(11-13-2021, 11:52 PM)nms Wrote:(11-13-2021, 11:58 AM)ijmorlan Wrote: One can pretend to decrease prices by instituting price controls. Too many people confuse this with actually reducing prices. I read an article in the Globe and Mail which argued that “we can’t build our way out of high housing prices”. Unbelievable. The exact opposite of the truth, which is that building housing is pretty much the only way to reduce housing prices.
Except what about this scenario:
Housing is built and purchased by real estate investors who need to get a return on their investment. They now have a mortgage that must be covered at a monthly rate that far exceeds a rental rates that matches what those living in the Region can afford to pay. This unit sits empty or is rented at the inflated price while the investor waits for the value of the unit to climb before they sell it to another investor who now has an even bigger mortgage that has to covered. The renter(s) who need a place to live are forced to pay higher than expected rent while not having the ability to save up money to purchase their own housing unit.
Does the mortgage need to be covered or not? If it does, then they can’t leave it empty. Instead, they will drop their asking rent until they can get a tenant, or sell the unit to somebody else.
Quote:If someone purchases a housing unit to live in (condo, townhouse, duplex, single family etc), they remove themselves from the market and the demand for housing has dropped by one unit. If the housing unit is instead purchased by an investor, either local to the area, or from somewhere else, there is still someone locally who would like to purchase a house to live in. Relative to the number of real estate investors that exist in the world, there is a finite number of people looking to live in Waterloo Region.
And so has the supply.
Quote:In that sense, with an infinite number of possible real estate investors, we cannot build our way out of high housing prices. The only way to do so would require some pretty strict controls on the levers that control the available capital which could include (not that I am advocating any of these, I am just proposing options that could work in certain circumstances:
- much higher mortgage rates for mortgages that are not primary residences
- strict limits on foreign investment and/or the number of owners on a house
- limiting housing purchase to those who already live or work within a certain radius
Unbelievably bad ideas.
Higher mortgage rates for non-primary-residence properties? You are aware that mortgage rates are set in the market? So you’re proposing some sort of weird price controls on mortgage rates, but only for some properties, based on criteria that are probably gameable. Guaranteed mess.
Strict limits on number of owners? Ever heard of corporations? Guaranteed mess. Will just cause trouble for people in unusual situations.
Limiting housing purchases to very specific groups of people who would have to be vetted by a whole new bureaucracy? Guaranteed mess. Look, if you’re a communist, just come out and say so. I don’t mean to be harsh, but what we need is fewer weird overly-specific rules about how people can use property, not more. What’s next, the local commissar will decide how many bedrooms you may rent/buy based on your family size?
Dwelling prices are high because there are many people who want a place to live and not that many places to live. This is fixed by building more dwellings (or by eliminating some people, but I don’t need to explain why we don’t go there).
The one idea above that might be viable is something about foreign investment. If large numbers of our properties are being kept empty and used as investment tokens by people needing to get large amounts of money out of their countries, then they actually are being removed from the market. Although even there, if prices are high, it should make sense for developers to build more. If prices stay high, that means developers can’t/won’t build more for some reason. If you could build dwellings for $250,000 each and sell them for $1,000,000 each, you would do it right? And the same is true for every developer. And if people are keeping their properties empty en masse, that probably means there is something wrong with tenancy legislation, such as for example it being too hard to deal with deadbeat tenants.