Real Estate

Why doesn't the government just let the free market control housing prices?

  • Last Updated:
  • Oct 16th, 2017 1:56 pm
Member
Jul 25, 2005
433 posts
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Maybe they don't like the concept of foreigners/wealthy parking money in our real estate, driving prices up to the point where average Canadians have to take on unsurpassed amounts of debt just to own a home. When a crash comes it will cause a debt catastrophe for the government to manage. Cooling the market today to avoid Armageddon in the future. Obviously this won't sit well with those who are over-leveraged on their real estate investments or those who are looking for short term gains, but I think it's beneficial for our society as a whole.
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Nov 6, 2010
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I don't think there are many places where it's pure supply & demand. There's almost always laws around zoning, land taxes, and various other things that will affect the real estate market, no matter where you are.

Rent is controlled because it's been identified as an "essential" (aka shelter) so the government intervenes to control rent prices and in some cases provide affordable housing projects.
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Feb 9, 2009
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uber_shnitz wrote:
Oct 11th, 2017 10:57 am
I don't think there are many places where it's pure supply & demand. There's almost always laws around zoning, land taxes, and various other things that will affect the real estate market, no matter where you are.

Rent is controlled because it's been identified as an "essential" (aka shelter) so the government intervenes to control rent prices and in some cases provide affordable housing projects.
It's no coincidence since mother wynne enacted expanded rent controls that rent prices skyrocketed through the roof...
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Jan 20, 2016
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Burlington, ON
uber_shnitz wrote:
Oct 11th, 2017 10:57 am
I don't think there are many places where it's pure supply & demand. There's almost always laws around zoning, land taxes, and various other things that will affect the real estate market, no matter where you are.

Rent is controlled because it's been identified as an "essential" (aka shelter) so the government intervenes to control rent prices and in some cases provide affordable housing projects.
If government do care about " provide affordable housing projects" they had a LOT of opportunity to do so - CPP money, tax money (we spent 30B in a year just for nothing) etc and build MANY "affordable" housing. Heck, they could just do something to "encourage" COMMERCIAL developers to build multi-units rentals so increase the supply (recent reports do confirmed what being said many times - the SUPPLY issue due to lack of new builds, municipal regulations etc is one of MAIN drivers for price)

What they did instead? Slap new taxes on EXISTING buildings/sales with zero incentive to build new ones.
Jr. Member
Jan 15, 2010
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Toronto
A free market doesn't exactly work in a globalized economy.
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Nov 15, 2004
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Sanyo wrote:
Oct 11th, 2017 12:42 pm
It's no coincidence since mother wynne enacted expanded rent controls that rent prices skyrocketed through the roof...
Right, because rents were so low before she did it.

Anything built before 1991 has always been rent controlled, and the prices of those apartments are still in line with what they've always been. Condo owners can no longer increase rent by 100% like they could for the last 26 years, so they're just gouging people up front now instead of after the first year. Nothing has really changed because of this new legislation.
Could HAVE, not could OF. What does 'could of' even mean?
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Dec 6, 2006
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Piro21 wrote:
Oct 11th, 2017 1:03 pm
Right, because rents were so low before she did it.

Anything built before 1991 has always been rent controlled, and the prices of those apartments are still in line with what they've always been. Condo owners can no longer increase rent by 100% like they could for the last 26 years, so they're just gouging people up front now instead of after the first year. Nothing has really changed because of this new legislation.
Yeah nothing's changed. The newish condo buildings nearby me was at median 1600-1700 rent for 1 bedroom. Now it's mostly 2000-2100. Meh, just the same.
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Sep 12, 2006
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They know how much mortgage debt Ontarians have... Among the most indebted people in any part of the world.

The obvious big risk that will hurt everyone is a complete market crash like there was in the US last decade. Their goal is to avoid that, and I think their measures with the FBT and more stringent lending rules are on the right track.
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Oct 23, 2003
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reesefitzmaurice wrote:
Oct 10th, 2017 9:59 pm
I don't understand why are the Liberals trying to make housing affordable to everyone? Why not just let the free market be in control of the housing market?

I am no econ major but what is the point of
  1. rent control
  2. foreign buyers tax
Canada's Real Estate is not a free market. Never was.

All, or should say most, purchases, are insured by the government. So if the market goes tits up, they have to bail it out with your (and mine, and everyone else's tax money). They're trying to avoid that from happening.

Also, in a free market, the lenders (banks, brokerages, insurance companies, etc) take on 100% of the risk of lending to you to buy a house. In Canada, the government takes 100% of that risk while banks chill and churn profits at little cost and no chance of over-exposure, when something bad happens.

Thats 1 reason why its a bad idea to short Canadian banks even if RE does go down. You'd have to short the government to make a profit. lol


Foreign buyer issue is because they (edit: they being "bad" foreign buyers, not legit types) destroy local cities. They dont live where they buy. They just freeze the assets in place while destroying the local community. In Vancouver there's no such thing as a "family" anymore. No young children, nor schools.
More recently, businesses who hire 18-24 yr olds are complaining about staff shortages, while paying (near) minimum wages in the most expensive area in the country. Higher pay jobs also cannot attract or keep talent. No one will come work for 50--70k in a city qwhere you need $100k+ to have a mediocre lifestyle, and still not afford housing.

There's entire streets with rows of houses sitting empty 50 out of 52 weeks of the year, if not year round. There's articles about single Canadian families essentially living alone on an entire street, and being so depressing for their kids that they wanted to sell and move out (like the rest already have).

There's foreign buyers who buy $10 mil estates, which the regular population would never touch, and never have a problem with. Then there's money launderers who buy regular housing units by the 10s or 100s, and never rent them out, because exposure is risky. Thats where issues pop in.

More recently, they found the Chinese laundering money through casinos, and into Canada, with the spin that its even been used to fund terrorism abroad. No one benefits from those types of "foreign buyers".

The latest craze is with the Chinese flooding the drug markets with fentanyl. Good profits, real estate still on the upswing heading to $2000 per sq ft in Vancouver.

Essentially, you want "legal" foreign buyers who either buy property they use OR legitimately invest in communities through business, but you dont want the illegal types who buy $500k worth of RE for $7 mil through a random shell numbered company, and park the cash so the Chinese government or authorities dont find it. Canada, FINTRAC and the CRA are pretty useless (unless it comes to hunting down real, not convenience, Canadian citizens, especially those with low to medium high incomes). If you're a convenience Canadian and live elsewhere, you're free to collect welfare when you declare $0 and live in your $10 million dollar estate in West Van while driving your Lambo (its a real thing, im not just exaggerating for giggles on this one).
Last edited by Buggy166 on Oct 11th, 2017 2:10 pm, edited 1 time in total.
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Nov 15, 2004
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boyohboy wrote:
Oct 11th, 2017 1:43 pm
Yeah nothing's changed. The newish condo buildings nearby me was at median 1600-1700 rent for 1 bedroom. Now it's mostly 2000-2100. Meh, just the same.
Have you taken a finance class before? When something is 1600-1700 the first year and then 2200-2300 the second year it's not too far off 2000-2100 every year. Keep in mind that interest rates are still near zero and free money is available to everyone, which drives prices up in general.
Buggy166 wrote:
Oct 11th, 2017 2:10 pm
Essentially, you want "legal" foreign buyers who either buy property they use OR legitimately invest in communities through business, but you dont want the illegal types who buy $500k worth of RE for $7 mil through a random shell numbered company, and park the cash so the Chinese government or authorities dont find it. Canada, FINTRAC and the CRA are pretty useless (unless it comes to hunting down real, not convenience, Canadian citizens, especially those with low to medium high incomes). If you're a convenience Canadian and live elsewhere, you're free to collect welfare when you declare $0 and live in your $10 million dollar estate in West Van while driving your Lambo (its a real thing, im not just exaggerating for giggles on this one).
This is the problem. The government here has been worse than useless for the past several decades. The CRA only pursues easy small-time cases and blatantly ignores anything that actually requires effort to fix, local law enforcement doesn't care about widespread lawbreaking when it comes to the bylaws that are crucial to the functioning of our whole system, and politicians everywhere are out to allow crime because it nets them easy short-term wins. The entire system is destroying itself by inaction on the part of regulators and deliberate negative action on the part of politicians.

Widespread money laundering and abuse of government benefits? Everyone knows, but the people tasked with preventing it don't care
Widespread lawbreaking encouraged by US corporations at the expense of the hotel and taxi industry? Regulators don't care, politicians actively encourage it
Organized tax evasion helped by one of the biggest accounting firms in the country? Nobody cares, nobody gets punished, nothing gets done
Local shopkeeper makes an honest mistake on his tax returns? He gets his life ruined by every regulator around because it's an easy win
Could HAVE, not could OF. What does 'could of' even mean?
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Dec 6, 2006
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Piro21 wrote:
Oct 11th, 2017 2:19 pm
Have you taken a finance class before? When something is 1600-1700 the first year and then 2200-2300 the second year it's not too far off 2000-2100 every year.
Finance class? Have you actually look at the rents in the current real world? I don't even know what you try to say about 1st and 2nd year and not too far off.
I'm telling you the rental listings were at 16-1700 pre mother-of-all-rent-control policy and now the listings are at 20-2100.

Instead of landlords may be increasing rents over the years, it now absolutely guarantees to START with maxed increase rent immediately.
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Apr 11, 2006
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reesefitzmaurice wrote:
Oct 10th, 2017 9:59 pm
I don't understand why are the Liberals trying to make housing affordable to everyone? Why not just let the free market be in control of the housing market?

I am no econ major but what is the point of
  1. rent control
  2. foreign buyers tax
I agree. The government should have never:
- introduced amortization periods over 25 years
- lowered minimum deposit requirements from 25% to 20%
- allowed insured mortgages for people unable to obtain 25% in downpayment

I bet if they didn't do any of that, houses would be at much more reasonable levels today. But it is what it is.
Newbie
Jul 21, 2013
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Toronto
I agree, the government should absolutely step out of the housing market, this would, of course, include allowing capital gains on home ownership to be taxed like all other capital gains.
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Jan 16, 2009
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boyohboy wrote:
Oct 11th, 2017 2:44 pm
Finance class? Have you actually look at the rents in the current real world? I don't even know what you try to say about 1st and 2nd year and not too far off.
I'm telling you the rental listings were at 16-1700 pre mother-of-all-rent-control policy and now the listings are at 20-2100.

Instead of landlords may be increasing rents over the years, it now absolutely guarantees to START with maxed increase rent immediately.
That's not a big deal. The purpose of the law to ensure that tenant can stay while paying the reasonable amount without worrying to have to move due to increased rent.

I think it achieve precisely that.
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Dec 6, 2006
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Ceryx wrote:
Oct 13th, 2017 12:01 pm
That's not a big deal. The purpose of the law to ensure that tenant can stay while paying the reasonable amount without worrying to have to move due to increased rent.

I think it achieve precisely that.
No. the primary purpose of that new law is to buy votes.

Anyway, I'd say it achieved the part about "without worrying to have to move due to increased rent.", but not so much about "paying the reasonable amount".
Sure now existing tenants can't be semi-forced to evict by intentionally large increase in rent by landlords. But new tenants (or those who want to relocate) are now faced with a much higher rent to START. Of course that is a moot point as some people (perhaps you included) will simply hold on to the believe that entry rent price hasn't increased due to the new rule. So be it. No point in arguing on something I can clearly see.

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