Should the government save the butts of people in Vancouver about to see the value of their homes plunge by a third or more? Should emergency measures be put in place to ensure this correction doesn’t cream an economy grown fat on real estate profits? Is there a responsibility to protect folks from the kind of equity plunge which eviscerated the US middle class? Don’t owners living in million-dollar houses with all their net worth deserve to be bailed out so their retirements are not spent dumpster-diving?
Those were the questions a BC business magazine writer fired at me some hours ago. And he was serious. Even told me the schemes he’d heard business and government leaders are kicking around, now that they’ve learned it isn’t different there.
So I reflected briefly before I answered, because I don’t wish to be a hypocrite. There was a time when I actually advocated for government protection of the middle class during a real estate crisis. Are there any parallels?
Back then inflation was outta control and the Bank of Canada decided to squeeze the economy like a bloated Shamwow. Up went interest rates to unheard-of levels, and in the early 80s the five-year mortgage rate touched 21.75%. People renewing their home loans (five years earlier a mortgage had been 7%) were being crushed by payments 300% higher. Default rates spiked and the market collapsed.
I was a crusading, contrarian, pain-in-the-ass, arrogant, iconoclastic and vaguely pathetic daily newspaper editor and columnist at the time. I rallied my readers, rounded up 40 or 50 highway coaches and landed a few thousand people on Parliament Hill, where we stomped and flummoxed. In a few hours the government emerged and declared a moratorium on mortgage foreclosures.
So there, I admit it. I lobbied the feds on behalf of homeowners. Why would it be any different now?
After a nano-second of reflection it was clear that everything’s different, and nobody invested to their clavicles in real estate deserves any special treatment. After all, it was only four years ago the economy had a near-death experience, with stock markets crashing, jobs evaporating, houses plunging, with the spectre of systemic financial collapse. If there was ever a lesson in what debt and dumb can do, that was it. We watched the US economy implode as its housing market collapsed.
Of course, your friends, your parents, that idiot BIL and all the girls at work learned nothing. Mortgage rates spiraled lower and the greatest housing orgy in Canadian history began. Forty-eight months later we have more debt and higher home prices than Americans ever did. Saving and investing is out, Miele and Aga are in. Kids brag about how much mortgage they carry and wrinkly Boomers wheeze around their new trophy houses.
There’s no state-imposed regimen of 20% mortgages and scant credit. Instead, money is the cheapest and most plentiful in history. People routinely buy houses with 95% financing, and the government protects their lenders. It’s suddenly a disaster when mortgage pay-back times drop from 30 years to twenty-five, or banks no longer give away free down payments. Ottawa passed around crack cocaine, and now we’re all wasted. How is this supposed to end well?
Such things swirled in my mind as I listened to the reporter itemize the proposed ‘emergency actions’ he heard are being contemplated by government officials. There were three. First, a special fund which homeowners could draw upon to make mortgage payments if a real estate correction impacted their employment. Second, the ability to write mortgage interest off income tax, as is the case in the US (where houses cost a quarter what they do in Vancouver). Third, a ban on anyone losing their home for non-payment of a mortgage.
Won’t work, I said. Governments cannot afford the billions to keep Vancouver mortgages current, or allow everyone to turn their mortgages into tax deductions. Nor should they even try. If prices correct by 20% or even 40%, there’s never been a more well-deserved financial haircut. Speculation, greed, house lust and profligacy have turned shelter into a commodity, bestowed windfall profits upon the undeserving and created a new tenant class. This is self-inflicted risk, an HGTV-imbued delusion leading us down the same sorry-ass path Americans trod. We’re not special. Or different. Just whacked.
But you know what? It might happen. Once this mess starts to creep you can be sure a demagogue or two will emerge.
Let’s hope some rebels do, too.