Crazies

Okay, so no place is perfect. But it’s always constructive to compare. And understand why differences exist.

Let’s talk about Fresno.

This California city sits inland about half way between San Francisco and LA. That means the climate is temperate but not extreme. December is the coldest month. This weekend temps are mid-60s. Summer heat can reach into the 90s. And California, like swaths of Western Canada, has been battling drought. Like I said, no place has it all.

But what Fresno – with a population of 545,000 (about the size of Halifax or Hamilton) – does contain, unlike any comparable maple city, is an inventory of 123 active real estate listings for detached homes asking less than $300,000.

In fact lately, according to a local TV report, there’s rekindled interest in two-bedroom, 1000-sq-foot dwellings built about a century ago in the arts-and-crafts style. They may be simpler. One bathroom. Not much in the way of granite or bamboo floors. But they have goodly lots, sit in decent hoods, and can carry for vastly less than the rent on a one-bedroom box in a godless Toronto condo tower.

Here are two currently on the market:

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By the way, the media household income in Fresno is just over $70,000 (C$). That compares with Vancouver families, at $82,000. The average Fresno property sells for $494,000 (C$). Up the road, the Van average is $1,148,900. The average American mortgage rate is 7%, and borrowers can lock in for 30 years but renegotiate lower whenever rates fall. The average five-year fixed rate in Canada is 5.6% with a break fee. In California a qualified buyer can secure a conventional mortgage with a 3% down payment. In Canada the minimum is 5%, and anything less than 20% requires the purchase of CHMC insurance. In California there is no mortgage stress test. In Canada borrowers must prove they can handle payments at 7.25%.

Those are some of the differences. They explain a few things. But not the yawning price disparity.

So, why?

There are technical reasons housing in Canada costs more. Like climate and weather. It costs less to build a house when the temperature rarely, if ever, dips below freezing. Less insulation. Smaller heating infrastructure. Shallower plumbing lines. Perhaps no basement. No cement walls extending below the frost line.

But this does not account for a doubling of real estate market values. Across the entire country, BMO estimates Canadians pay 46% more for a property. In the big, crazed urban regions like the GTA or the LM, the premium is far higher. It’s all resulted in our economy being twice as dependent on residential real estate as that of the US. So, why?

Partial reasons include strong population growth in Canada than the US, where the Trump years brought tighter borders. There’s also the fact 80% of Canadians live in a narrow strip along the southern boundary, with main cities, like Toronto and Vancouver, attracting a steady stream of people.

But the main reasons are simple. Cultural. “Canadians have made a collective choice to allocate more resources to (and thus ‘consume’ more) housing than other countries,” says economist Doug Porter. And he’s right. We have an obsession. A fetish. An unhealthy FOMO’d appetite for real estate that has driven people to absorb a level of debt the average American would gag over, and led to policy decisions by Canadian governments that feed this house lust.

For, example, we let people speculate on house values, sell for a profit and pay no tax on the gains – the only investment asset so favoured. “No doubt that has juiced prices in Canada,” Porter says. Add to that the fact Ottawa allows new buyers to raid their retirement savings for a down payment, that CMHC wipes away the risk for lenders who will then provide 20x leverage for a property purchase and that we have a plethora of federal and provincial (and municipal) tax credits, first-time-buyer grants and shared-equity financing schemes. In return, our craving for bigger, fancier digs grows. Why suffer with two bathrooms when you can have four. With heated floors?

In Canada the coddling of real estate buyers and owners is as breathtaking as the discrimination and disadvantage heaped upon renters. The first thing young couples want to do is plunger into a house and a mortgage. Nobody in Canada thinks they can successfully procreate without a backyard. We see renters as barely more successful than the homeless. And for all this, we pay a huge price.

This country, every politician says, now has a housing crisis. Billions are being rushed to build more homes. They’ll all cost roughly the same as existing ones. Household debt levels are off the charts, and the recent runup in interest rates is showing what a disaster may loom as a result.

The sacrifices we’ve made to feed the property beast are legion. It’s as if, collectively, we’ve lost our minds, like those dim historic crazies who paid fortunes for tulip bulbs.

Meanwhile, in Fresno, there are people actually happy with one-bathroom starter homes. Imagine.

About the picture: “I thought you would appreciate this pic,” writes Rob. “This is a clan of shelties (and a sheltie wannabe) that go hiking with their humans around Prince George, BC.  My mother’s Tri-Colour sheltie “Juno” is a life member of this troupe. I’m not sure how they get them all to sit still, especially since they’re shelties.  I know from experience that Juno likes to spin and spin and spin again. They must be reading a daily blog from Garth Turner to the dogs to get that kind of attention. Thanks for all that you continue to provide for free, and your thick-hide & filter mechanism of the comments section.