R.I.P?

Alberta: Prices plop but property tax plumps: here

A visitor recently asked me if the suburbs will soon die. The question is more reasonable than it appears. After all, we’re in a watershed time. Isn’t it wise to ask if a form of housing born six decades ago, created for that time and based on premises we all now challenge, is doomed?

In my neck of the woods, the urban sprawl that extends for 100 km in every direction from downtown Toronto, they call them the Xburbs. As I mentioned, this is where the Gen Xers go to buy McMansions built on an assembly line and then planted on Class A farmland. They do this because they can get 3,000 square feet of new house with granite countertops, stainless appliances, media rooms, double car garages and a better lifestyle than their parents achieved after fifty years, instantly. Often the downpayment is next to nothing, just 1.5% of purchase price. And with a 40-year mortgage, monthly payments are lessened. It means a quality of life can be had without the bother of a lifetime of work. What’s not to like?

Initially, suburbs offered a release from the grime and proximity of urban living. They gave what only rich people could afford them – space, the illusion of nature, convenience and modernity. They were also important because of homogeneity. The suburbs were quintessentially middle-class and upwardly mobile, with decent schools and an utter sameness which was comforting after the unevenness of city life.

Like you, perhaps, I was a child of this lifestyle. Cars, lawns, predictable neighbours, dogs, curvy streets, shopping centres and more suburbs, all connected with arterial roads and controlled-access highways which eventually snaked away to a pointy downtown. For decades, this was a choice place to aspire to. But lately, conditions have changed. We are now questioning the very premise of the burbs.

Futurist James Kunstler has called them the greatest waste of infrastructure in human history, and may well be correct. After all, the burbs only work when there are cars, and the energy needed to make them run is now becoming precious. Second, the urban sprawl which the suburbs by definition create has given society a problem akin to that faced by the Roman Empire – millions of people now live far from services and supplies, and bringing those lines closer is bankrupting everyone. Third, the suburbs, populated with wasteful single-family homes left empty too often and only partially occupied the rest of the time, sitting on land which once produced crops, sucking endless energy and water through miles of pipes and tubes, where residents burn a litre of gas to get a litre of milk in a distant, centralized shopping area to avoid lower property values through neighbourhood commercialization, are an environmental nightmare. Fourth, demographics and growing need for Boomers to convert homes into cash dooms the kind of homes most of them now own. Fifth, suburbs are about to suffer the greatest blow – falling out of fashion.

This leads us to the future, immediate and long-term. What should we expect to happen to the suburbs?

Clearly, the threats are well-known. Suburbs need cars, and our car-centric culture is threatened as never before. Until alternatives to the oil-fuelled internal combustion engine are reliable and affordable, the burbs will decline in popularity. The energy crisis also underscores the massive mistakes policy-makers have left us with – miles of houses without stores, streetscapes nobody wants to walk down, infrastructure so inefficient that property taxes become unaffordable, whole new populated landscapes with shade trees or moderating open waters and where per-unit energy consumption is unparalleled. Worse, we have mass-produced homes of many building materials with a life expectancy measured in decades, not centuries.

These and other factors lead me to the inescapable conclusion that buyers are falling out of love with the suburbs, a trend that will rapidly augment. In fact, living in the distant, minivan-cluttered pods will become akin to smoking. Shunned, socially downscale, culturally inferior, environmentally toxic.

The conclusion, economically, is clear: Big price declines, proportionate with the amount of gas required to get there. As smart, modern, transit-friendly urban properties increase in value, so will the behemoths in the burbs devalue. Furthermore, the larger the home, the less it will be worth.

In case you just awoke, it is already happening.

The suburbs are not going away. They will not be abandoned or deserted. A US-style meltdown could leave most blocks with one or two boarded-up homes with unkempt lawns, piles of unread flyers on the porch and a devaluing effect on the street, but the remainder will stay occupied. Many will be rentals, others purchased by those priced out of the social mainstream.

Those residents will wonder how the first people to live there could have been so delusional, as they dream of some day affording the city.

74 comments ↓

#1 Simon on 07.04.08 at 11:50 am

I feel that there is often a chicken little/sky is falling mentality on this site. However, this post about the buried costs within the cheaper real estate of the suburbs is one the feels intuitively valid.

I’ve wondered how gas prices might serve to support and increase the value of urban real estate which is where I am planning to buy in the next 6 months (…bring on the prophecies of doom!)

At the same time I am reminded about a statistic I read in the Atlantic Monthly a few years ago. It was from the late 19th century, and it prophecied doom and catastrophe from the dramatic increase in the amount of horse manure being produced due to the rapid increase in human and equine populations.

The author had extrapolated some statistics about recent increases in horse manure and costs of disposal, and used these figures to support a horrific view of the future.

It was Benjamin Disraeli who said “There are three kinds of lies…Lies, Damned Lies, and Statistics”.

http://en.wikipedia.org/wiki/Lies,_damned_lies,_and_statistics

I think that discussions on this site are always interesting and thought provoking. However, I have faith in the intelligence, inventiveness and good will of my fellow man (including real estate agents! lol) and I am confident that we are simply going through a modest, normal economic adjustment and the world will not end. :-)

#2 Calgary Rocks on 07.04.08 at 11:51 am

This has been the case for a number of years, especially because kids raised in the subs want the excitement of the city in their ‘wild’ 20s & 30s

I remember when the term inner-city ment crime infested. Now it still means crime infested but also full of capuccino yuppies and overpriced coffins, err. condos.

I doubt that a family of 4 will ever dream of living in a 700sqft condo but hey, you never know. Most likely, they will dream of the ‘good old days’ when they were able to afford such ‘luxuries’ as a SFH for their life’s work.

Urban living does not mean a condo. The bulk of the urban housing stock is single-family. — Garth

#3 Simon on 07.04.08 at 11:55 am

Here is a link to the horse manure issure I references above.

http://cityroom.blogs.nytimes.com/2008/06/09/when-horses-posed-a-public-health-hazard/

#4 Calgary Rocks on 07.04.08 at 12:05 pm

One more thing. My gf’s uncle bought this little house by the lake in Oakville in the 70’s (not exactly the best economic period) since he could not afford anything in the city back then either. Turned out ok in the end.

#5 JB on 07.04.08 at 12:06 pm

I agree that Real Estate is overvalued and do for a hard landing simply because the world has succumbed to the debt Kool-Aid… However, when we hear about Kunstler and his biased extremists views and misinformation or ignorance on peak oil, then we should look at the alternative energy world for information.

We have the technology today to completely move over to solar and wind… the only weakness in the alternative energy world is battery technology, which is about two to three years from solving the puzzle so to speak. CSP and wind technology directly competes with coal, uranium and oil. At 150-200 dollars a barrel, it does not make economic sense to use oil as a major form of energy.

The oil, uranium, and coal industry are doing everything possible to deny those costs, along with the peak oil extremists who numbers on alternative energy do not add up. They must have moved over from the Y2K crowd.

I would be careful about any so-called experts who like most have an agenda because they do not like urban sprawl… Peak oil sure, peak energy ridiculous‼

Joseph

#6 Crashing Yuppy on 07.04.08 at 12:08 pm

Garth,

There is a huge disconnect between the Government message/media message with regard to what needs to be built into a sustainable community and what Developers are building.

For instance: Big Box Stores

Out in the 905 the Big Box Store/Power Centre model rules. Huge stores all bunched to gether with one thing in common: Massive Parking lots and little/no access to public transportation.

The Government Media Message: More Public Transit = less cars on the road

The Developer Message: The suburbs and infastructure we are building is all around the Car = You need a car to access it and Haul your purchases home.

Indeed the devaluation of the burbs will be in direct proportion to the price of fuel.

#7 Calgary Rocks on 07.04.08 at 12:08 pm

Urban living does not mean a condo. The bulk of the urban housing stock is single-family. — Garth
=====================

That stuff is unaffordable to most people in the big cities, unfortunately, except in places like Calgary where the older neighborhoods (but not inner city) still offer good value.

#8 R. Moer on 07.04.08 at 12:15 pm

Memo To File (Dateline July 1, 1960:

Avoid debt…Save some cash, fuel, tools, seeds, friends.

Woulda, could, shouda… didn’t.

Update (Dateline JUly 1, 2008). Got busy being selfish.

North America has been under a collective and lethal delusion for the last 60 years. Governments,banking, industry, unions, educational institutes and all social units wrongly asssumed that cabon enrgy was infinite like the passnegr pigeon and buffalo before it.

Wastefullness was not penalized.

In the next 60 years for most of humanity that is not self sufficient … organizational stress, starvation and extinction will unfold in progressive series.

We all are governed by biological and planetary resources laws whether we knowit or not. We are now in the payback phase, and entire segments of indsutrial life will be made non viable. Kiss the bubble good bye.

Enter the Greater Depression as we are bankrupt financially, energetically, morally.

#9 Brian on 07.04.08 at 12:21 pm

Bleah. Urban living. I hate surburban living and for all of the qualities of it that I hate, I’d hate urban living even more.

Garth you mentioned in the Afterword of Greater Fool, the house you now have which you describe as both urban and “enough property for food options”.

Those seem incompatible to me unless either of my ideas of urban or the amount of property required for “food options” (which seems a bit more serious than just a few tomatoes for a fresh summer’s day salad) is out of whack.

I live on your typical neighborhood plot of about 55’x115′ and I consider it neither urban nor big enough for “food options”. I don’t have daily needs within a short walk (although I suppose a crappy transit system is within a short walk), nor do I see being able to seriously grow food here.

It seems to me that the closer I come to either of those goals, the further away I get from the other.

#10 Jon B on 07.04.08 at 12:51 pm

Garth, with a focus on the BC lower mainland, what area might be considered as a desirable family neighborhood that is not defined as being in the “suburbs”? Just trying to match up an actual area to the concept you are putting forth. Thanks.

#11 Mike.slob on 07.04.08 at 1:14 pm

From previous article posted by Calgary Real Estate Board we can see price correction about -4.65%, because of weak sales from record year 2007.
But report from TREB for May/2008 is bizarre especialy for West Region of Toronto Area(Mississauga,Brampton,Oakville,Milton,Burlington),has decline of sales 13.1% and avg. price increased 17.8% from 2007 (or avg.price is up $57,000.)
Can somebody explain to me WHY?
Avg. price in East,Central, and North regions of GTA are up between 1.5% and 4.4%.
I can’t understend market in GTA at all, because East Region has decline 14.1% and avg. price increased from 2007 only 1.5 % (or avg. price is up $ 5,500)?
Anyway Realtors from west suburbs did “amaizing fake job”,even when sales had declined on the market….

My Real Estate prediction for June 2008:
Sales volume in GTA will be down between
14% and 17%.

My Real Estate prediction for July 2008:
Sales volume in GTA will be down between
17% and 22%.

The United States gave to Canadians a good prelude of what a market collapse is like.

Yesterday price of crude oil hit $ 145.85.
But in US the fuel price is cheaper than Canada about 10% to 15%. In US avg. house price is about $ 208K, and in Canada $ 314K.
In US you can claim mortgage interest on your income, in Canada you can’t do it.
In US you have cheaper property taxes,less income taxes,cheaper car,home and life insurances.
And in US the retail prices in stores are cheaper than Canadian about 20%.In Canada always you have unemployement rate higher than US…
But in Canada house prices can going only up?
Why,because we have “double wages” than US?
Avg. Net income in Canada is 20% less than US,and we have to pay more for houses,food,fuel,taxes,
insurances and etc..
So,now US is in big economy recession and Canada has even worst when you’ll see avg. living standard of population.

#12 George on 07.04.08 at 1:34 pm

I like dense urban environments and remote wilderness areas. (They are both jungles)

Anything in between is fly-over country. Utterly forgettable.

Have had plenty of experience of suburbs and farms. Couldn’t pay me to go back.

#13 Ask David Suzuki on 07.04.08 at 2:22 pm

Over the past 50+ years, the average house has more than doubled in size, while the average family has shrunk in size. This is the main issue here, and compliments a larger issue related to, but perhaps outside the scope of this blog which is consumerism (which is the cause of our massive amount of consumer debt people carry). Through my work (I have a carpet cleaning buisness) I go to about 4 homes per day in every area in the city of Calgary and surrounding “exurbs/suburbs” to do cleaning and see homes in every economic bracket. My observation is this;
Essentially every “non inner city” home has a several hundred to 1000 sq ft of wasted space. Many familes have 3 bedroom home with finished basement, and one child. Or perhaps a 5 bedroom home (3 up 2 down in finished basement) and three are used- One adult room, one for the younger sibling, one downstairs for the teenager. Each home has two living rooms, almost a bathroom per person, a double garage which is often full of junk/unneccessary purchases, storage for the far too many “things” people seem to need/want to own.
The footprint of the house is so large it eats up what would normally be a nice size peice of land to grow a family sized garden if so needed (which it seems will be soon). The topic of this post sums it up nicely that theses homes consume not only vast amounts of energy but huge tracts of quality farm land, but they give NOTHING back to the economy or the entire “system” that they suck from. Historically (besides the past 50 years) most every home outside the core of the city had a garden, a compost area and likely even a wood shop/shed where house hold items were built by hand, like fences, a swing set for the kids or whatever else you needed. Anything that consumes huge amounts of energy endlessly, but gives nothing back will eventually consume itself, and here we are.

The other trend I also notice with these families as I talk to the owners often and see every room as I clean it is that essentially each child has a tv/computer or both in their room, as do the adults. This leaves a hole in the family unit where they would normally gather in one room which gives them a chance to converse. each individual seems isolated in their own space, withing the same home by technology…is this helping anything? Teen deppression and suicide are on the rise…wonder why? As many have often complained, there is not much to do in the suburbs for kids/teens hence the hanging out in front of the 7-11, raising teen gang activity/associations and drug and alcohol abuse is a plague on the suburbs. Since I need to move things like beds, dressers etc I often stumble upon drugs, needles, pipes, pornography, drug paraphanalia, in many rooms of the “average” nice family suburban home.

When i go to these homes I often find smaller homes, on a similar sized lot (50×120 is typical). These families often have lovely gardens, there are huge old trees all over the area around many types of massive hedges and vegetation in general which somehow provides a sense of connectedness to our natural surroundings-the earth. You will find grocery stores in old homes withing walking distance easily, no big box anything nearby, which again provides some type of comfort. The neighbors seem to know each other more, and I find maybe two tv’s max per home, although the amount of bedrooms and family size may be the same. There are schools within walking distance also, and many excellent community centres, many with community pools, a concept of an era gone by, that is still serving the locals families- what a great idea! I guess my point is the sense of community seems stronger, a connection to nature and the environment is stronger, families living in a 1200- sq ft bungalow seem more connected. Less space is wasted, all the costs with running a home built 50 years a go would be less (yes you must maintain it- but these homes were built like tanks-many have had extensivie upgrades renos) and the homes give back to the neighborhood by being A)unique looking/not cookie cutter B)many have gardens C)using less everything-energy/farm land etc…and more and more often I am finding them retrofitted with solar panels to lessen further the environmental footprint, while the kids walk to school and the parents walk to work or one short busride downtown. The inner city is a great option. The suburbs just dont fit with how people have been living for centuries…they are simply to disconnected from everything.

#14 Ask David Suzuki on 07.04.08 at 2:26 pm

*”When I go to these inner city homes”-sorry typo…

#15 Ask David Suzuki on 07.04.08 at 2:32 pm

Oh and when you comment back these homes are too small, remember these were all FAMILY homes, and often larger families. It is possible, so when you think “how can I leave the suburbs” and move to a small home it is simple-ditch your junk, keep the family.

#16 David on 07.04.08 at 3:16 pm

There are some incredibly beautiful old Victorian era homes in Canadian cities built during the Laurier era boom times. By the 1930’s these behemoth homes had been converted to rooming houses due to hard economic times. Hardship and upkeep costs sealed these homes fate for generations. These homes are incredibly well built and survived for many generations of use. It would take a Daisy cutter and a few bunker busters to drop one of these Victorian houses even today.
It is unfortunately true that in Canada nearly all of the new home construction during the bubble period was of the McMansion variety with all its attendant high carbon footprint and stainless steel appliances and oversized garages for the Hummer. The dream home has turned into an overwhelming financial burden and an object of derision. The cultural icon for the housing bubble age became obsolete very quickly.
Finding any type of economic use for these places in the future is going to be one big challenge.
http://www.metacafe.com/watch/931177/mcmansion_documentary_teaser/

#17 The Other David on 07.04.08 at 3:31 pm

Ask David Suzuki: LOL, so true

We have become a society that shop at Walmart and horde junk. Keep it simple only buy made in Canada and USA products, that will keep the junk to a minimum

#18 mattbg on 07.04.08 at 3:37 pm

I went through North Milton recently and couldn’t believe what a wasteland it has become. I went toward the west from the east and it was just kilometre after kilometre of identical, expensive housing physically barriered from the thoroughfare with some cheap, ugly fencing. It looked like it was set to just keep growing until it filled its borders, without much purpose or master plan.

Something else that I noticed was how wide these residential streets are. Some of the streets are low-volume roads with no prospect of being heavily-travelled, yet they’re wide enough for 4 large cars to pass simultaneously.

Halton Hills (Georgetown, specifically) is now being pressured to take some of the growth currently being funnelled into Milton. This is a wellwater-operated town approaching their water-taking limits and are now getting pressured by developers to receive a lake-based solution, which was the same thing that essentially began the Milton explosion. I don’t have much faith that they’ll be defeated, so we can expect to see the same mistakes repeated further north, I think. Georgetown South is already a dump of North Milton character, but not of the same scale…yet.

I agree with you that the suburbs will probably not be deserted. How can they be? The inner-city homes are the ones already out of reach, price-wise, of the average buyer and with this new demand, there’s not much hope that’ll change.

#19 mattbg on 07.04.08 at 3:43 pm

JB,

You are right about Kunstler in one respect — he did make a lot of noise about Y2K, too. The problem with criticizing Y2K doomsayers is that you don’t really know how much of a part they played in PREVENTING their negative scenarios from coming true.

If I warn you that you’ll bit hit by a train and you move out of the way, I was wrong in my prediction that you will be hit by a train… but was it worthless information?

Kunstler’s expertise is in urban design and urban planning, and he has branched out from there with varying degrees of valid comment, I think. Sometimes he gets it right, and sometimes not. But his comments on urban design and planning are very insightful and very helpful — he has published a number of books on the subject. Many of them are intuitively sensible if you take the time to read them, I think.

He’s a colourful writer and speaker, too, which makes it interesting :)

#20 simon on 07.04.08 at 4:03 pm

??

Garth (or whoever approves postings), why did you not approve my post this morning?

I’m shocked.

While I think there is a little fearmongering here, I never for a moment thought that you were editorialising the comments.

I am truly shocked, and hope this was simply an oversight.

Keep your knickers on. The comment was caught in the filter. — Garth

#21 Cheech on 07.04.08 at 4:32 pm

The flight from Toronto is not only people, it is jobs. I’m an engineer and have worked both d/t and in the ‘burbs. There seem to be a lot more good paying private sector jobs up in the Toronto suburbs than d/t. The jobs that are downtown seem to be Government or Health care.

So what are the chances of a reverse flight? Is a big employer like IBM or AMD (old ATI) moving into the city? What would drive these employers out of the ‘burbs and give up existing office space for more expensive digs in a high density center? And please don’t say the TTC. Being packed like a sardine in a street car that covers 6km in 1 hour is not an incentive. It’s a joke.

I think this is what Toronto has to come to grips with. If they don’t, they will be BEGGING for Walmart to open up stores.

#22 Future Expatriate on 07.04.08 at 5:54 pm

Garth, thanks for expounding on my suburb post. When I said though that they would disappear, I meant in forty years, when their subfloors and walls start collapsing. Then and only then I think people, happy with their life in the cities, and more importantly, market demand, will raze the slums the burbs have become and return it to much needed farmland, for both fuel and food, which will certainly be much harder to come by forty years down the road.

Perhaps this might end up being more true in the US because of weather and climate.

As city cores renew and suburbs collaspe, it seems the exodus will be exacerbated by human nature, always chasing after and wanting to live where the “newest” development and infrastructure is. Even if it’s rebuilt.

#23 kabloona on 07.04.08 at 5:55 pm

All the Financial Services jobs are in downtown TO, not just the government jobs supporting the blokes at Queen’s Park. But the ‘burbs like Markham and Mississauga have plenty of the IT stuff like IBM, Emergis, CGI, etc. The GTA is like one big contiguous area in my mind, but it’s begging for better integrated transit services – or else travel will be a nightmare in a few years….as if it isn’t bad enough already!

#24 Ask David Suzuki on 07.04.08 at 6:08 pm

Wow am I Smart! Read my kinda long, perhaps not so well written comment/s, then watch the trailer for the “mcmansion” documentary David posted…..
NAILED IT!
btw I live Inner city…love it. My house is a early 1900’s Bungalow with a really small basement with 6’4 inch ceiling….sorry no 9′ ceiling for my 70 inch projection tv in my “media room” (oh god how lame) Never gets water in it when it rains heavily. House is rock solid. One bathroom, 3 bedrooms and only about 950 sq ft. haha it’s so cheap. I use all the space (no wasted unused rooms/space). It has a newer detached double garage. I can walk to downtown, and trendy shops and areas that are all over the surrounding area. I am going to replace a few windows since some are original! Put in solar panels myself, a rain barrel, already has a tree in the front yard that is probably older than the house judging from its size…nice tire swing for the kids, and there are HUGE inner city (beautiful well maintained) parks (like 3) within walking distance for the kids. The crime? Check your suburban crime rate for break and enters and stolen vehicles…many suburb areas have it worse. Why? thats where all the nice leased lexus and bmw are for people who want to pretend to be rich, and the big empty houses where no one is home cause it takes two adults working more than full time to service all their debts, and the homes are full of big plasma tvs and jewellery etc. New Energy Program or not, this is gonna be way worse than 1982-85 in Calgary becasue the scale is much larger this time, and IM guessing the consumer debt is higher per person here now than it was then. Oh god this is depressing. It seemed only 8-12 months ago Calgary streets were paved with gold, opportunities endless. Man, what happened?

#25 wealthy renter on 07.04.08 at 6:22 pm

I agree with Mr. Turner’s notion that the suburbs will decline in value, perhaps substantially, but I think his position is overstated. For instance, I don’t see the potential X-urban dweller deciding to move to The City of Toronto [or insert city.] For those folks, the benefits of living in these communities far outweigh the costs of gasoline. I think they will stay put for the following reasons.

Jobs
Cheech’s post explains it well.

Schools
There are still a number of good public schools in Toronto, but that number is declining every year. Parents read publications such as the “Fraser Institute” Ranking of schools in Ontario, and make decisions based on their findings. In many middle class areas in Toronto, the standardized test scores are dismal, and once proud schools are now in decay.
Parents often make the flight to the Xburbs for their kids. The worst public schools in Halton Hills (Mr. Turner’s Riding,) would rank in the 80th percentile in Toronto. (Incidentally, I know there is a lot more to schools than test rankings, but numbers matter to many parents.)

Ask David Suzuki puts the wrong spin on the Xburb kids. Sure there are lots of drugs, drinking and sex, but the Xburb kids don’t have a fraction of the issues facing kids in the inner city. They are not comparable.

Cost
Many of the McMansion-buying GenX people that Mr. Turner talks about cannot remotely afford a decent home in vast swaths of the city of Toronto. If they desire the white picket fence suburban dream now, they will not want to live in the areas they can afford in the city. When given the choice of living in Rexdale, many would gladly pump an extra few thousand dollars worth of gas into the Minivan or Hummer .

Transportation
It is extremely difficult and time consuming to get around Toronto via public transportation. The TTC does a good job of serving the downtown core, which not surprisingly, has prices in the stratosphere. If you happen to work anywhere much north of Bloor, the city is gridlocked. A one hour commute to work by car or by bus for city dwellers is not uncommon. The short city commute is often used by real estate commentators to explain the “New paradigm”. It is probably true in the overpriced core, bit it is not the reality for the masses left in the city. That said, the commute from the Xburbs must be soul destroying, but thousands use the 407, flextime, or Go Transit. A city commute is not much better.

#26 nonplused on 07.04.08 at 6:37 pm

This is a bit of a tangent into some of the other problems we have besides housing but since Garth mentioned Kunstler:

My daughter (13) asked me an interesting question today: “Do you have to pay tax on the amount of money you make, or the amount of money you have?”

It took me about 20 minutes to explain the income tax on money you make, property tax on money you have (or money you borrowed if you have a 0/40!), capital gains tax (which is really just taxing inflation so it’s a tax on money you have), payroll taxes (worker’s comp and CPP) excise taxes, fuel taxes and all the compound taxes like hotel taxes (the hotel already pays property taxes but you get to pay a tax on the room as well!) and the GST & PST which are levied against purchases made with dollars that have already been taxed, and compound on any taxes already levied against the goods or services. It’s complicated. I think I left her depressed. I was depressed, anyway.

No wonder nobody maintains their houses! They don’t have any money left!

I guess taxes are inevitable, but the problem I have with dedicating over 50% of our collective incomes to the government is that governments cannot avoid mismanaging the money! (It could take a while to explain why that is, but it’s human nature. If it isn’t yours you will not manage it optimally. Look at the hedge fund industry for an example. It’s called “The Tragedy of the Commons” in economics.) So the cities builds roads, bridges and suburbs for a society that soon won’t have cars (but no rail transit), the province builds highways instead of rail links, and the federal government pisses away money on a war in some country none of us will probably ever visit for reasons that still seem rather elusive. Money paid as taxes will be misallocated by some percentage, and the percentage rises with time.

I think we might be in even more trouble than the US and I don’t know why the rose colored glasses are taking so long to come off. The other mess the boomers left me & my daughter with besides unpayable taxes is an unpayable federal debt. I know, there is a “surplus” of some small number of billions of dollars per year, but it is peanuts compared to the over $500 billion of debt still outstanding! If long term rates rise here like they are in Europe to combat inflation, the surplus will evaporate immediately as interest costs rise. In fact, I would argue that it was never good government that produced the surplus in the first place. All governments are irresponsible kleptomaniacs and that cannot be avoided. They got lucky when their debt service charges fell with the general interest rate environment.

What’s that to do with housing? Don’t know but I think we are doomed. If interest rates go up, not only will mortgage costs rise, but the government will be forced to raise taxes as debt service cost rise. People will get hit from both sides.

I also can’t understand why people can’t make the connection between $150 oil and eventual rising interest rates. Rates go up (with a lag) whenever commodities go up. If they don’t the currency collapses, and nobody wants that. At least I think nobody shouldn’t want that. The inflationary depression Germany suffered in the 30’s was every bit as bad or worse than the deflationary depression suffered elsewhere in the 30’s. I think if you play with the eventual implications of $150 oil on inflation and interest rates, then factor in the unpayable amounts of debt most western nations have most of which was entirely squandered on things we either don’t need or can’t use, there are more shoes about to drop. Real estate might be the last of our concerns! It’s just a symptom of a much larger problem.

#27 Marky Mark and the funky bunch on 07.04.08 at 6:48 pm

this isn’t a bad thing in my eyes……..I’ve never ridden my bike as much as I have in the past year since when I was a little kid…….because of it, I am in great shape……..I feel terrific arriving at work after my ride to it.

I also hope these increases in prices makes crap junk food less affordable too. I don’t feel like devoting my taxes to out of shape suburbanites with diabetes, cardiovascular disease and the likes in the next decade or so just so that they can have a grass backyard.

#28 mattbg on 07.04.08 at 7:31 pm

Marky Mark, junk food will not rise in price as quickly as healthy food will. Generally, you have no idea what’s actually in junk food, so manufacturers can mess with the recipes to make it suit whatever cheap ingredients they can get their hands on.

Also, junk food has far more of its costs tied up in things unrelated to the underlying ingredients — a box of Corn Flakes, for example, probably has less than 25 cents worth of corn in it. So, if corn doubles you will pay $3.75 for your box of Corn Flakes instead of $3.50 (there are other inflationary pressures, so this is simplistic…but you get the point).

It’s harder to fake what’s in a tomato, on the other hand…

#29 3rdman on 07.04.08 at 8:05 pm

All I know about Halton Hills/Milton etc on brief visits is it must be home to about 10 billion mosquitoes & blackfly and Acton still has some of the roughest teens I ever did see. I don’t think some of these folks see soap often enough…

#30 Joseph on 07.04.08 at 8:23 pm

No hyperinflation has occured in a society laden with debt.. The current shock to the global economy are facing two fold, one the defaltionary forces from overvalued assets that are falling in value, and the inflationary forces of the spike in commidites. Within a year the global concern will be deflation becaus the OECD countries cannot afford higher rates, the debt levels will collaspe demand further… Look at the current numbers from the Fed, credit demand is falling..the deflationary beast is here..Asia who is the manufactoring sector of the world will not be immune.
The good news is that in deflatinoary periods goverments resort to captial spending, and alternative energy is the perfect benefactor..

#31 wealthy renter on 07.04.08 at 10:43 pm

mattbg,

I work in Georgetown, and Halton Hills (like the Major Mac area in Toronto,) is going through development hell. People in Gtown really have to hope that this boom subsides because it is only a matter of time before Brampton swallows it on its east flank and Milton overtakes in on the south. The road system out of town is wholly inferior and built for days long past. I can’t even imagine how much would cost to upgrade the farm roads to a reasonable standard.

At the same time, I can only imagine how much it will cost to pipe water up from the lake. It won’t be a stretch to say that nothing will be spent to improve inter-city transit. There was supposed to be a big ticket improvement of the Georgetown Go line, but that is on the shelve the last time I read about it.

And the loss of all that great farmland is a shame. The owners should have to right to do what they want with the land, but in this modern age, we should be able to make better decisions about how to use it.

Glad I work in the town, like the people, would never live there. It may be a part of Guelph in my working life.

#32 Republic of Western Canada on 07.04.08 at 10:44 pm

‘Shunned, socially downscale, culturally inferior, environmentally toxic’.

Sounds like a telling description of typical married life. No wonder poisonous urban sprawl is fueled by the ‘get knocked up quick’ set.

#33 Future Expatriate on 07.04.08 at 10:50 pm

“Uh-huh, thank you, yes”

Ghost towns in the Inland Empire of California.

#34 Lance on 07.04.08 at 11:04 pm

It is interesting to compare cities in North America against their European cousins. You see a complete reversal of the urbanization pattern in most European cities:

Walk through the urban centre of most European towns and you will find a well kept, well trafficked city core filled with small shops of every variety and affluent Europeans living in flats up above. Many do not need to own cars, they walk and take transit. Clothing seems to be their primary mode of expressing their wealth. Most of the lower wealth citizens get squeezed to the outside of the city as they cannot afford the affluent city centre.

Compare that to a typical North American city and you see the city core (especially the area just outside the core) filled with the lowest class citizens, rife with poverty and crime, while the affluent live out in the suburbs and express their wealth via their homes and vehicles.

I suspect that part of the reason for the difference is due to fuel costs: Most of Europe has very high fuel taxes making car ownership too expensive for most to consider. Whereas the suburban life in North America requires at least one car (and most have two!) just to survive. Remove the car… people a forced to centralize.

#35 Calgarian on 07.05.08 at 12:02 am

Wow. Garth, your hatred for Alberta really shows.
Is it easterner jealousy, now that the west has overtaken eastern Canada as the new powerhouse?

Yes, sales have slowed down in Alberta. But if you look around here most companies are still begging for someone to walk in and say they’re willing to work there. There are “HELP WANTED” signs still everywhere.
People are still moving here.
Alberta is going to be fine.
The only thing that might kill Alberta would be another NEP-type money grab from the federal government.

Why would I hate Alberta? And what’s to be jealous of? Certainly not the Calgary real estate market. — Garth

#36 David on 07.05.08 at 1:16 am

To date no one in the architectural and engineering world has invented a green energy efficient McMansion, so that possibility is out. As a single family renter occupied property the cap rates really would not justify much in the way of investor interest, especially for the cash strapped mortgage holder with a 0/40 mortgage.
Finding some or any economic use for these places will represent a huge challenge for the future. One policy option is to let the rot play out on its own for several decades until Canadian municipalities have no other option but to bring out the dozer blades and plough the Garage Mahals under.
Plywood palazzos and granite counter tops are considered gauche, vulgar and aesthetically unpleasant these days. True enough. The trouble is these places were recently constructed and have at least some potential uses. Conversion of the McMansions to group homes, quasi nursing homes or death hospices would at least mitigate some of the enormous waste of land and energy associated with the McMansion life.
As far as mainstream single family housing in Canada the McMansion is finished.

#37 pitte on 07.05.08 at 4:52 am

“No hyperinflation has occured in a society laden with debt..”

I thought the Weimar Republic (Germany) was overburdened with debt owed to the victors (the Allies). Germany tried to print their way out of debt and that resulted in hyperinflation.

#38 Mountain Girl on 07.05.08 at 10:15 am

I agree with the general idea that inner city living is a lot more sustainable, but I don’t think it totally solves the problem of sprawl.
I lived inner city in Toronto for many years. I rode my bike and took transit everywhere. I didn’t even consider owning a car. I didn’t need one.
I would now kill for a system as efficient as the TTC here in Calgary.
I live inner city in Calgary, but my job is located almost 10 km away. My job, by the way, is still located in what is considered a core area, just to give you an idea of how bad the Calgary sprawl is (the city is well over 30 kms from one quadrant to the other). Transit to work takes me an hour and a half one way. Biking is also a circuitous route, if I want to stick to the paths and avoid the aggressive drivers on the road. It’s incredibly frustrating.
After several years in Calgary, my husband and I are facing the logistical necessity of becoming a two-vehicle household. It makes me ill that two people cannot get by on one car. It is absolutely ludicrous.
Solutions?
1) Well, working from home would be great. Even if it was just for 2-3 days out of 5. This could also potentially help families with childcare costs – another way to ease the burden off the endangered middle class!
2) Vastly improved transit. Expensive and slow to establish, but desperately needed.
3) More community, less self-entitled consumerism. I find the whole idea of McMansions offensive. What gives anyone the right to consume such a huge share of our common resources? There are so many examples of beautiful, modest neighbourhoods that use design to foster sustainability and community amongst the residents. Instead, we have embraced these revolting suburbs that encourage us all to isolate ourselves and live in our cars. My husband and I call the McMansions in Calgary the “garage houses”. The garage is always the main feature, jutting out prominently at the front (the place that used to feature a front door or a porch to sit on), welcoming home the family vehicles. You can drive straight into your garage and close the door and not have to talk to a single neighbour!
Maybe between the economy, the environment, and our own weariness of an unnecessarily tedious daily grind, we will challenge this suburban lifestyle en masse and start the Revolt of the Bourgeoisie!

#39 Leah on 07.05.08 at 10:39 am

I lived in Paris for 15 years. Many people do live outside especially if they have kids and need space. However, even the burbs or small towns outside of Paris and in Normandy and the South of France are like little towns with wonderful shopping, markets, restaurants, bars etc. art galleries. People take the train in. Kids walk to school. There are a few cookie cutter sub divisions and malls outside of Paris but they are very few and far between and are not desirable.

The UK is another matter.

#40 liverless on 07.05.08 at 12:56 pm

“There are “HELP WANTED” signs still everywhere.”

I was just remarking the other day that from what I could see there aren’t nearly as many help wanted signs in Calgary as there were a couple years ago. There still are signs, no doubt, but I would say its well down from what it was in say the summer of 2006, when they were indeed “everywhere”.

#41 patriotz on 07.05.08 at 2:28 pm

But if you look around here most companies are still begging for someone to walk in and say they’re willing to work there. There are “HELP WANTED” signs still everywhere.

People are still moving here.

Your second paragraph is in contradiction to the first one.

In fact net domestic migration to Alberta has become negative due to high housing prices and cost of living in general. No new demand for housing means falling prices. Once housing gets down to sane prices again, you might see people moving to Alberta again and those signs will come down.

http://www.albertacanada.com/documents/SP_weh_280308.pdf

#42 Islander on 07.05.08 at 3:05 pm

…I find the whole idea of McMansions offensive. What gives anyone the right to consume such a huge share of our common resources?….

Um, the money that I earned?

…Maybe between the economy, the environment, and our own weariness of an unnecessarily tedious daily grind, we will challenge this suburban lifestyle en masse and start the Revolt of the Bourgeoisie!…

That worked out really well in 1917.

#43 Republic of Western Canada on 07.05.08 at 3:29 pm

MG,
Your fourth option is to get a motorcycle.

#44 Ask David Suzuki on 07.05.08 at 6:16 pm

Hey wealthy renter, what exactly do inner city kids face that suburb/xurb kids do not? Also, I was speaking only about Calgary as I stated in my post, since that is where I live. Watch the trailer clip and you will see my points are proven.
You sound like you may be one of those parents who say “not my kid”, but trust me there are plenty of kids who do drugs and are in gangs, are are having sex binge drinking etc, and to their parents they are little angels. Or worse, a trend happening more with these “cool” parents these days is letting their kids have parties and do drugs (like “just” pot) and the parents are there to “supervise” and their argument is “well they would do it anyway at least I can watch them” (and do it with them- and therefore recapture a moment of their youth). I KNOW kids are like this today as I am a very young parent, and I grew up in the suburbs in a an “ok” part of the city, and what I described was my life. I witnessed it first hand, and took part in some of it. It was only a handful of years ago I was there. If you are over 40, you simply just will not get it, you cant get it. This is the largest generation gap in history and it is ruining families. If you are in a city bigger than Calgary then it only gets worse as any metropolis has higher gang/crime rates- larger, more distant suburbs
(read: Isolated/boring/mundane/understimulating). And how do these youth and this discussion relate to real estate and this blog? Simple, when YOU retire and and need to sell your POS mcmansion, who will buy it? You will look to the youth, because others your age (as mentioned here and outlined in Garths book) will need to sell them off to downsize, get cash etc. You will not find your buyer though, because all the kids who grew up in these suburbs will be yearning for a new way, a sustainable, affordable, sane way to live. They will not buy them, you will drop drop drop your price before some fool buys it, and that is exactly how this is going to play out and why the suburbs truly are doomed. The next generation of buyers when you are ready to sell is YOUR CHILDREN. As if they are going to stay in the isolated boring hell hole they grew up in.

This is an intergenerational problem. Boomers will be/are defined as the “me first/mine” generation (greedy). My generation are not “gen x-ers” we are not slackers, we are generation Y, (as in why are our parents leaving the world for us like this?) we are innovators and we see the world as a whole. We are diversified and have no problems with other races, religions, sexual orientations, mixed families, alternative lifestyles and the like. We grew up in it. We are not afraid. Dont worry we WILL fix this and many other problems that you have left for us as your legacy. Your problem and all your whining about your money and lifestyle and sense of entitlment leaves us thinking one thing; you are the dinosaur, and we are the giant meteor. BOOOOOOM

#45 David on 07.05.08 at 7:19 pm

High energy use homes supported by voodoo mortgages and so far no one has rushed forward to defend the critical role of McMansions in Canadian life. No one seems willing to defend the McMansion these days. The proud owners may be stuck with a big tab on a rapidly declining asset. Talk about wow factor.

#46 American Princess on 07.05.08 at 8:22 pm

‘Ask David Suzuki’,

Most generations have revolted against the immediate status quo, with more or less good grounds to do it, for as long as functional and progressive civilizations have existed. Many of the significant historical ‘revolutions’ (i.e. french revolution, cuban revolution, spanish civil war, Bolshevik revolution) were largely fueled by unestablished youth fighting against an unfair status quo. (Once things got going of course, other groups jumped in for their own reasons).

Many lessons learned and cultures developed by the ’60’s generation(s), whether for example in Chicago or Paris or Vancouver now seem largely abandoned. Reason? Because that became ‘passe’ and old-fashioned. Now, the greedy married dumbed-down consumerist environment of McMansions, with their tons of little-used manufactured toys (electronic and otherwise), 3 leased vehicles, boats, massive debt, and kids being popped out for their parents ‘self-actualization’ is in violent contrast to the much leaner grass-roots times of the 60’s & 70’s.

Now, smaller and common housing, alternate energy sources, and efficient transportation are becoming popular again. Wonder of wonders…

McMansions will be popular again in 30 or 40 years for some reason. Unfortunately most won’t last that long, in contrast to the equally outrageous and wasteful (but slightly more tasteful and better built) Victorian mansions of many years ago.

#47 Mountain Girl on 07.05.08 at 8:25 pm

Islander,
With all due respect, your money gives you the means to consume large amounts of resources. I asked what gives you the right.
The planet has finite resources and we have been operating under a financial system that does not account for that. We behave as though we have an infinite capacity for growth, a neverending supply of raw materials. McMansions are a symptom of that mentality and this entire post has been pointing out that they are part of a financially and environmentally unsustainable lifestyle.
You think having cash gives you the unfettered right to take as much as you want (or can buy) and generate as much trash as you like?
We already have laws regarding environmental impact, however flimsy they may be. Big corporations are (theoretically) supposed to abide by them.
I don’t think it’s unlikely that we may someday start to impose similar environmental impact limitations on the average consumer.
Maybe the market will sort out the environmental crisis because none of us will be able to afford to consume and waste the way we do now. Or maybe we’ll just keep ignoring the mess until a choice is made for us by a very serious shortage of the very resources we took for granted.
Personally, I would prefer to see us respond while we still have choices. And my reference to staging a revolt was meant to be facetious. I don’t think becoming communists is going to solve anything.
But starting to embrace a lifestyle that isn’t all about entitlement and materialism isn’t going to hurt us, either.

#48 Dawn in Calgary on 07.05.08 at 9:21 pm

Hey everyone, not to worry! According to the Calgary Herald today, the housing market has turned a corner.

Whew, what a relief! I should start looking at houses right away.

http://www.canada.com/calgaryherald/news/newhomes/story.html?id=39fc0e35-9706-48a7-8b2c-8efbfd6e4608

#49 nonplused on 07.05.08 at 10:25 pm

All hyperinflations occur in indebted nations. That’s what causes the inflation.

Examples:

France under John Law (the great teacher himself) to bail out the King’s war debts (Louisiana Land Company Bubble).

England about the same time, same reason (South Sea Bubble).

Germany in the 1930’s (war reparations)

Argentina in the 1990’s

The list goes on.

The only deflationary depression that I have heard of was in the US in the 1930’s. At that time the US as a country had little debt and a gold backed currency, although a great deal of personally debt was taken on in the 1920’s. They did a little forced inflation in 1933 by changing the gold/dollar ratio.

The reason debt collapses are inflationary is because the central banks always try and print enough money to prevent the collapse. But it doesn’t work (can’t push on a string idea) so the debts collapse while the price of everything else goes to the moon.

Also, debt collapse can be inherently inflationary. If John takes out a mortgage to buy a house from Jim, Jim walks away with $400,000 cash and John owes the bank $400,000. If John subsequently defaults, Jim still has $400,000 in his pocket, but now John doesn’t owe the bank anything, so he’s ahead cash wise. True the bank is out $400,000 but they made 90% or more of the money up out of thin air (fractional reserve banking), so the net affect is 90% of $400,000 new money in the system with no offsetting obligation.

The long and short of it is there has never been a fiat (paper) currency that did not eventually hyper inflate, and there has never been a commodity based currency (silver, copper, gold, etc.) that did. You can’t print copper pennies without the copper.

So I agree that housing will likely still get kicked pretty hard but the direction for food, energy, raw materials, and the like (anything you need) is going to be dramatically up as central governments print money like crazy to try and bail us out.

#50 nonplused on 07.05.08 at 10:50 pm

Hey Ask David Suzuki, go easy on gen x. They taught gen y most of what they know. Remember, we had to grow up in the shadow of the boomers, and it wasn’t pretty.

#51 EJ on 07.05.08 at 11:13 pm

Ever notice how every area that had huge housing increases for a few years thought it would never end and talk of things turning around was blasphemous? Now there’s barely a handful of poor sales months and they’re already talking about “reaching bottom and turning around”?

Bottom? We’re nowhere near it! Most cities are still at or near peak. Things are just getting started. We are looking at years of downturn.

#52 Peter on 07.05.08 at 11:51 pm

Toronto

GTA avr.price:
June 2008 -$395,866
May 2008-$398,141

Down- 0.5%

Toronto avr. price:
June 2008-$433.082
May 2008-$434,629

Down -0.4%

905 region:
June 2008-$370,559
May 2008-$374,629

Down -1,1%

All prices are down.
In real life the situation is much worse than in average prices.
For houses in range between $300 – 500K in GTA prices and sales are in free falling.
The avr. price is still high only because that the reduction in sales of cheaper houses is much bigger than expensive houses. That what is keeping avr. price from total fall.
The CRASH always is starting from cheaper houses and continuing to more expensive.

The process of prices free falling in GTA is starting.

Happy falling!

#53 David on 07.06.08 at 12:03 am

American Princess, you miss an important point. Not all revolutions are driven purely by grievance nor are all revolutions successful. The microchip revolution certainly was not driven by grievance. The search for a better more efficient path was revolutionary. Political grievances are not by themselves revolutionary either. One in seven Canadians can trace their heritage to Ireland. The Irish peasants were driven off the land by war, repression, public hangings, plagues, mass starvation and several failed revolutions. Canada looked like a really good option. The old voting with the feet revolution.
Financial and ecological unsustainabilty associated with McMansions will prove to be the undoing and it will be another case of mass migration and people voting with their feet. The unlucky Canadians who overpaid and can not for these Georgian faux chateaux might as well look forward to another 40 years of indentured servitude.

#54 Peter on 07.06.08 at 12:16 am

Toronto:
Sales
GTA transactions:

June 2008 – 8600
May 2008 – 9411
June 2007 – 10451

Down 9% for one month!
Down 18% for one year!

#55 Islander on 07.06.08 at 1:29 am

……With all due respect, your money gives you the means to consume large amounts of resources. I asked what gives you the right……

Well, with all due respect, what gives you the right to decide when the amount I’ve consumed is “too much”?

You might not recognize it in yourself, but you are a totalitarian. A polite one, granted. But the notion that I bust my hump all week so that someone else can decide what and how much I can consume with the fruits of my productive labor, is, to use an example, why we are stuck with our bloated, inefficient, costly mess of a health care system.

You want us all to be as miserable as you are. There’s a party for you. It’s the NDP. And Gawd willing it will never get elected as long as I live.

#56 patriotz on 07.06.08 at 1:31 am

Germany in the 1930’s (war reparations)

1920’s. It was a major factor leading to Hitler’s rise to power in the 1930’s.

The only deflationary depression that I have heard of was in the US in the 1930’s.

Actually there was a longer deflationary depression, although not as severe, in the late 1800’s in the US and Canada. That’s when William Jennings Bryan ran for president on a platform of eliminating the gold standard (“crucify mankind on a cross of gold”). This was one of the reasons why the Federal Reserve was created in 1911.

#57 pitte on 07.06.08 at 3:34 am

I just got a call from my realtor friend in Surrey, BC. She said business was stone dead: she hasn’t had a call on her business line for over a month. Now she’s thinking of taking in foreign students to make ends meet. Either that or put her house up for sale.

She had sold my one bedroom condo in Whalley two years ago for $115k (I had panicked after discovering Ben Jones and Patrick’s housing crash blogs, and decided to sell and lock in a paltry 30k in profits after one year).

Then she told me the cheapest condo in my old complex was now going for $160k. I fainted, and told her perhaps I should have hung on longer.

She said not to worry…. nothing is moving at those asking prices. The sellers will realize that and come down.

Soon, she hopes. She is starting to go broke. The tide is definitely turning in BC.

#58 Dom-GTA on 07.06.08 at 8:38 am

I haven’t posted in a while as I have been focusing on the stock market having sold in May but some of these posts and recent articles are just too inviting to pass up.

Item 1.

There are still definite boom markets in the GTA. Oakville and certain other areas are still getting mulitple offers both at the very high end $2 million + and the lower end.

Other suburbs are still having trouble with the increases but I have not seen a real drop in pricing for houses between (300K and 500K) and that is where I am shopping and have viewed over 100 properties in the last 9 weeks. When I say they are not dropping, what I mean is that most sellers are still looking at 30% plus returns on investments made…still not bad.. No one is putting up their property at fire sale rates as of yet. Days on Market is still increasing but some houses have been listed since December with only 2-4% decreases in asking prices (not exactly a watershed or great deal.)

Item #2

Mountain girl vs. Islander

In a nutshell exactly what the problem is with our society. When MG gets called “totalitarian” because she doesn’t approve of Islanders wanton consumerism it is a microcosm of what is ailing our society.

The have not’s, minimalist’s, green’s etc….are villified and marginalized so that the excessive, self rightous and generally wasteful consumers can go on their merry ways. I think you can promote sustainability, renewable energy and moderation without being a dictator.

And yes the NDP suck but only because of their toothless pit bull leader, get someone in there who really appeals to Canadians and then the NDP and Green really have the only message that appeals to the vast majority of Canadians. Thankfully we are not like our cousins to the south in all ways.

Well that is my Sunday morning rant and wish you all continued beautiful weather this summer!!

Until we see some of that we won’t really see any sort of meaningful correction

#59 Mountain Girl on 07.06.08 at 10:25 am

Islander,
I actually consider myself one of the affluent and part of the problem, if that helps lift the “totalitarian” label a bit! :)
I don’t think I am in any way deprived or unhappy, nor do I want anyone else to be so. I think I am up to my ears in an embarrassment of riches, actually.
And I’m not just being philosophical, either – I am in a higher income bracket.
I value free speech, freedom of choice, personal accountability – all the things associated with democracy, but I also value living in a welfare state, and knowing that, even with its many many flaws, our health care system is supposed to also help those less fortunate than I am. That sentiment is part of my national identity, as it is for many Canadians.
You seem to have a huge problem with the state controlling your choices. I agree – in a perfect world, all the members of a society would make choices that benefit themselves and the rest of society as a whole. But we both know that people aren’t like that.
Everywhere we look, there are examples of people doing dumb things that the rest of us wind up paying for. (Lifestyle choices and health care are rife with them). In that difficult balance between free choice and personal accountability for that choice, and protecting the common systems and assets, sometimes the state has to step in.
To apply this to the current situation in the US, I am really struggling over whether or not those who took on foolish mortgages should have to reap the full consequences, or whether the banks and the charlatans posing as mortgage brokers should have to foot the bill, too.
I think I’m somewhere in the middle right now: get some reforms in place to prevent this from happening again and to protect the vulnerable. Compensation? The rest of the US is already paying through the nose as their economy tanks around them. Should taxpayers be bailing out “the foolish”, as well? Tough call.
The environment is a similar situation. I am very hopeful that the current market will make our current lifestyles too expensive to maintain. Because as painful as that might be for all of us, not just the McMansion set, it will still be a hell of a lot easier than trying to adjust to real shortages. Our level of consumption in North America is absolutely obscene and we take far more than our share of resources. We don’t need to deprive ourselves of anything – we just need to realize that we don’t need all this stuff to be happy.
My argument in both previous posts is that this is a movement of change that could help us achieve voluntary simplicity, not have real deprivation forced upon us.
I work two jobs to make the income I do, but I don’t feel that entitles me to go out and spend it all on myself and ignore the needs of the rest of the world. If you do, that’s your call. I’m not satisfied to live in a world that worships self-entitlement. I don’t think it’s served us very well so far.
Now if you’ll excuse me, I have an NDP rally to get to, you big bad capitalist! :)

#60 mattbg on 07.06.08 at 10:50 am

Peter, re: “The avr. price is still high only because that the reduction in sales of cheaper houses is much bigger than expensive houses. That what is keeping avr. price from total fall.”

Good point. They should also be providing the median and standard deviation with those figures. The fact that they don’t suggests that it is meant to manipulate, but also that far too many people don’t know enough about statistics to know how unmeaningful the “average” is without some other supporting figures.

#61 Stoneleigh on 07.06.08 at 12:20 pm

Nonplused,

If you think we can’t see deflation in a fiat regime you should read this by Mike Shedlock:

http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html

We have lived through a great credit expansion where credit has functioned as a money equivalent. In fact the vast majority (greater than 99%) of the effective money supply is now credit-based. Unfortunately, credit only functions as equivalent to money during expansion, and evaporates inconveniently once contraction begins. Credit evaporation is already underway, and picking up momentum all the time.

The destruction of credit, which will eventually reach a tipping point and accelerate sharply, will crash the money supply over the next few years. As inflation and deflation are monetary phenomena, this is deflation by definition, and is highly likely to be a worse deflation than the 1930s due to the degree of excess this time.

As for real estate and other assets, the collapse of credit will drop asset prices across the board. As in the 1930s, homes and other assets will eventually go for pennies on the dollar, if they can be sold at all. During the depression, some of the best farms in the US received no bids at auction following foreclosure. Cash is king during deflation, and those who have it are unlikely to part with it easily.

Many properties in suburbia are likely to be worth less than the materials it took to build them, revealing suburbia as a giant exercise in negative added value. The blight caused by abandoned properties is already ruining hundreds of neighbourhoods in the US, sparking off a downward spiral in property values in in advance of the coming tidal wave of credit destruction. In places like Stockton California, 95% of mortgage holders are in negative equity, foreclosures are going through the roof and blight is mushrooming.

In the UK, property prices are falling by $1000 a week, as a result merely of the initial credit tightening
phase. For those who complain that renting is throwing money away, try building home equity under those conditions. Again this in advance of real credit destruction, albeit in a property bubble far larger than in North America.

Canada is following a year or so behind the problems in the US and several European countries (notably the UK, Ireland and Spain), but we are inexorably moving in the same direction. Our real estate excesses have been less extreme, the property market will still crash sufficiently far to put most mortgage holders in negative equity. In addition, our banking system is accutely vulnerable to disruptions in the derivatives market. For instance, CIBC is on the hook for huge reinsurance losses on the inevitable failure of the monoline bond insurers.

At a global level, we have yet to see the coming upheaval in the $62 trillion credit default swap market. As contracts on both sides can be sold on to any counterparty without the knowledge of the other or any credit capital adequacy check, the market being entirely unregulated, counterparty risk is huge and growing. credit default swaps are likely to be the real driver of credit destruction, and therefore deflation, over the next few years.

For coverage of the credit crunch seven days a week see The Automatic Earth (http://theautomaticearth.blogspot.com).

#62 Sam on 07.06.08 at 6:01 pm

Can anyone tell why the prices in GTA increase 4% in the last 2 quarters – despite declinging sales ..? Is GTA immune or what… ? mind boggling..

This pattern always repeats at the end of a boom cycle. Sales volumes decline, making the stats thinner. Sellers have yet to realize the market is shifting, or are naturally trying to profit as much as possible. The last buyers are the consummate greater fools. So, for some months, prices continue to rise, but usually at a slower rate, while sales volumes decline. Six to nine months later, prices are in full retreat as desperate sellers scramble to get out. — Garth

#63 David on 07.06.08 at 7:57 pm

It is a good thing not everyone thinks like Islander. Anatole France made a comment that the rich and the poor have an equal right to sleep under bridges and beg in the streets. Personal consumption is not a political activity and wasting energy and resources might indeed be a sign of at least relative affluence. No one should worry about heating wasted space and 12 foot ceiling areas or having a fuel guzzling Hummer in the driveway following this line of reasoning.
Canada has a bloated inefficient health care system now which also needs correction. Compared to which nation one should ask, is Canada’s health care system so flaccid and wasteful? The principal causes of bankruptcy in the USA right now is health care and housing. There are mountains of evidence based on outcomes research showing the USA scoring consistently below many third world nations and former communist countries. The real bureaucratic flab you refer to is called American style private health insurance.
The corollary principle with this line of reasoning is the right to consume has no corresponding responsibility. There is no such thing as the one without the other. A person has a right to use or should it be said waste energy with absolutely no responsiblity for externalities like greenhouse gases, chopping down forests or despoiling millions of acres of otherwise productive farmland with the architectural pollution known as the McMansion.

#64 Sam on 07.06.08 at 10:11 pm

ah! Thanks Garth. I knew it was kinda weired..

#65 Mike.slob on 07.06.08 at 10:40 pm

“No tree grows to the sky”.
Past erosions in affordability are the main factor behind weaker sales in GTA.
Sales in GTA are significantly lower than in the banner year that was 2007, but they are also returning to before 2004-2006 levels between 78,000 to 81,000 sales in 2008.
Toronto Area is experience 13.8-per-cent lower sales for the first six months.”

About Residential ReSales in GTA in 2008:

Jan.2008 sales decreased 2.1%
Feb.2008 sales decreased 11.2%
Mar.2008 sales decreased 22.2%
Apr.2008 sales decreased 7.3%
May.2008 sales decreased 16%
Jun.2008 sales decreased 18%,avg.price up, and a 22 per cent increase in inventory.

Residential ReSales in GTA from Jan. to June:

2008. 43,685 sales decreased 13.8%
2007. 50,648 sales
2006. 45,797 sales
2005. 44,771 sales
2004. 46,398 sales

Residential ReSales in GTA -only in June:

2008. 8,600 sales decreased 18%,
2007. 10,451 sales
2006. 8,730 sales
2005. 9,153 sales
2004. 9,275 sales

My Real Estate prediction for July 2008:
Sales volume in GTA will be down between
18% and 23%.

#66 Crikey on 07.06.08 at 10:40 pm

Ahh, well. The rich as well as the poor have only a certain span of time to enjoy life. Whether your “enjoyment” of life is sucking the lifeblood out of someone else, only you can decide, Islander.

No one is pointing the proverbial finger at you, of course- this is something we all need to think about.

#67 wealthy renter on 07.06.08 at 10:41 pm

Sam,

The YOY changes in average pricing for the different areas of Toronto / GTA (by MLS district) were published in the Toronto Star on Saturday.

Judging by my hood, the numbers are a puzzle. One nice area W8 had average price increases over 50K YOY, while the surrounding W7 & W9 division (decent areas) had average price declines over 50K.

Overall, a few areas are white hot, while most are treading water or falling off a cliff. I think the hot areas are skewing the numbers high.

#68 Mylene on 07.07.08 at 9:03 am

Cutting income taxes would be criminal…

Take examples from “the happy” European country – Sweden. The population is polled as the happiest, healthiest, optimistic and most communal. So communal that mothers leave a dozen strollers with babies in them parked outside of the hundreds of coffee shops where they meet. Oh! And there are the breastfeed cafes where mothers meet to feed together. A job title does not define who you are but how you service your community. The lawyer is friends with the garbage man.

http://www.freedomandprosperity.org/Papers/sweden/sweden.shtml

#69 Mylene on 07.07.08 at 9:07 am

Sweden as the model for Canada

Social welfare
Health care and social welfare services are regarded as very important parts of the total Swedish welfare system. Both are seen as public sector responsibilities, which are supported by a national social insurance system. Responsibility for health care, both in-patient and out-patient, is the duty of 23 county councils and 3 large municipalities. Responsibility for social welfare service rests primarily with the municipalities.

All residents in Sweden are covered by national health insurance. If a person is ill, or must stay home to care for sick children, he/she receives a taxable daily allowance, 65-90% of lost income, depending on the length of the absence. The patient is charged a fee for medical consultations and any drugs prescribed. The county councils, together with the health insurance system, then pay most of the hospitalisation costs and laboratory fees.

When a child is born, the parents are legally entitled to a total of twelve months paid leave from work, which can be shared between them and used any time before the child’s 8th birthday. They also receive a tax-free child allowance, equal for everyone, until the child’s 16th birthday. Children who then continue their education are entitled to study allowances. At university level these consist chiefly of repayable loans. Municipalities provide children with day care and after-school activities at subsidised rates. Under certain conditions, low-income families and pensioners are eligible for housing allowances. A basic old-age pension, financed by both employees and employers, is payable to everyone from the age of 65. The State also pays an income-related supplementary pension financed from employer payroll fees. These two inflation-linked pensions are designed to provide two-thirds of a pensioner’s average real earnings during his 15 best-paid years.

http://www.randburg.com/sw/general/general_10.html

#70 mattbg on 07.07.08 at 10:36 am

re: the comments about Gen X and Gen Y

I am in the middle of the two generations, not really sure which I belong to.

But, one thing I know about Gen Y is that they are master manipulators. They manipulate people and situations with an ease that took the boomers a number of decades to master. They saw their ostensibly upstanding parents revealed as frauds (not personally, but generally). Their parents wanted to be their friends, rather than to raise them with a useful life framework.

They are accepting and “tolerant” only by default: they simply don’t care about morals and values. Morals and values don’t exist to them. You don’t have to get upset if you don’t care. They “go with the flow”: downstream, not upstream, like a dead fish.

They associate freely and have hundreds of disposable friends who have emotional and economic utilitarian value. Lose or sacrifice a few, and who cares? They were just Facebook friends, anyway.

They think that everything they do is important or significant to the outside world. They can’t pay attention to a thread of discussion longer than a few paragraphs and think they’re clever for doing so: everything is realtime and present with no past or future taken into consideration. Their brain resides at http://www.google.com, usually at only the first link in the search results.

Again, I am making generalizations… there will always be exceptions, just as there are exceptions to the way that boomers have been painted here.

#71 cb on 07.07.08 at 4:20 pm

For those that tout europe as some kind of utopia – it’s not. they have many of the same problems we have, and some we dont, sure we have some problems they dont have, but that doesnt mean we should try and do as they do.

Outside the tourist traps of london and paris, there are other large cities and large towns, with people tring to earn a living and pay the bills.

Consider the UK –

90% of the population does not live in london, and does not have access to quality public transportation, nore do they have “quaint” / “chic” / “trendy” or whatever you want to call them stores.

For example industrial cities such as Liverpool, Manchester, Newcastle, Birmingham – all have populations of over 1,000,000 in there respective greater-metro areas. public transit is often expensive for profit buses, you cant even park a bike at the train station with a reasonable expectation it will be there when you return.

housing in the inner cores is often rundown social housing, suburbs do exist, though not always the planned cookie cutter kind we have here, and what they call “newtowns” also exist. guess how people get around ?, same as here, except they only haul a half ton of steel around with them, and so get further on the same fuel. oh yes, and they have big box stores, parking lots and even more housing inflation than we do.

You’ve probably figured out where Im from by now – so let me add the 80s in the industrial north of england was not pretty. neither is living in tiny 100year old houses that are damp, cold, and where you can literally hear your neighbors snoring and farting, provided your other neighbors dont have the stereo on too loud that is.

I dont know about the rest of europe – I’m sure Amsterdam and Berlin have a thriving cafe culture along with Paris and london, but remember there are a lot of people in a lot of other places far from the tourist traps.

#72 Stoneleigh on 07.08.08 at 9:04 am

CB,

I am also originally British and I agree with you, which is why I no longer live there. Europe is no utopia, and in some ways will have far worse problems to face than North America. The housing bubbles across Europe are far more over-inflated than on this side of the Atlantic, particularly in the UK, Ireland, Spain and the Netherlands, where excessive property debt loads will weigh on the economies for many years. These countries face a real estate crash of epic proportions.

They also face potentially severe energy constraints, particularly in the UK and Ireland which are at the wrong end of very long pipelines bringing natural gas from Russia and Algeria. Given the degree of structural dependency on gas in both countries (for both heat and electricity), considerable hardship can be expected. Gas pressure in the pipeline to the UK already falls to essentially zero during cold spells when continental countries ‘upstream’ seek to store extra gas, and as North Sea production continues to fall by double digit percentages per year this difficulty will increase in impact. LNG facilities cannot hope to fill the emerging supply gap.

European indigenous energy sources (from North Sea natural gas, to Romanian oil to Ukrainian coal) are highly depleted, hence the supply lines grow steadily longer and less secure. As eastern Europe discovered many years ago, energy dependence on Russia puts one in an acutely uncomfortable position – a position Russia is only too happy to foster and then exploit ruthlessly. Europe’s coming property-based financial disaster can easily be compounded many-fold by energy poverty.

#73 Stonehenge on 07.08.08 at 8:44 pm

Stoneleigh,

Although I believe that a supply of convenient and compact hydrocarbon fuel (methane, coal) is becoming scarcer in Europe, I doubt there is an actual shortage of fuel.

The huge deciduous and coniferous forests of central and northern Europe grow like weeds in the temperate moist climate. I remember my grandfather mentioning how he watched people there make charcoal as a fuel from wood. It was popular because it was so much cleaner-burning, abundant and cheaper than the mineral-coal. Their heavy masonry household heaters would burn almost anything (wood, charcoal, dry garbage, brown-coal, etc). They would be fired once a day in the early morning by the oldest person in the house. Then they would have heat all day from it.

It all comes down to convenience and efficient use of what’s available. We see that in Alberta right now. Bitumen production consumes incredible amounts of (formerly cheap) natural gas. A pair of 36-inch pipelines at 10MPa feeds a single large installation with natural gas 24 hr a day, 7 days a week for decades. Guess why the price of it to your house has to be financially supplemented by the government now?

If we all had to go back to using a 5-ton masonry ‘kachelofen’ in every house, I doubt if anyone would actually freeze to death. Insulation technology is better than it ever was, and houses would just get smaller (or more crowded) real quick.

#74 DailyStats.ca : Did the suburbs die? on 03.28.09 at 1:59 am

[…] paying $1.40/litre for gas, about the suburbs dyeing and inner city homes becoming more expensive. Garth Turner posted on his blog: "…buyers are falling out of love with the suburbs, a trend that will […]