We need to rethink the federal government's mortgage backstop, which fuels our economy's dependence on real estate and contributes to skyrocketing home prices
Kareem, as usual is right on the money. Cause and effects are really hard to sort out when we have made a complex monster out of our whole banking-financing system. Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006 pointed out that not even he saw the mortgage -backed bubble that caused the 2008/09 bubble. Re-packaging, creating new financial instruments and speculation had removed banking from easier to track, easier to understand purposes. It did so not to serve original good purposes-savings and loans-investments in businesses. It did so to do the opposite to make speculation and create instruments that served those who made careers out of the financialization of the economy to make profits that added nothing real and productive to the real economy. Our financial system is in fact pyramid schemes a complexity that has our best grads from Business schools and law schools going into this big speculation complex making money off of money complex-far removed and siloed away from serving original purposes of banking but the self-serving purpose of getting rich quick.
Here Kareem isolates the Federal governments mortgage backstop that fuels our dependence of real estate contributing to grossly inflated home prices. We have financialized housing market-made unnecessary complex for the wrong reasons. The financialization of the housing industry has replaced the original purpose- the providing houses as homes not as investments- get rich quick schemes.
Our economy's dependence on real estate rather than businesses-rather than investing in businesses is a fool's paradise...extremely ill productive not only leaving so many Canadians unable to afford a home-homeless but makes the world look at Canada not as a serious industrious nation but a nation built more and more on nothing much at all but real estate speculation.
Alas! Here's the rub. Nobody really understands the big picture-that's what Alan Greenspan was hinting at. The financialization of the economy is so siloed-so specialized so monstrous so detached...with so much speed and speculation...whole picture comprehension goes unseen and unseeable. Even the experts are only experts in small areas. Blind growth-blind greed.
Too big to fail-but certain to fail. And when there is failure millions lose their homes, and the CEOs are not held accountable but given bonuses!!!! The call needs to be to dismantle the monster- at least return it to what it was in the 1950s. Nobody with power or influence is calling for that. Many thinkers have, like John Ralston Saul who gave the 1995 Massey Lectures titled: The Unconscious Civilization. Today he points out things have GROWN worse. The monster is more complex. Today most serious thinkers like David Suzuki, Morris Berman... Naomi Klein are in agreement with Rupert Reads 2019 book: This Civilization is Finished. I say it's not yet finished. It's finishing up leaving less and less room for us to stop it...and rise from the ashes.
I feel like many people are (justifiably) worried about supply right now because they can see in their own lives what the effects of extremely low vacancy rates on rents have been, especially in areas where that happened quickly. Prices to buy obviously don't have completely identical dynamics (even as they feed back into what kinds of rental construction is viable) but I think at this point plenty of people (my household included) are increasingly more worried about rents even if they hadn't been before. Although, feeling like the rental market will never be fixed also means people might be more willing to overextend themselves.
Great point Valerie. Low vacancy rates on rents do make clear that there is a supply issue, and (high) purchase prices have contributed to this lack of supply. Here I was focusing on the demand side of the purchase price equation, but we are definitely still concerned about supply (for buyers and renters)! We cover this in our full housing analysis here: https://www.gensqueeze.ca/housing_solutions. I'll try to strike a better balance, to make this clear in the future!
Very interesting point about household growth and housing supply - I hadn't thought of that, thanks for pointing it out! I'll email the the author of that linked article, to see if this insight changes their analysis.
Checked in with David Williams, who pointed out that "over the 5 years to 2021, the population grew by 5%, the number of households grew by 6%, and the stock of dwellings grew faster - by 9% - not slower."
Since number of dwellings grew substantially faster than number of households, it doesn't seem to me that we are being misled households being constrained by supply. What do you think?
Kareem, as usual is right on the money. Cause and effects are really hard to sort out when we have made a complex monster out of our whole banking-financing system. Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006 pointed out that not even he saw the mortgage -backed bubble that caused the 2008/09 bubble. Re-packaging, creating new financial instruments and speculation had removed banking from easier to track, easier to understand purposes. It did so not to serve original good purposes-savings and loans-investments in businesses. It did so to do the opposite to make speculation and create instruments that served those who made careers out of the financialization of the economy to make profits that added nothing real and productive to the real economy. Our financial system is in fact pyramid schemes a complexity that has our best grads from Business schools and law schools going into this big speculation complex making money off of money complex-far removed and siloed away from serving original purposes of banking but the self-serving purpose of getting rich quick.
Here Kareem isolates the Federal governments mortgage backstop that fuels our dependence of real estate contributing to grossly inflated home prices. We have financialized housing market-made unnecessary complex for the wrong reasons. The financialization of the housing industry has replaced the original purpose- the providing houses as homes not as investments- get rich quick schemes.
Our economy's dependence on real estate rather than businesses-rather than investing in businesses is a fool's paradise...extremely ill productive not only leaving so many Canadians unable to afford a home-homeless but makes the world look at Canada not as a serious industrious nation but a nation built more and more on nothing much at all but real estate speculation.
correction- mortgage-backed bubble that caused the 2008/09 financial crises.
Bingo!!!! But have any politicians ever discussed this?? No. Why? Because they lack depth of market and financial comprehension.
Yup...it's getting old hearing them all claim that building more homes, alone, will solve this problem!
Alas! Here's the rub. Nobody really understands the big picture-that's what Alan Greenspan was hinting at. The financialization of the economy is so siloed-so specialized so monstrous so detached...with so much speed and speculation...whole picture comprehension goes unseen and unseeable. Even the experts are only experts in small areas. Blind growth-blind greed.
Too big to fail-but certain to fail. And when there is failure millions lose their homes, and the CEOs are not held accountable but given bonuses!!!! The call needs to be to dismantle the monster- at least return it to what it was in the 1950s. Nobody with power or influence is calling for that. Many thinkers have, like John Ralston Saul who gave the 1995 Massey Lectures titled: The Unconscious Civilization. Today he points out things have GROWN worse. The monster is more complex. Today most serious thinkers like David Suzuki, Morris Berman... Naomi Klein are in agreement with Rupert Reads 2019 book: This Civilization is Finished. I say it's not yet finished. It's finishing up leaving less and less room for us to stop it...and rise from the ashes.
I feel like many people are (justifiably) worried about supply right now because they can see in their own lives what the effects of extremely low vacancy rates on rents have been, especially in areas where that happened quickly. Prices to buy obviously don't have completely identical dynamics (even as they feed back into what kinds of rental construction is viable) but I think at this point plenty of people (my household included) are increasingly more worried about rents even if they hadn't been before. Although, feeling like the rental market will never be fixed also means people might be more willing to overextend themselves.
But, I don't personally think the idea in the link that there's no evidence of a supply problem if housing matches household growth is correct -- households can all but definitionally only grow as fast as the housing supply. https://mikepmoffatt.medium.com/ontarios-housing-crisis-we-need-to-stop-interpreting-constrained-optimization-as-free-choice-403c896b627c
Great point Valerie. Low vacancy rates on rents do make clear that there is a supply issue, and (high) purchase prices have contributed to this lack of supply. Here I was focusing on the demand side of the purchase price equation, but we are definitely still concerned about supply (for buyers and renters)! We cover this in our full housing analysis here: https://www.gensqueeze.ca/housing_solutions. I'll try to strike a better balance, to make this clear in the future!
Very interesting point about household growth and housing supply - I hadn't thought of that, thanks for pointing it out! I'll email the the author of that linked article, to see if this insight changes their analysis.
Checked in with David Williams, who pointed out that "over the 5 years to 2021, the population grew by 5%, the number of households grew by 6%, and the stock of dwellings grew faster - by 9% - not slower."
Since number of dwellings grew substantially faster than number of households, it doesn't seem to me that we are being misled households being constrained by supply. What do you think?