Canada Housing/Debt: Trust me, I'm a landlord.

The Something Awful Forums > Discussion > Debate & Discussion > Canada Housing/Debt: Trust me, I'm a landlord.

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

This article is almost a year old but is still relevant and has a some graphs.

Maclean's posted:

Non residential construction has been virtually flat for the last 10+ years. Residential construction has exploded.
http://www2.macleans.ca/2012/05/01/how-the-housing-market-is-pumping-up-our-gdp-numbers/

I assume that suburban sprawl is keeping prices low in Alberta and Saskatchewan relative to Toronto and Vancouver, but that just means lots of unemployed construction workers when the bubble bursts.

# ¿ Feb 15, 2013 08:16

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# ¿ Apr 23, 2024 12:59

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Cultural Imperial posted:

To prevent Canada's economy from going the way of the rest of the world(remember we were in the throes of the financial crisis) the bank of Canada reduced interest rates. Additionally, lending standards were loosened by Flaherty and thus people who could nominally, not afford to buy a house, suddenly could.

So the response to a global financial crisis caused by the collapse of housing bubbles in the United States and Europe was to encourage a housing bubble in Canada? That's not short sighted at all.

# ¿ Feb 16, 2013 19:39

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

The Province posted:

OTTAWA � A TD Bank research report is warning that Canada�s real estate bonanza has come to an end and predicts home prices will be essentially flat for the next decade.

The TD report forecasts average house prices will move lower over the next few years before modestly rebounding after 2015.

But even with the rebound, TD predicts that home price increases will only rise about two per cent annually � essentially keeping pace with inflation.

That�s the weakest rate of growth for Canadian home prices since 1980 and far below the seven per cent annual price gain seen over the last 10 years.

The bank says new, tighter rules for borrowers and lenders are only part of the reason for the moderating prices.

Other contributing factors include the aging population, modest growth in population and the economy and, eventually, higher interest rates.

http://www.theprovince.com/life/Canadian+house+prices+remain+flat+decade+says/8079034/story.html

But of course real estate agents have a much better idea of what's going on in the housing market than the banks do :rolleyes:

# ¿ Mar 11, 2013 17:39

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Throatwarbler is entirely right you guys.

Whats the worst that could happen from over-investment into the real estate sector?

# ¿ Mar 21, 2013 17:41

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Guy DeBorgore posted:

Fine-able Offense did a great job explaining what I meant by that analogy- the point was that foreign money flowing into the current Canadian housing market is driving up prices, not because it may happen to come from China, but simply because it's new money that wasn't in the system before. Foreign investment, if it isn't properly managed, is distortionary and harmful.

I'm not an economist, so I could be wrong on this explanation, but yours is definitely wrong.

Lets say I'm a Chinese millionaire with 7.61 million HKD to spend on a condo in Vancouver.

Since houses in Vancouver are priced in CAD, I need to exchange my HKD for CAD. I need to find someone who both has 1 million CAD and wants 7.61 million HKD. More than likely this will be a broker or bank of some sort, lets say a bank. I give the bank my HKD and they give me CAD.

Then I take my million CAD to a buyer, who then takes that money and deposits it in a bank. The HKD in the first bank either get loaned to a person or company in Hong Kong, or sit around until someone wants to exchange it for a different currency. No new Canadian currency enters the system unless the Bank of Canada loosens monetary policy, which is a decision independent of my decision to buy the condo.

If foreign investment was inflationary (edit: necessarily inflationary), we'd see a general rise in prices, not just in housing. Of course foreign investment can be inflationary (Greece, Ireland, Spain, etc) but with free capital controls, independent monetary policy and a floating exchange rate (like Canada) it mostly creates an appreciation in the value of the Canadian dollar. Incidentally, this is what investment in the resource sector did over the last 10-15 years.

What foreign investors buying housing in Canada does is decrease the supply of housing available for Canadians. Demand exceeds supply and prices rise to a new equilibrium.

Justin Trudeau fucked around with this message at 21:21 on Apr 8, 2013

# ¿ Apr 8, 2013 21:01

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Fine-able Offense posted:

Uh yeah you should probably just stop there, dude.

I'll be more polite and just say "Please Google 'demand-pull inflation' before claiming that FDI has no impact on a domestic economy".

dethslayer666 posted:

What foreign investors buying housing in Canada does is decrease the supply of housing available for Canadians. Demand exceeds supply and prices rise to a new equilibrium.

What am I missing?

I didn't say that FDI has no impact on the domestic economy, I said it causes an appreciation of the exchange rate rather than a general rise in the level of prices. And it certainly doesn't directly increase the money supply, as Guy DeBorgore claimed.

# ¿ Apr 8, 2013 21:20

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Fine-able Offense posted:

...the fact that the RMB is the world's most well-known fixed-rate currency? There's no appreciation?

Also, even then, appreciation doesn't account for the dislocation of capital driving up prices in certain sectors. All you need to do in Vancouver is note the level of retail vacancies or frequency of restaurant failures to see, hmm, maybe all the capital is tied up someplace... silly.

Sure, housing is held by foreign investors and is off the market. The supply of available houses decreases, price of housing in the market rises. But there isn't a general rise in the consumer price index, i.e. inflation.

Here is FDI in Canada from 1996-2011: http://www.international.gc.ca/econ...r.aspx?lang=eng

Here is the inflation rate in Canada from 1998-2013: http://www.rateinflation.com/inflation-rate/canada-historical-inflation-rate?start-year=1998&end-year=2013

Tell me where FDI drove inflation. If it was inflationary the Bank of Canada would reduce the money supply to hedge off inflation.

As for the Renmenibi being fixed,

Wikipedia posted:

The RMB is now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies

Even if it was fixed to one currency, it would still float relative to all other floating currencies. It's not fixed, it's not fixed to the Canadian dollar, and it sure as poo poo isn't fixed to every floating currency in the world.

# ¿ Apr 8, 2013 21:35

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Fine-able Offense posted:

Canada is one of the basket currencies. God drat, dude.

Also, the fact that you keep mistaking GDP-wide inflation for inflation in a specific sector is making me laugh my rear end off. They are two entirely different things; foreign currency derived asset bubbles have happened all over the world, time and again. Entire BOOKS have been written about the 1997 Asian financial crisis!

Here's a little thought-puzzle to hopefully help you: if every single person on Earth decided that they needed to buy real estate in Vancouver no matter what (like, there was a terrible plague that would strike non-Vancouverites on May 1st), do you think that the price of real estate in Metro Vancouver would rise? Do you think your weird theory about hot money not having any material impact on sectoral inflation would prevent the bid-pull effect? I'm honestly curious.

Yes, Canada is one of the currencies. The USD/CAD, EUR/CAD and GBP/CAD exchange rates float, therefore the RMB/CAD exchange rate floats even if the Renmenibi is fixed to a basket of those currencies.

Here, the Bank of Canada even has a graph!
http://www.bankofcanada.ca/rates/exchange/cad-selected-currencies/#IEXM2201
You'll notice that a similar trend was followed by the Renmenibi, US Dollar, Hong Kong dollar and the Japanese Yen against the Canadian dollar.

Show me a definition of inflation that only includes housing and you may have a point. Inflation is defined as a general rise in the level of prices, and doesn't always include housing prices for just this reason.

If everyone in the world decided to buy housing in Vancouver, the supply of housing available on the market would fall and prices rise. If they rise enough, people will sell their houses and move away. This has nothing to do with inflation, it's just prices adjusting to supply and demand to clear the market. When oil prices rose from $10 a barrel in 2000 to $120 a barrel in 2007, this wasn't inflation. It was greatly increased demand that outpaced supply.

Justin Trudeau fucked around with this message at 22:39 on Apr 8, 2013

# ¿ Apr 8, 2013 21:59

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Fine-able Offense posted:

I think the problem here is that he was mistaking inflation in a specific asset class for the textbook definition of systemic inflation. If you can't distinguish between the two, you are basically saying it is impossible for an asset-class bubble to develop, which I'm sure the Nobel committee for economics prizes would be thrilled to hear.

Milton Friedman posted:

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

A housing bubble is not the same as inflation. An increase in housing prices is not inflation. When housing prices fall, it is not deflation. Demand-pull inflation deals with unemployment's effect on aggregate output and the price level, not the price of a single asset.

We're in agreement that increased demand for housing increases the price of housing, but you're wrong about the mechanism as to why.

# ¿ Apr 9, 2013 17:59

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

Fine-able Offense posted:

Are you trolling me?

Yep, trolling for sure.

Why do you immediately discount the insights of a Nobel Prize winning economist and expert on inflation and monetary policy? I don't think that Friedman reached the right policy conclusions, I'm not a monetarist. I do think that monetary policy is a tool that the government can use to rein in or stimulate the economy. But to discount the relation between money and inflation because Milton Friedman said it is just stupid.

The paper you linked deals with the link between asset prices and monetary policy, and the extent to which central banks should consider asset prices when setting policy. Asset price inflation is not the same as inflation. And if loose monetary policy leads to higher asset prices, that proves Friedman's point about inflation being a monetary phenomenon.

This isn't what we're talking about either. We're talking about foreign nationals buying condos in Vancouver. This is microeconomic supply and demand models, not macroeconomic aggregate demand and aggregate supply. A foreign national buying a condo in Vancouver doesn't increase the money supply and therefore doesn't have a direct effect on inflation.

This is just bickering over the definition of inflation. Unqualified (i.e. "asset price" inflation) it refers to a rise in the general level of prices, not the rise in prices of a single asset in a single market. "Asset price inflation" is not the same as inflation, or if you'd prefer inflation-inflation. Also a Google search suggests that the preferred term is "asset price bubble" or "asset price misalignment."

Do you concede that I was right about the Renmenibi exchange rate?

# ¿ Apr 9, 2013 19:47

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

etalian posted:

Would require something really drastic such as the next door neighbor dramatically reducing oil dependence.

You mean reducing their foreign oil dependence. They're already well on the way to doing that.

# ¿ Aug 14, 2013 01:17

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# ¿ Apr 23, 2024 12:59

Justin Trudeau: Apr 4, 2009; There's a level of admiration I actually have for China because their basic dictatorship is allowing them to actually turn their economy around on a dime

HookShot posted:

My dad has an investment apartment in Richmond, on the second floor. The housing association wants all the owners to pay $3000 to replace the old wooden balconies in the building that are falling apart because they've been there since like the 80s or something.

Well my dad's balcony is made of concrete because he's so low in the building, so he was like "oh cool I don't have to pay". Turns out it doesn't work like that, they want him to pay $3000 to not change his balcony.

This anecdote will come in handy if I ever need to explain why socialism doesn't work.

# ¿ Oct 12, 2013 04:20

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