June 6, 2016

$92 Dollars An Hour on the East Side

house-piggy-bank

 

This article in the Vancouver Sun written by Stephanie Ip  confirms what many had surmised-instead of working for a living, own a house in Vancouver and just hold onto it.

A Vancouver mathematician Jens von Bergmann  on his blog has written about Work vs. Twiddling Thumbs . Von Bergmann has compared wages earned with the equity gained by increasing Vancouver single family  property values. Using data from the National Household Survey, the City of Vancouver and the B.C. Assessment Authority, Vancouverites take home $17.8 billion in after tax income (2010).

The average single family detached house in Vancouver rose $262,000 in value  from 2015 to 2016, creating an equity lift of $24.6 billion. These numbers are not adjusted for inflation, don’t include property tax or property transfer tax, but you get the picture.

By taking the homeowners’ equity amount and dividing it with the average number of hours worked per household, the math revealed that houses on the east side earned $92.00 an hour in 2015, with houses on the west side (with Main Street as the divider) earning  $173.00 an hour. By comparison, Von  Bergman calculated that the average after tax income for regular nine-to-five work of people in Vancouver was a measly $26.00 an hour.

The data is crude, but it provides a very sobering glimpse on housing affordability.How do we ensure that those $26.00 an hour wage earners can live here too?

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  1. Paper profits. I’m not going to be able to realize any of that gain by selling my house because I’ll just have to turn around and pay the same outrageous sum to buy another one.

        1. A house (or condo) is a home AND an investment. For some folks mainly the latter, for others mainly the former.

          Our nice socialist Canadian mentality of being overly friendly, sharing, free education, free healthcare and inviting others to immigrate of course is being abused here by folks whose emphasis is primarily the latter. The Vancouver brand, BC brand, the Canadian brand is under-monetized, i.e. taxed. Capital gains taxes, speculation taxes, cross-referencing/reporting to CRA, higher land transfer taxes and higher property taxes need to all be on the table for discussion.

  2. I think the larger problem is that it has become crystal clear to ordinary people that hard work is not a path to success. This is evident in the winner-takes-all economy, and was revealed in the financial crisis. In our neck of the woods, housing windfalls are the most obvious.

    Successful people are likely to be blind to this. Psychologists have found that people tend to attribute success to their own efforts, and failures to outside factors. The tone in public discourse is set by the winners, who keep telling us that hard work will get you ahead. They probably believe it too. But at this point I suspect that a very large proportion of the population know in their bones that it just don’t work that way.

    How can we sustain a healthy, productive society when working is for losers, where everyone is trying to find a way off the treadmill, seeking to strike it lucky (no wonder so many gamble or play the lottery) or extract economic rents? It’s a problem far bigger than the cost of housing in B.C. But then the cost of housing is driven by a the increasing inequality of a flawed global economy.

    1. Is is called excessive taxation.

      Why work and get taxed almost 50% if you make an extra $25,000 bonus if you can make far more money in real estate ?

      The issue is excessive income taxation. A flat income tax of 10-15% would be far better. say 10% provincially and 15% federally. FOR ALL. Far too many folks at the bottom pay nothing, and somehow expect to get free schooling, free healthcare, free bus passes, free meals, free housing .. Folks at the top behave rationally by shifting money into tax free real estate. We need to tax consumption, incl. real estate as a form of consumption, far more and wealth producing income far FAR less !

      Wealthy immigrants behave rationally in the current system: buy the biggest real estate they can afford, do not work in Canada, but abroad or not at all, and get free healthcare and free education for kids, spouse and parents !

      As such, we ought to consider here in BC a model like in Texas: no state income tax, far higher property taxes (triple to here) and an 8% consumption state tax which is high for the US. The result would be more job creation and more taxes collected from our new gold: real estate !

      1. Beyer, your outlook is really folked up.

        Who almost brought down the world economy in 2008 – was it the banksters and insurance fraudsters and rating agency cretins; or was it poor people.

        Who got bailed out – the banksters and fraudsters – the corporate bums and con men; or was it poor people.

        Who lost their homes. Who got the big fat bonuses – the big fat corporate welfare checks? Who bailed them out?

        You want fair taxation? Are you disingenuous, or brainwashed.

        It’s offensive to hear someone talk of folk at the bottom and folk at the top – but illustrative of your mentality. You think poor people without a prayer are trying to con the system.

        The system is gamed by the rich for the rich. They’d rather spend a fortune on security and policing than on a civil, equitable society. They love pointing fingers.

        You don’t want poor kids to have stuff – to go to a pool – to have decent food. But it’s okay for Crapmass Daddy to to give his spawn matching Tesla electric cars.

        You like food banks? Is it okay with you that people dig in garbages for cans amidst the bags of dog shit?

        The most inane asinine question is (cue the idiot voice): Where’s all the money gonna come from? The smart question is: Who has all the money? The corollary to that is -how to pry the cash from their greedy little hands. How about: Your money or your life.

        Not an easy thing when they can buy entire countries.

        Get off your horse and stop dumping on poor people. Shame on you. They’re not on the bottom. They are oppressed by economic bullies. Don’t poor bash. Bash the rich. Tax the rich. That’s where the money is.

        The Soviet Union had political prisoners. Capitalism has economic prisoners.

        1. The Goldman Sachs alumni are still there, and the same hedge fund tactics are still being employed in the US. The jury is out on whether the US economy can do another trillion dollar bailout. Likely not.

      2. Beyer, I see that your schtick is getting cash from a group of people to buy real estate and that your most recent acquisition was a trailer park in Cranbrook. Guess that’s one that got away from Trump. Kudos.

        You get a cut off the top as a finder’s fee, then a management fee and after that, who knows.

        What do you call people that live in a trailer park – there’s an epithet that escapes me … Trailer trumps, or something. What kind of people live in a trailer park – do you call them “folks at the bottom”?

        What does that mean exactly “folks at the bottom”, like some kind of creepy crawlies. In India they were called Untouchables. How does it feel to take money from poor people that you disdain?

        1. We provide affordable housing. That is a very honorable profession and an even more more needed service as some folks chose to rent. You should try it one day. Mobile home parks are the cheapest form of housing around at $300-$400/month.

          Are you just envious ? Or do you believe that the government should provide housing for all ? Or only for some ?

          I am a landlord, and am extremely proud of this and do not need to be insulted. I disdain no one. I provide a service. Service providers, be they banks, telephone companies, airplane companies, hotels or Car2Go get paid. That is how the world works. Is Car2Go detestable too as some folks chose to rent a car by the minute rather than buying one ? Or WestJet that rents a plane to you by the hour, by the seat, as most folks cannot afford a private plane ? Or a hotel that rents room by the night ? We are no different my (insulting and/or merely ll informed ?) friend !

      3. You’re the one complaining about “folks at the bottom” – that’s a euphemism for poor people. To complain about poor people not paying what you perceive to be a fair share of taxes is profoundly offensive.

        At least have the balls to say you think poor people should pay more taxes. Protect the rich and stick it to the poor. Nice. If you think your trailer folk should pay more, why don’t you jack up the rents and donate the extra cash. That’ll show those folks at the bottom who’s at the top.

        Even Buffet said it was wrong how little he paid in taxes vis-a-vis his secretary.

        You do need to be insulted, not for being a landlord, but for poor bashing. Those “folks at the bottom” fatten your bank account. Be grateful, not arrogant and accusatory.

        1. The handout mentality is well developed in this country. Free education, free housing, free healthcare, free public transit .. and in return they contribute what ?

          There is nothing free in life as someone else always has to pay. And if you do not pay taxes you do not appreciate that.

          As I said, 10% provincial plus 10% to 15% federal tax would be far fairer on all incomes. Plus consumption taxes well above current levels, including far higher real estate taxes. Because real estate is taxed so low wealthy folks gravitate to that.

          You need to learn to appreciate difference of opinion, rather than insulting people directly. But this kind of debate is not taught in school any more. Do they actually talk about the benefits of oil or global warming in school actually ? Or do they just bash it ? ANY topic has tow sides. Including taxation, real estate or poverty.

          The social welfare state of free education to age 25, then 30 years of work plus 45 years of indexed pensions is not sustainable anymore !

    2. These people are what the late Pierre Berton called the Smug Minority – in his book by the same name. His cohort Sinclair is apoplectic when Berton says he is willing to pay people to do nothing – a guaranteed income – to sit at home; drink coffee; converse. Sinclair thought everyone should pull their socks up; buckle down; and work.

      In Sinclair’s world it is a given that work for work’s sake is good. With his mentality someone that makes land mines has a greater value than someone who does nothing.

      In a resource based economy – one that was even marginally fair – there could be an end to theft. Like, how many people steal library books. It’s stupid. We use the library all the time. We don’t want to own those damn books. We wouldn’t have space for a toothbrush.

      How about stealing cars – how idiotic is that. As idiotic as all the waste that goes into policing. How many people steal horses these days. Nobody – but it used to be a hanging offence.

      There are people in jail for stealing from Wal-Mart. Stealing from these obscenely rich nobodies that wouldn’t notice if million dollar bills were falling from their pockets.

      Alain de Botton suggests that we suck up to these rich turds – appeal to their sense of honour. Good luck with that.

      Zuckerburg is on track to become the world’s first trillionaire. It’s obvious he doesn’t want to share. Does he deserve honour, or disdain. Well, you can disdain all you want, he’s not giving it up.

      These billionaires/oligarchs/plutocrats/aristocrats/royals/CEOs/hedge fund toads/robber barons/economic dictators … Do they deserve honour – or a pitchfork.

      There’s a scene in Louis Malle’s Phantom India where a mangy dog is trying to keep other animals away from a dead water buffalo. He wants to eat the whole thing himself. That’s how we should look at these greedy pieces of garbage.

    3. I regret that my comment made it seem as if my problem is chiefly with lazy workers, when in fact I am more concerned about lazy capital. The man sipping coffee may do no good, but at least he does no harm. Lazy capital, on the other hand, inflicts tremendous damage, as we are seeing here right now.

      Not that I believe for a moment that the man with coffee does no good. Chances are that he contributes a lot. It simply may not be captured in the market. Feminists have being pointing out for some time that reproductive labour (everything from child rearing to elder care to emotional support) is essential. No-one succeeds alone; behind every successful person (and outside the market) stand partners, family and friends who provide the foundation for their success. But that too is invisible to the self-made man.

      Never mind that success, as it is usually defined, is a bankrupt goal.

      1. Capital by itself is meaningless. It needs someone with a brain to use it.

        Like a hammer or a knife, it is a tool, that can do good or evil. Money per se is neutral. What matters is what you do with it.

        Shall we abolish knives and hammer too because occasionally someone gets injured, or even killed, from their use ?

        The critical item overlooked is excessive spending by governments over the years, co-opted by ever increasing demands of ever more powerful public sector unions but also by its populace and the willingness of politicians to give in to it. With 70%+ of our public sector spending being wages & benefits one of the issues to look it is reduced wages & benefits, or lower than inflationary increases. The other is decreased spending overall, given certain revenues from taxation.

      2. “Like a hammer or a knife, it is a tool, that can do good or evil. Money per se is neutral. What matters is what you do with it.”

        Yes, money is a tool. But it is absolutely untrue that technology is neutral. It’s a myth, and a most pernicious one at that. Technology never has been neutral, it never can be, and we have decades of social science research (and philosophy) to back this up. Andrew Feenberg’s “Ten Paradoxes of Technology” isn’t about that per se, but it gives a good overview. Or read Pinch and Bijker’s classic paper about the social construction of technology, which uses the development of the bicycle as an example.

        One of the clearest examples is the racial bias of film. No film formulation can capture the same balance of colors as the human eye. So the chemists had to choose one. How did they choose? Unsurprisingly, by taking photos of white faces and picking the ones that looked nice. But film formulated for white people was less kind to darker skin tones. The same applies to TV, where black people tend to look greenish.

        Now these film-makers weren’t racist. Ok, nix that, back then many of them probably were – but racism didn’t particularly motivate the choice. They did it because they themselves were white; that’s who they intended to photograph. And they did it because they had to make a choice. No matter what formulation they chose, it would inevitably have a bias, enhancing some skin tones and not others. It was simply not possible to create an unbiased film technology.

        Every technology possesses bias. It’s not “just a tool.” It’s not just *there*, like the sea or the clouds: we build it, we build it for a purpose, and that purpose gives it bias. Money is no exception, nor is capital, nor is capitalism itself.

  3. Deep into the comments and not a peep about how ludicrous it is that your house “earns” more than you do (at least for most).

    This isn’t normal and it’s destroying this city.

    1. What do you intend to do about it. Bob? Ban the Chinese? Force homeowners to sell at gunpoint, and below market? Roll up the YVR runways and barricade the Trans Canada? Run for office on any of these policies?

      Let’s hear about your ideas. Are they neutral enough to avoid resorting to supercharged words like “destroying”?

      1. Everything Bob said can be entirely valid without needing to point to hyperbolic solutions.

        It is possible to say that something is dumb without needing to know the solution.

        I think you used far more supercharged words than Bob in this case, and completely agree with the word destroying in this case … what happens if past pattern continues? If the years to own hits 20 or 30x median salary (that is, one’s entire salary for 20-30 years, not the 1/3 considered ‘healthy’), instead of just 12-14 (when ‘healthy is considered more like 4-5 years) … without some serious fixes (which may or may not have their own destructive properties) who will be able to live here anew that doesn’t have questionable sources of funding, or already owns here?

        City has a root in the word Citizen … they are specifically and nonexclusively for people, all people, and anything that runs counter to this acts to destroy the meaning of the place. Bob Rennie’s saying that everyone who can’t afford Van should move to a different city is an admission that Vancouver is ceasing to become a city, and becoming a ghetto for the rich, or a nation state for the lucky cash-izen only.

        Until something happens which starts demonstrably fixing the exclusionary trend that might allow the non rich to live in Vancouver once more, that might allow the city to exist for all its’ people, the city is being destroyed. This is not supercharged, this is simple math and vocabulary.

        1. Some things are normal, like expensive inner city houses as that is the norm in most cities.

          Some things are a thing of the current times, as a few hundred Asians enter the upper middle class, and want to diversify their cash, by investing in better locations worldwide.

          What we see in Vancouver we see also in Boston, New York, London, Munich, Vienna, San Francisco and a few other places that are nice and safe.

          Plus high immigration levels .. many of which end up in nice cities liek Vancouver.

          Plus poor tax enforcement of the many tax cheaters.

          We also have aging baby boomers getting older and older but not moving and their kids wish to enter the market too.

          Plus super low interest rates.

          Add all that and you get the toxic brew we have right now in Vancouver, but also elsewhere.

          I’d start with draconian heavy penalty & jail time tax enforcement and then far higher entry costs, i.e. land transfer taxes. Plus taxing capital gains, say above $1M and speculation taxes if ownership is say less than 5 years. Plus more densification along throughfares with far more subways.

      2. I was calling for Bob’s solutions, not just more bombastic statements about the problem. I still think “destroying” is a charged word and does not represent any attempt to correct the affordability situation. “Destroy” is what happened to Dresden seven decades ago. Vancouver, despite its high housing prices, is still intact and very far from becoming Monaco.

        I would have upticked his comment if he mentioned building more rentals, or called for a co-ordinated effort to address questionable wealthy foreign purchases while concurrently releasing the huge tracts of land frozen in RS zones for intelligent density increases, establishing land trusts, building co-housing and a number of other policies that could at least stabilize prices if not lower them.

        But I have little patience for the litany of complaints, which is akin to plain old venting to your neighbours about the same old thing day in and day out. One cause of the gap between housing prices and income could very well be the built-in economic inefficiencies and imposed external costs of the single family detached house and the subdivisions they were amassed in while ignoring the limitations of the land supply, its invisible subsidy and consumer-based narrative. That was the base that later speculation was built on, and hence we have a collision of forces that jacked house prices over incomes while the world’s economy teeters.

        There are things we can do which are better than bleating about the destruction of the city, things that can help us ride it out.

  4. A couple of years ago there was a new house thrown up on our block in the fabulous East Side. It was built in the fall during often torrential rains. Looking at the foundation, I thought: This piece of crap is going to leak.

    Went to the open house – thought: What a piece of crap. The kitchen window had a view of the side of the house next door. Another window had a view of the curling asphalt roof and decrepit chimney of the same house. Shame really because this location with the right structure could have had spectacular views. There was a pretentious repellent fireplace mantle.

    There were the usual two prairie dog domiciles under the house. How do builders get away with this? FLW popularized the Prairie Style – Vancouver has Prairie Dog Style. All these landlord wannabes – looking for Prairie Dogs to pay their mortgages.

    The facade of this vomit was white. How insane is that. Spec builders have thrown up so many impractical pastels that turned quickly to shades of mold, and now this nut is putting on a white façade. Crazy.

    This dream home sold for about $1.2 to someone with a couple of yappy dogs. Flash forward to now – there has been a crew working to dig up the front yard of this nightmare for a couple of weeks and they are definitely not done. Piles of earth have been removed in full-size bins.

    When I spoke to the owner who was selling our house, he said something that perked up my ears – that the lowest part of the house was half a foot above grade. Our 100 yr old nothing house – assessed at $25K back then – now jumped to $40K has never had water problems. No sump – no hydrostatic issues – no problems. It’s physically impossible for water to leak in.

    We’re infamous here for the leaky condo crisis. Coming soon – the basement crisis. This is a problem with how we calculate GDP. It creates jobs and tax revenue. Where’s the incentive to stop building Prairie Dog Houses.

    1. I don’t think a bylaw could cover all the buyer beware complexities out there, or make taste a matter of the law.

  5. I read recently that senior governments don’t want to interfere in the real estate market because there’s too much tax money at stake. I find that extremely hard to believe.

    First there’s the direct taxation on the sale. For most homes the buyers and sellers are named individuals so they pay the tax. Up until recently it was laughably low. Today it’s 1% on the first $200k, 2% on the next $1.8M and 3% on the portion above $2M. That’s a fair chunk of change, but even 3% is pretty small when you consider that getting a house anywhere in Metro Vancouver usually means offering at least 15% over the asking price.

    For larger transactions the two parties are more likely to be companies or trusts that avoid the tax by selling each other shares rather than the actual land title.

    Next there are the capital gains taxes paid by the seller. On a primary residence that amount is zero so home #1 is owned by family member #1, home #2 is claimed to be the primary residence of family member #2, home #3 is claimed to be the primary residence of family member #3, and so on. Multiple properties, zero tax paid. This particular strategy is almost impossible to stop.

    Next there are income taxes. We’ve all read about the poverty stricken residents of Dunbar who qualify for welfare while residing in $3 million homes. So there’s a lot of high priced real estate generating zero income tax while probably consuming lots of free education (regular classroom teacher plus a resource teacher for ESL).

    Next we have consumption taxes. If you actually live here then some money must be spent on food, but cars can be imported, clothing can be imported, etc. If the house is sitting empty the consumption tax paid is zero.

    That leaves property taxes. Unfortunately current legislation prohibits variable taxation of properties of the same class. So any measure aimed at empty houses, foreign money, or pretty much any other target you can think of, must apply to everyone.

    From the above it appears that all levels of government are actually collecting very little from BC real estate, especially from those with the greatest ability to pay.

    I would:

    1. Raise the property transfer tax rates.
    2. Offset the increase by offering a tax credit that can only be claimed against reported income.
    3. Deal with corporate and trust sales by changing the rules so any residential property owned by an organization pays commercial property taxes (in Vancouver about 5x higher than residential taxes).
    4. Implement a significant federal property tax over and above local property taxes and use that to provide targeted stimulus and tax relief where it will do the most good.

    1. Good suggestions and thoughts here.

      Why would you not tax capital gains on houses, or perhaps cap it at say $1M per life time ?

      Would you raise property transfer taxes for all, or only for non-residents ?

      I think the biggest tax hole right now is under- or un-reporting, i.e. a link to SIN # cross referenced with CRA is missing. Billions of tax $s payable get unreported and thus unpaid.

      1. My points 1 and 2 above work together. Raise the rate for everyone, but use the income tax system to give Canadian taxpayers a break. So non-residents would end up paying more because they would be unable to claim the tax credit.

        Ottawa has systematically reduced the taxation of capital gains so they are by far the preferred way of earning money. Dividends and income are taxed at far higher rates. Some would say that has been a good thing, others would argue that it has been a negative distortion. I would be happy to see a higher tax rate on all capital gains like it was in the past.

        We have a constitutional problem with taxing capital gains on land. Title is administered by the provinces, but we levy capital gains taxes at the federal level. The two must become linked so that changes in title trigger capital gains taxation.

        But what should we tax?
        If you penalize all short term ownership you reduce speculation and flipping, but also suppress work force mobility.
        If you penalize long term ownership you discourage long term thinking, community building and the preservation of culture.

        I think we want families to put down roots and stay somewhere for generations if conditions permit. I also think we must let people move if they need/want to. The current exemption on primary residence does both. I cannot support your proposed cap. If we want families to stay for generations then we cannot penalize those who picked places where prices happened to rise dramatically.

        The flip side of any tax exemption is that it creates an opportunity for tax evasion.

        One solution would be to treat major transactions the same way we treat employee salary: send a portion of the proceeds of sale directly to the CRA. Sellers would then have to prove that they deserve to get some or all of it back by submitting an income tax return and, where applicable, a declaration of Canadian primary residency with their SIN #.

        That approach has one huge flaw: if the government keeps 30% of the proceeds until May of next year, the seller might not have enough money to buy a replacement home.

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