Affordability
I heard Micheal Geller and Frances Bula talking on Bill Good this morning about housing affordability.
They weren't really talking housing. They were talking money. Other people's money, in fact, and how that money could be taken from them and used for good ideas that people like Frances and Michael have.
If you ask CREA you'll learn that Canadians are interested in sustainable homes. They have taken the initiative in making homes more sustainable in terms of lighting and heating. High energy prices have prompted them to save money on heat through higher efficiency and insulation. This has likewise motivated more efficient electrical lighting usage.
Again, this is not a sustainability or affordability issue. It's not a housing issue. It's a money issue.
Real estate must be financially sustainable. We refer to this as "affordable housing", or "sustainable housing" but it's really a conversation about money.
Affordable housing is a tough nut to crack. As house values rise returns on them drop. This occurs because purchases can be financed while rent cannot be.
The result is a conflict between what the tenant thinks is affordable in cash flow terms and what the owner thinks is a good return. Property commands much more than it's cash flow justifies. Rents don't rise enough to keep up with the increase in purchase prices, so the cash flow on rental properties becomes unrealistic.
The next thing you know, we're talking about how to make a good deal for tenants an even better deal. Subsidized rent comes up. What would that do? Increase property values? More density comes up. What would that do? Increase property values? Remove the ability of seniors to defer taxes. What would that do? Accomplish an inter-generational wealth transfer sooner? And then increase property values?
Owners of real estate accept lower returns because the real estate has performed well in terms of capital appreciation. They hold on to property for emotional reasons. Of course, tax and transaction costs also make it worthwhile to hold the property.
Theoretically this shouldn't really happen. If rents do not justify purchase prices, rents should increase. When they cannot increase further, property prices should drop. This doesn't happen in the real world because competing investments do not appear to be attractive enough to depress real estate purchase prices, and just about everyone wants to own some property.
The result is an apparently unsustainable situation where tenants pay high rents. Tenants pay extremely high rents in relation to income. However, tenants get a great deal from the standpoint of cost-benefit.
Is there a solution? I think there is, but it's not through taking wealth from one party in order to give it to another.
They weren't really talking housing. They were talking money. Other people's money, in fact, and how that money could be taken from them and used for good ideas that people like Frances and Michael have.
If you ask CREA you'll learn that Canadians are interested in sustainable homes. They have taken the initiative in making homes more sustainable in terms of lighting and heating. High energy prices have prompted them to save money on heat through higher efficiency and insulation. This has likewise motivated more efficient electrical lighting usage.
Again, this is not a sustainability or affordability issue. It's not a housing issue. It's a money issue.
Real estate must be financially sustainable. We refer to this as "affordable housing", or "sustainable housing" but it's really a conversation about money.
Affordable housing is a tough nut to crack. As house values rise returns on them drop. This occurs because purchases can be financed while rent cannot be.
The result is a conflict between what the tenant thinks is affordable in cash flow terms and what the owner thinks is a good return. Property commands much more than it's cash flow justifies. Rents don't rise enough to keep up with the increase in purchase prices, so the cash flow on rental properties becomes unrealistic.
The next thing you know, we're talking about how to make a good deal for tenants an even better deal. Subsidized rent comes up. What would that do? Increase property values? More density comes up. What would that do? Increase property values? Remove the ability of seniors to defer taxes. What would that do? Accomplish an inter-generational wealth transfer sooner? And then increase property values?
Owners of real estate accept lower returns because the real estate has performed well in terms of capital appreciation. They hold on to property for emotional reasons. Of course, tax and transaction costs also make it worthwhile to hold the property.
Theoretically this shouldn't really happen. If rents do not justify purchase prices, rents should increase. When they cannot increase further, property prices should drop. This doesn't happen in the real world because competing investments do not appear to be attractive enough to depress real estate purchase prices, and just about everyone wants to own some property.
The result is an apparently unsustainable situation where tenants pay high rents. Tenants pay extremely high rents in relation to income. However, tenants get a great deal from the standpoint of cost-benefit.
Is there a solution? I think there is, but it's not through taking wealth from one party in order to give it to another.
posted by admin at
3:56 PM
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