A new type of slum

‘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.

13 comments ↓

#1 anxious renter on 04.22.08 at 10:33 pm

I rather rent than own one of those houses. I never liked them then or now and later.

I remember several years ago in s/w Toronto. A bakery was torn down for new town homes, starting price from $159,000. Wow I thought. I went into the sales office and learned that was the starting price for the 1 bedroom basement. I laughed and ran from the pitch. “Stacked town homes”. Don’t even get me started on Lofts.

#2 Eric on 04.22.08 at 11:12 pm

S,
I have a feeling you are referring to the town of Milton? There has been some topics in other forums regarding this Holmes episode, and now a lot of people seems to be checking their houses for “potential” problems.

#3 vultur on 04.22.08 at 11:20 pm

S,

If the area itself is desirable or becomes desirable- close to amenities, desirable schools, good transportation, scenic, etc. then the housing stock will slowly improve over time as the original houses depreciate. Vaughn is probably a good example of how poorly constructed subdivision homes have appreciated over time due to its proximity to Toronto and its cultural core.

As long as an area continues to grow in population and employment (bring on all the foreigners and make sure they wave to Alex at the nut house on their way into town) I believe the city’s housing market will experience higher than inflation adjusted rises in value over the long term as has been demonstrated over the past 15 years or so. Don’t look for enormous wealth creation from your primary residence and never speculate on that occurring, but you can expect to see a 4% to 5% appreciation over a long period provided the city continues to grow. The GTA is particularly attractive given the land freeze and the continued strong migration characteristics.

#4 Rob on 04.23.08 at 9:42 am

When we buy a new car we expect it to run around 8-12 years and then it will need to be replaced.

Housing is heading the same way. A new mass production house built using contemporary mass production materials and construction techniques may only be “good” for 30-40 years and would then need to be torn down and replaced. Like the brand new car, it may run well for a few years, then increasing breakdowns and maintenance incidents will occur.

#5 Robert B. on 04.23.08 at 10:22 am

Hi S,

I like your way of thinking. I agree with it. I live in Burlington and was looking at the new freehold townhouses being built and was shocked at how cheap they are being constructed. My problem: what years of homes are OK? I asked at work and was told that in the 70s due to rampant inflation the homes are bad (think aluminum wiring). The 80s homes were the first to be built airtight but suffer from mold and mildew because the humidity levels are too high. In the 90s the homes started being designed better but using lower quality materials.

Any comments?

Rob

#6 Alex on 04.23.08 at 1:02 pm

I share concern of S.
All type of construction in today’s Canada is of less than mediocre quality, but housing is a disaster!
When people buy a car they consider many factors: reliability, impact rating, cost of parts, fuel consumption, comfort, price depreciation etc.
When people buy a house they consider price, proximity to amenities and colour of tiles.
Builder New Home Warranty Rating? It is almost always excellent. This is so because this rating reflects only after construction service quality not the quality of construction. How many buyers know that?
How many buyers know that until 2006 year there were no qualification requirements in the Ontario Building Code Act for the position of building inspector of municipal building department?
Architectural and Structural requirements for buildings (except housing) are present in Part 3 and Part 4 of the Ontario Building Code (OBC). Only licensed Architect and Engineer can design high-rise condo, warehouse, office building etc.
Requirement for housing design and construction are present in Part 9 of the OBC. As per part 9 of OBC everyone who can read and have a common sense can design house and submit the drawings to the building department for approval. There is no need for architect and engineer to design it and inspect it. Almost all municipal building inspectors are ignorant with respect to the structural requirement of the Part 9 of OBC and those few who are knowledgeable are “greased” by the builders so they let them to cut the corners.
I have so much to say on the topic…

#7 pjwlk on 04.23.08 at 3:04 pm

Alex, please do continue…

#8 vultur on 04.23.08 at 4:34 pm

Not like the good ‘ol days before they let in all them foreigners speakin’ funny words and spellin’ and lookin’ all funny, eh Alex?

#9 SMWhite on 04.23.08 at 5:17 pm

That’s right vulture, we don’t have enough middle-class suckers in Canada, lets bring in more people from “away” and sell them the bullshit dream of owning a cardboard box; free money all you have to do is “buy” this asset that never goes down in price.

Only difference is we’ll pay them nothing to do the jobs none of “us” want and wipe are behinds with their credentials for the positions they are qualified for.

People still won’t admit that the market has peaked(Even though its happening everywhere else in the world), we have dumb asses that that won’t look at the history of real estate past the year 2000, are still lining up like the good little herd they are buying overpriced broom closets. The Toronto skyline is filled with cranes, yeah, more inventory!

The Bank of Canada had a very ominous warning yesterday. Is anyone listeing? They lowered rates one last time to help save those that bought in at the bottom of interest rates in and around 2003. The Bank of Canada will not have that luxury in 2009. So calculate your mortgage with 5% paid off the principle and rates 2% + higher, just for poops and giggles.

We are going to see people in 2009 – 2014 starting to flip banks their keys. But hey what do I know, maybe Canada is a unique anomaly and we’ll mark 2009 as the date that if you didn’t buy a house; or weren’t old enough to you either had to “earn your home the old fashioned way” or be full time tenants at the YMCA.

“Qu’ils mangent de la brioche”

The dead, divorced and desperate will drive the market right back from the moon to earth sooner then later.

#10 Future Expatriate on 04.23.08 at 6:31 pm

Another thing people don’t consider, or have forgotten. At the turn of the LAST century, no one would dream of having even a brownstone HALF the size of these houses without a housekeeper, a cook, and at the very least an upstairs maid. THAT all went out the window with the FIRST great depression, and the women of the house took over those duties until THEY hit the workforce in WWII. There was a brief respite in the 50’s when women once again were “allowed” to be the help, with the “help” of all sorts of modern appliances and gadgetry, and then, by the late 60’s, that all went out the window as it took two incomes to live comfortably, WITHOUT a staff.

But the point is this; no one in their right mind at the turn of the last century would have taken on one of these McMansions without a full staff to maintain it.

Not so today. Smaller is better and it will remain the watchword for decades to come, Garth’s got it right on the money.

#11 Dom-GTA on 04.23.08 at 7:39 pm

I watched attentively as my neighbours tore down their house and built these new McMansions. As noted above, I really wasn’t impressed by the quality of the construction. Not that I am a builder or an engineer, but when a million dollar home takes 1 year to build in Germany, Switzerland and the end result is a bunker with 3 foot thick concrete walls and that same house is built out of wood, paper and plastic in 3 months in Canada all I can say is I wouldn’t want to be in this house in a Category 4 or 5 hurricane or storm, seems a little rickety.

My last house was built in 1877 and I have to say that it felt and looked solid, The foundation was strong and after over 100 years the original building was still standing with some minor cosmetic issues.

I would be willing to bet that not 20% of the houses built today will be still standing in 40 years let alone 100 years. (not that is particulary matters as almost all of us will be good and dead) but it is a little concerning to see the shoddy craftmanship.

#12 nearmilton on 04.24.08 at 5:03 pm

Here is a link on typical lifespan of home components

http://www.bankofamerica.com/loansandhomes/index.cfm?template=home_components_life&statecheck=NY

Softwood, hardboard, and plywood last an average of 30 years, while OSB and particleboard are expected to function properly for 60 years.

So what’s going to happen to all these new homes with particleboard used for subfloors(joints sanded wipee) and siding mixed in with the odd gypsum siding board? I dont see how subloors or siding can be replaced easily?

#13 Pecked to Death by Ducks on 04.25.08 at 3:51 pm

What a great read! I enjoyed that article and it’s so true.
Ticky tacky boxes and they look alike….where are the brick layers of yore?