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This week the streets of Toronto are witness to further evidence of speculator mania. For the third time in recent weeks, a lineup of paid surrogates (representing realtors, who no doubt represent their well-informed and cash-confident customers) are passing days and nights in idle chatter awaiting the magic moment when a new condo sales office opens. The queue is on Yonge Street, south of College.
UPDATE: See this frenzy of paid text ads and web pages at the top of Google search, whipping up the mania for these units (Fall 2011 occupancy – 3 1/2 years from today).
‘Filming of TV show was the warning… to move’
Just received this email, and found it of such clarity that I wanted to share it with you. I have posted some similar sentiments here from analysts in the United States, and I hinted at such a development in my book, but this letter puts the potential trip from dream home to slum home in a stark, realistic light. Let’s hope this scenario does not materialize, but the odds are increasing that it will. — Garth
Garth,
I enjoyed reading your book, it was very illuminating.
One topic your book did not address is what happens after the housing slump, and what impact will it have economically and socially on Canada? A theory I have had for a while is we will see a new type of slum, one that will be located where new housing is popping up faster than you can say ‘built cheaply and quickly’. Instead of inner city slums, we will have suburban slums.
I originally predicted this after living in a cookie cutter home that was built in 3 months in a city that was exploding with new homes. When you first move in they are wonderful looking, just as you’d expect any new home to be. It’s amazing what a fresh coat of paint can do to make a house look nice and clean.
Then you soon start to realize it’s not even paint on the walls (its coloured primer), and that’s not the only short cut the builder took. When you’re building 6,000 homes saving $100 in lesser materials (or the absence of features), you make another $600,000 in profits. So you end up with only primer on the ceilings, no paint. Particle board everywhere, no plywood flooring. The exterior has lots of wood that needs constant painting. Poor plumbing installation where they skimped on bracing the pipes. No shut off valves on the pipes near fixtures. And you can be sure that the fixtures in the house weren’t even purchased at Canadian Tire.
Our neighbourhood (located in your riding) quickly started to deteriorate as people did not keep up the maintenance. Our builder chose designs where much of the space was around the front windows was wood, and if you didn’t paint it every few years it would look bad. After a few years many houses had window frames that had rotted, paint that was peeling, and other cosmetic problems that were being ignored or neglected. The neighbourhood sure didn’t look like it used to.
Why was this? Was it laziness, ignorance, or something else? After reading your book I though of an alternative explanation … they can’t afford it. People buy as much house as they can and don’t leave room in their cash flow for anything else. They expected that a new house would have little maintenance and didn’t budget for it. But this is not true. There is a great deal of work when you move into a new house, and the costs add up quickly. Fencing, basic landscaping, painting (because the builder used coloured primer) all needs to be done.
And it’s going to get worse. Once the houses are 10-15 years old, that’s when the major repairs will start. Builders don’t think long term when they choose materials, so furnaces, air conditioners, shingles, and other fixtures will start requiring replacement, and these aren’t inexpensive. If someone is still paying huge mortgage payments a new $4000 furnace is going to hurt. If you think some of these neighbourhoods look bad now, just wait until no one is replacing their roofs. And of course, as you pointed out, if the houses are falling in value, the motivation to maintain them and invest more money in maintenance and upkeep will also fall.
Builders don’t put the amount of craftsmanship they used to into their houses. How can you when you build them by the thousands? We realized it was time to sell our house when an episode of HGTV’s ‘Holmes on Homes’ was filmed in our subdivision, and he started illuminating all the faults of the house which was built by our builder. If that house was built improperly, I’m sure ours was no different. He’s not the guy you want to see fixing a house built by your builder. We considered it a warning of what was to come.
So I believe we’re going to see a new kind of slum in this country, one that moves from the inner city to the suburbs. Builders racing to put up cheaply built houses with inferior products and building practices will be the primary contributor to this. But if the housing market retreats (I should say when it retreats, as in its falling now), this will compound the new slum trend. And I haven’t even considered yet the foreclosed / abandoned properties and their contribution to this problem. What impact will this have on Canada, our neighbourhoods, and what we’ll expect in the future from our new homes? Will people retreat to older neighbourhoods where 20-30 years ago builders weren’t building their homes on assembly lines? Will this lack of demand and excess of supply cause the prices of homes recently built to fall even more?
S.
US housing headed for Depression status?
