home kept in good condition could be many generations. Where with a car... you could pass that gas guzzler to your kid, but that's about it.
In fact, homes can often be renovated to extend their original life far beyond even a few lifetimes. This ignores any upgrades that increase the value (i.e new pool, deck, etc.)
Right, so it wouldn't be depreciated like a car (which loses value to nearly nothing at the end of its usable life).
That's my point, though. When you invest in a home, you are also investing on the land it sits on. So you're free to sell the home AND land, or just the land, if you like. It's rare to see just a home (without the land) being sold.
In your example, the homes are still the same value, only the land changes the sale amount.
There's no reason why either home would depreciate in value like a car, and the commenter has yet to expand on this idea.
Kept in good condition is the key. If you keep a car in good condition, it can last many generations too.
Same goes for cars, of course. There is a whole automotive industry around taking beat up old cars and restoring them to pristine condition. And, indeed, many of those cars can sell for way beyond their original price.
Right, it would deprecate because houses deteriorate. If you keep your house in good condition, it's just you paying the deprecation cost up front when you restore it rather than taking the hit with the next guy in line. The math works out the same either way. The depreciation doesn't go away.
Less common, but not unheard of. It happens often enough that there was once a Canadian TV series about moving houses.
Exactly. Their values are evaluated independently of each other. The house can depreciate and the land can appreciate.
I think that you'd need to be reasonable with what you'd expect to pay to keep a car running for generations.
I can't see anyone wanting to spend tens of thousands of dollars keeping their Toyota Corolla running for generations.
Cars were never built to last 50+ years, no matter how good you maintain them (The average *maintained *car lasts around 12 years or around 320,000km). The ones that last 50+ years are in museums or auto shows. By contrast, 50-year-old homes are common and quite expected, and if maintained, feel like a new home!
Yes, as collector vehicles, not as daily drivers. I don't think anyone envisions affordable housing as a home you'd get on the side to use only occasionally, which is what the cars you describe would be.
I don't disagree, but the person I was replying to makes it seem like a house's value should always be in decline. That doesn't make any sense, unless it's been left to rot, which I don't think people do when they are living in one.
Of course, I've seen a few homes being moved myself! Nobody does that for a house that lost all its value. 😉
They just might if a 2023 Toyota Corolla was effectively the same as a 1823 Toyota Corolla, differing little beyond coming in a more appealing colour of paint. Only needing to spend tens of thousands of dollars to have a new car would be a good deal.
That doesn't happen because of the technical innovation happing in cars. Restoring your 1823 Corolla to new condition is nothing like a 2023 Corolla. It will still get you around, but with no cabin, air conditioning, power steering, radio, slower speeds, etc. who would want it? We already discussed this.
They are always in decline. You can spend more to buy the depreciation out when you restore it, or you can let it slip and spend that when you sell it, but the decline happens either way. There is no avoiding it.
Well, there is one way to avoid it: If the cost of new housing goes up sufficiently, it will drag the used market it with it. That could see an appreciation in value even with some wear and tear. In fact, we saw exactly that happen in the used car market recently when the "chip shortage" sent the new car market sky high. People were selling their used cars for more than what they were new.
That doesn't happen. Exactly. The comparison between cars and homes is silly and we can end it here.
If there is a decline, yet people are able to profit from selling them home, then there isn't a practical decline, is there?
Circling back to the original comment that I replied to, "A home is meant to be a depreciating asset like a car is.", we've already established that a home without upkeep would be depreciated until it actually costs money to demolish the thing. We've also established that a home that's been maintained and updated should not only hold its original value, but be worth more than it cost.
I still don't understand what the argument is. Are people hoping that nobody can ever make money from the sale of a home or the land that their home sits on? Who would want that?
They are not comparable in every way, but with respect to depreciation, the reason they both depreciate is the same: They both deteriorate over time and with use. Depreciation measures the cost of that decay. The original context was specific about it referring to the deprecation aspects.
I'm not sure that is established. It is established that it is technically possible for that to be true if new homes prices are rising in kind. That has definitely been the case over the past decade, or even the past few decades.
But over the long history? Traditionally, homes in good condition have only kept pace with inflation. Historically, if you bought a home for $100,000 then you should be able to sell it for $100,000 (we'll assuming inflation is zero to keep things simple) a decade later, assuming you've kept it in the same condition. Great.
But let's say you had to put $25,000 into upkeep during that decade. So your original cost was actually $125,000. You had to eat $25,000 in depreciation costs when you sold it for only $100,000. Had you done nothing, letting it rot over those 10 years, then the house would only sell for $75,000. You also had to eat $25,000 in deprecation costs. It's the same either way.
I didn't see an argument. What are you referring to?
As it was pointed out, a car in good upkeep is only expected to last around 12 years or just over 300,000km. A home in good upkeep can last 100+ years, so what depreciation did the original poster think would happen if someone decided to sell their home after 5 or 10 years?
Yes, and I agree that's how it works. Except that home/property values fluctuate, so after 10 years, that house (and the land it sits on), even without $25,000 put into upkeep, may sell for $100,000 or more.
The original poster seemed to have a problem with people being able to recoup and profit from the sale of their home. I don't see why homeownership should be at a loss when it comes time to sell. The difference between a money pit (i.e. a car) and an investment (i.e. a home) is that you can get the money back that you invested + extra if you are lucky.
The original poster seemed to have complained about government involvement distorting the market. I'm not sure that's quite the same thing.
Every car I've ever owned returned all the money back that I invested and then some. Why the hell would you buy one otherwise? They also depreciated, but that doesn't matter when the gross investment returns are greater than the depreciation cost.
Perhaps I didn't understand their sarcasm. The government didn't distort the market so that people can make money from the sale of their home and property. Unless they are going back to a time before governments, when people were trading animals for land and so on... the owner would get as much value as the person buying it had in the acquisition. This almost always turned a profit for the seller, unless they were completely desperate.
As in, you've profited from the sale of every car you've owned? Or that owning a vehicle, allowed to you not spend as much as you would have without one?
If it's the former, then it would be unheard of, unless you're omitting some critical detail.
I can't speak for other people, but I'm sure convenience and "my job" are at the top of the pile. If given a choice, I don't think most people would want to own a car, especially if affordable housing is on their mind.
I also don't think many regular consumers are buying cars for some chance to profit from the sale of them afterwards. I think the majority of car owners have resigned to the fact that they will never recover the costs of owning a car.
I profited from owning productive capital. You know, an investment!
I certainly wouldn't. I don't like owning a car. But it has been hard to turn down the return on investment potential. Where else were you going to get those kinds of returns?
In the past, that is. I haven't bought a car recently. With the price of vehicles today, it's not clear if there is still much ROI to be had – it seems pencils have been sharpened pretty sharp. But I'm not looking for one right now either so I haven't crunched the numbers very hard.
I wouldn't think so either. If they are looking for a bank account that returns some interest, they're more likely to go to a bank. But if they're looking for an investment, cars have been pretty good (maybe no longer; we shall see).
Well, a home needs to be repaired and improved before sale. This is part of what the market demands. Gets more complicated with land, yeah... leads me back to zoning laws. If the land is so valuable in the suburb of a city, it should have multi-unit housing on it. Then the rich are forced to pay that raising cost and the poor get an increased supply of housing.
This is part of the investment a homeowner makes, and increasing the value of a home through repairs and renovation really shouldn't be looked at as a bad thing.
If you are renting a place, you expect the same repairs and improvements to be made, which is why rent doesn't simply drop because of “depreciation”.
Well, some people do sell their land so that developers can have their way with it. I don't think that's a good thing overall, since there needs to be some balance.
But multi-unit housing on expensive land does not make it affordable. Having an income that's above the median, in addition to renting, is what Stats Canada says is affordable housing to the majority of Canadians.
The reason to own a home is that it's yours. You don't have to obey the tyrannical whims of your landlord and you cannot be capriciously evicted. Homeownership is self-defense.