‘We lost’

“I just wrote a first blog post,” says Matt, the successful video gamer-engineer guy, “called ‘So Long, Toronto’. I realize you may be the only Canadian who reads it. If you find anything worth quoting or mentioning in your blog, it’s all good with me. If not, that’s cool too.”

Matt’s blog is worthy, and you can read it here. “The battle to make it in Toronto lasted 7 years,” he writes. “At last, it is over: we lost. Time to retreat.”

So the Millennial, his spouse and his child are on the road from the Big Smoke to Quebec City (a town of almost a million where the average house price is $286,000.)

“We took a step-back. Are we trying to fight a battle we can’t win? Is it even worth fighting this battle? Why not move to Quebec, where houses are much cheaper?

  • The mortgage on a detached house would be $700-$1400 per month.
  • Government subsidized private schools for under $6000 a year.
  • Montessori for $800 per month or daycare for $14 a day.

Taxes are higher, but wow, the balance sheet certainly looks better! Off we go. We’re out of here.”

How did Toronto eat Matt? Simple. Real estate. Can’t buy where he wants. Can’t rent what he wants. Prices are insane while demand seems insatiable. As part of a cohort that intensely wants an urban lifestyle, hates commuting, disdains the burbs yet can no longer afford a SFH near work, he hit the wall. Either stay, get screwed over and Hoovered clean, or split and find a life elsewhere.

In light of today’s all-housing-all-the-time BC budget and the pissy discussion we had on this site yesterday, Matt’s first blog post has relevance. The moister generation has reached a key moment, now entering family-formation, root-sinking years, wanting to turn into their parents but economically prevented from doing so. The lashing out has been epic – at politicians, realtors, central bankers, immigrants, Boomers, temporary foreign workers, bankers, regulators and, of course, the Chinese.

And, yes, facts are facts. Millennials in general are not on a roll. People now in their early thirties (says the Resolution Foundaton) earn 4% less than GenXers did at the same age. In the UK it’s reported that Mills have a 33% homeownership rate compared to 60% for Boomers then. In the US, the ownership rate among those under 35 has just risen to 36% (from 34.7%), but still pales compared to their parents’ experience.

The report calls it, “a ‘boom and bust’ cycle where significant generation-on-generation gains for older generations have come to a stop for younger people.” Another report (also British) found tech workers in London are now ‘Generation Rent’ and by 2025 more than half of all people under 40 will be tenants.

In Canada we’re off to a dismal start. Stats Canada reports 35% of those aged 20 to 34 are living with their parents (up from 30% two decades ago) – unprecedented. In Toronto the proportion of musty moister basement dwellers surges, to almost 48%. Concurrently, household formation is falling – down from almost 50% (for this age group) to about 42%.

So, there ya go. In Canada’s two bubble cities, where a million bucks buys crap, saving a down payments is impossible, rents are escalating, incomes are pedestrian and having a kid in a 600-foot apartment is a real bad idea, it’s fight, flight or capitulate.

Meanwhile a University of Alberta researcher spent time proving the obvious: the longer the Mills stay with mom, afraid to seek their own shelter, the more the family is debilitated. Michelle Maroto concluded that parents’ financial assets and savings were reduced by about a quarter when adult children refused to go. They don’t get married. No children. No independent home. Just more school and another degree.

So, clearly, the easily-offended, gender-sensitive, over-educated, socially-engineered lefties we call Millennials got the short straw. Growing up in a low-rate, low-growth, low-inflation world they have to contend with inflated asset prices (thanks to cheap money) and deflated incomes (thanks to a slow recovery). Too bad. But moaning won’t fix it. Or voting NDP. Or blaming yellow people. Or more taxes.

Real estate values will inevitably moderate as the cost of money rises and household debt goes from critical to moronic. But nobody should expect 40% declines in YVR or the GTA, especially in the urban areas always in demand. Even at that level, most people would find it unattainable without committing 100% of their net worth to a single asset. Unwise.

Matt, on the other hand, is a genius. Quebec City. Halifax. Kingston. Montreal. London. Edmonton. Nanaimo. Regina. Charlottetown.

Move. Or shut up.

Curb the enthusiasm

It was a bust. Of course.

When it comes to being pissed about unaffordable houses, it’s a lot easier to Tweet than it is to show up and, like, wave a sign. So a protest in Vancouver expected to “draw thousands” this weekend attracted about two hundred, at least half of them organizers. Included was the Green Party boss (propping up the current socialist government) who wants any non-BC person banned from owning property there. Xenophobia comes in many hues.

The event was meant as a pressure tactic on the NDP in advance of tomorrow’s big budget, urging the Dippers to make this a housing crisis document which, by all accounts, is just what’ll happen. So expect the usual government drivel about creating affordable units over the years to come, changing zoning laws to allow densification (ie – more ridings with NDP supporters), cracking down on money laundering (zero impact on real estate) and – the big one – a spec tax.

In BC things are getting truly messy. Yes, a local real estate bubble has developed making average houses unattainable to average families, but that’s a global urban trend. Instead of accepting it, as has happened in Toronto, New York or San Francisco, in YVR the locals won’t give up clinging to the 80s. They think children should be able to move into the same hoods their parents chose, and could afford, four decades ago. Quaint.

So when monetary policy, economic expansion or demographics make that impossible, YVRers moan, whine and elect socialists to fix it. Meanwhile in Toronto, crickets. No protests. No placards. No hating immigrants. Yet, look at this…

So here we are. In Van, a 15% anti-foreigner tax. An empty houses tax. Rising property tax. Talk of a non-resident ban. Soon (maybe) a speculation tax. All co-mingling with higher mortgage rates and a borrower stress test. And some people think Amazon’s going to open a new mega-HQ there. Like, seriously?

What happens if Premier Comrade Horgan brings in a spec tax on Tuesday? Let’s look at history for a clue.

On April 9th, 1974, after the average Toronto house price had catapulted 30% in a year, the provincial government (a Conservative one, no less) imposed a speculation tax without warning. The toll was 50% of all profits made on land transactions. Notably exempted were owner-occupied principal residences and family-owned farms.

The impact on the entire industry was immediate and overwhelming. Deals blew up overnight, sales withered and the market croaked. Prices tumbled since buyers fled. The same aggressive-Con administration later shocked everybody by blocking the sale of thousands of apartment units involved in a massive corporate deal – then slapped on rent controls. The market choked for a couple of years, before forming an historic bubble which collapsed into a smouldering heap. It would take 15 years for prices to recover.

The moral? Never, ever look to politicians to ‘fix’ the real estate market. On one hand they punish, tax, surprise and ream people legally profiting from it while, on the other, they use public money to subsidize buyers and create more demand. Suck, blow. Bubble, bust.

By allowing voters, locals and people waving signs to think they can turn back the clock and make houses cheap again, the horde running BC’s a fraud. The latest version. We keeping electing liars. They keep lying. Booting out foreigners, collaring realtors, raising taxes or jailing land criminals won’t change the price of property. Only Mr. Market can do that, which rising interest rates and epic household debt are hastening.

Worry about those things you can control in life, kids. This ain’t one of them.