HISTORY & READINGS at Brian Ripley's Canadian Housing Price Charts & Plunge-O-Meter

Just Right For Earthlings

10/23/2017

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"Canada's big housing markets in 'Goldilocks moment." CBC News, October 12, 2017

Mr Soper, president and CEO of Royal LePage also declared that Canadian housing is 'just right' if we are to use his metaphor:

Canadian housing is enjoying a Goldilocks moment — not too hot, and not too cold.

Meanwhile 'just right' depends on who you are:

Vancouver’s ‘renovictions’ driven in large part by vacate clause - via Business Vancouver August 2018
New Westminster renovictions leave low-income renters feeling desperate - via CBC News June 2017
Cook Street Victoria apartment tenants face ‘renovictions’ - via Times Colonist March 2017
Tenants facing 'renoviction' went up against a powerful Vancouver developer and lost - via Metro September 2016
Rent law changes coming, but not for ‘renovictions:’ Coleman - via Metro September 2016
Renters of Vancouver: “It’s a new kind of renoviction” via Straight September 2016

Look for headlines soon to come out of Toronto documenting their experience of renovictions. Everyone has to pay more for housing now because of 9 years of ZIRP & NIRP

Hat tip to @BenRabidoux for the chart below

FROM Alberto Gallo, Bloomberg, August 2017

Economists are split on why inflation has lagged gains on growth and unemployment. The Fed has reassured low inflation is temporary, but many believe structural factors will keep inflation lower for longer than traditional models suggest. We are in that camp.

The scars left on the economy by the prolonged recession -- such as workers permanently dropping out of the workforce, new technologies that maximize sharing of existing resources, falling demographics, and a general weakening of labor bargaining -- are all responsible for keeping inflation subdued.

If inflation is likely to remain low due to structural factors, then QE may be less useful than previously thought. In fact, continuing QE can expose markets and the economy to two risks.

The first is that over time, persistent low interest rates may become self-defeating. Absent a fiscal policy stimulus, low interest rates may lose their impact or even become deflationary: aging populations save more to make up for lower returns, firms invest in new technologies employing fewer workers, and workers who were trained in sectors that were booming during the crisis remain permanently out of the workforce.

The second risk is that QE will generate dangerous side effects, including asset bubbles, rising wealth inequality, and a misallocation of resources in the economy. Negative or zero rate polices have pushed investors into search-for-yield strategies, distorting the risk premium in credit and volatility. QE has favored the haves over the have-nots, contributing to wealth inequality and to an asset-rich, wage-poor recovery.

Finally, NIRP/ZIRP can encourage resource misallocation by keeping alive zombie companies.

Capitalism Doesn't Work at 0%

"It would pay to travel to Mars because the returns here on Earth are very very low."
Bill Gross, June 2016

Guessing Game

3/17/2017

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Thanks to @Hutchyman for the sale and BC Assessment data in the mashup above.

On the way up in price it was easy. Make an offer higher than list price with few conditions if any and provide the vendor with everything they wanted and voilà, you own the asset if you managed to out-guess the competitive bidders lined up on their phones.

Liabilities were an unimportant consideration because in a few days, a similar property would sell for even more and your balance sheet then became even more credit worthy; check and check.

On the way down, guessing the price that a vendor will agree to is still a requirement; is the vendor holding a property with too little of his own equity and perhaps reluctant to take a loss at this time, or is the property being offered for the first time in let's say the last decade? A single family detached house in Vancouver has increased in price by over 120% in the last 10 years (over 160% in Toronto). The vendor's equity position is an important clue in the guessing game.

Is the vendor attempting to sell in order to repurchase in the same market? That would suggest an end price is required similar to the current snapshot of market comparable sales if trading sideways is the objective. Is the vendor an estate looking to settle accounts for multiple parties? That implies that the end price is not as "sticky" because VALUE can be defined outside the parameters of "comps".

At some point definitions of value might again include an appraiser's use of the "income" approach. Investment real estate cap rates in a city like Vancouver are among the lowest in Canada and so a buyer must determine if there is value in the price. Potential investment capital can dry up and move very rapidly out of a declining market and seek out better (lower risk) returns elsewhere. Low cap rates are tolerated in a rising market but not so much when price momentum shifts to the down side. Vancouver prices peaked July 2016

A declining market requires more work on the buy side and exposes the potential purchaser with risk not seen on the way up.

The CBRE in their 2016 Report list cap rates for "A" class apartment buildings in Vancouver at 2.5-3% (in Toronto 3.25-3.75%, in Calgary 4.5-5%). This week the Bank of Canada benchmark 10 year yield is 1.76% similar to the full month of February plot on my yield curve chart.

What we don't see in the CBRE report is what expense items are used in the developing a theoretical cap rate (Net Income / Asset Purchase Price). I suspect that only the minimum data of property tax, insurance, maintenance and actual expenses paid out are used for a given year in these surveys. Is a vacancy allowance included? Not all tenancies are reliable. Is a management fee included? Someone has to spend time taking care of the asset. Is the asset subject to sudden strata fee spikes or revelations of past due maintenance? These are important questions that any real estate investor who has been playing the game for at least one cycle trend change will ask.

In my 2013 case study, I had to lower the purchase price by 25% to get a return that piqued my interest because I included vacancy and management.

With a 25% drop in sale price, the GRM has dropped nearly 6 points (lower is better) and the CAP Rate has gone up 40 basis points (higher is better) which not a huge move but the yield on investment (ROI) has increased to more than twice the 10 year bond return and that provides an investor the incentive in a ZIRP environment to buy and hold and allow other people's money (the tenant's) to turn debt into equity.
(2013 Case Study)

Owning real estate has risk attached both at the individual ownership level and in the broader market place. It's 2017, if anything, real estate as an investment is even more fraught with unknown risk.

Thanks to Steve Saretsky, Realtor for his
Vancouver Real Estate Market Update February 2017

Need for Speed

2/22/2017

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Dan Loney's February 19, 2017 blog post details an update from Harry Dent about Dent's view on a probable correction low for Vancouver housing prices. I have mashed up Dent's retracement projection with my Plunge-O-Meter fantasy.

Apparently Dent has increased his retracement target from a 43% to a 64% drop from the highs of last year.

A few months ago I spent three days with world renown economist Harry Dent. We had a conversation regarding the state of Vancouver area real estate. He stated that he expected the real estate market to correct 43% in Vancouver from it’s high. This week his office sent me this chart which shows a projected crash of -64%. (FEB 19, 2017)

For a few years now a variety of analysts have been offering downside targets and depending on their bearish points of view, we have seen a rough correction range of anywhere from 10 to 50%. Obviously no one knows what the final number will be nor the duration of time it will take to unfold.

The classic Fibonacci retracements are 23.6%, 38.2%, 50%, 61.8% and 100%.

But there are just too many interference inputs that could either reinforce or cancel any potential arc of change. The most basic influence I point to is the ability to turn debt into equity. If one is highly leveraged against a real estate holding, it's not a problem as long as there is sufficient cash flow to service the debt. But this can be a very fragile relationship because of the risk from unaccounted inputs that began their historical arcs decades ago (Technology, Emerging Markets, Governance, Demographics etc).

The Bank of Canada estimated that more than 20 percent of all insured mortgages were contracted by households that have loan-to-income ratios of more than 450 percent. Hilliard MacBeth for MACLEANS October 12, 2016

As I say, my Plunge-O-Meter is a fantasy model based simply on the current snapshot of how much of the correction has already occurred and if the rate of change continues at the same tempo.

Dent figures the Vancouver bubble began in 2003. I suggest it began in 2005. Dent projects another 14 years (2032) before we reach the price lows; the Plunge-O-Meter currently targets the fall of 2021, or 4.75 years from now. Could it happen? Maybe.

On the price chart in the spring of 2005 there was a 4-6 month plateau period while buyers and sellers twitched like a herd. When the credit spreads narrowed and the yield curve began its journey towards inversion, the commodity stampede began. Plunge-O-Meter

We are on a cusp of change with regards to the yield curve to steepening and credit spreads to widening. (Bob Hoye JAN 27, 2017)

I suggest that there would probably need some very dramatic inputs to change the current sentiment of buyers in Vancouver who, although they have been thinning out according to sales volumes, are still willing to short cash at what appears to be the top of the market that has been in place since July 2016 and a clear divergence from the ebullience of today's Trumpian stock and bond markets.

I think the input drama that changes the Vancouver housing price regime has to come from these very liquid, fast moving stock and bond markets.

Whatever the sentiment shock is, that causes another extreme selloff (Wikipedia list of stock market crashes and bear markets), the need for speed to turn debt into equity will expose the weak hands very quickly, they need to act fast and get ahead of the competition.

Only deep pocketed knife jugglers will prevail until we approach the final lows and then new buyers will be rewarded without any technical market timing analysis. Long before that, we may see a rebirth of interest in the income approach fundamental.

Charles Nenner Interview February 21, 2017

Nenner's historical work suggests the stock market rolls over September 2017 (get out by July) and bottoms in 2020-2021 which dovetails with the Plunge-O-Meter. This is not correlation but we do know from history that the animal spirits can change very suddenly.

Market Crash Recession
by the 5th of November, 2017

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Peter Leeds summarizes the bear argument below. Notice that Peter's comments on U.S. high end Real Estate applies to the detached market in Vancouver right now.

Yellen Will Raise Rates in March
FEB 15, 2017 BNN Interview of Jim Rickards

March 15, 2017 is the Date to Watch
Everything Will Grind to a Halt
David Stockman FEB 27, 2017

Trumponomics

Moderated by Prof. Sebastian Edwards, a former chief economist of the World Bank; this discussion reveals the surprising insights of UCLA Anderson Forecast economists Prof. Ed Leamer and Prof. Jerry Nickelsburg, FEB 16, 2017

David Frum on Trump
"This is the most phoney baloney administration ever"

The election of Donald Trump could mean a gradual shift in the nature of the American political system. The much vaunted checks and balances might be unable to stop a slide into a new kind of authoritarianism. This is how David Frum, senior editor of The Atlantic and a former speech writer, imagines one of the possible futures that await the U.S. He joins The Agenda to talk about political implications under Donald Trump. Published on Youtube Feb 9, 2017

The Rolling Stones - Doom and Gloom

50 Shades

1/27/2017

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50 Shades of Real Estate
Canada Edition

Facing staggering debt loads, hundreds of Alberta post-secondary students are logging on to seekingarrangement.com connecting them to "sugar daddies" who can provide them a monthly allowance and gifts in exchange for negotiated relationships. Calgary Sun January 14, 2017

The chart above shows the number of students pimping themselves out to pay for education, room and board in some selected Universities.

The red notations show the latest Demographia unaffordability rank of each University location. It's not surprising to see Toronto, the biggest metro in Canada as a destination for pussy grabbers. If we had the data, I would imagine Vancouver, the most unaffordable city in Canada and the 3rd most unaffordable out of 404 global cities, would also incent young men and women into prostitution. In 2011, the Vancouver city council estimated there were +/- 10,000 sex workers in the city. (Vancouver Sun, Sept 30, 2016). Note that Victoria BC is listed on the chart above; you know, that nice little tourist town and retirement village that promotes itself as "a little bit of Britain". The study chart claims 361 Victorians use SeekingArrangement.com which amounts to 0.5% of Victoria's 2006 census. Tea, crumpet, hair pie anyone?

"Students from 20 British universities are joining dating Web sites matching young women with older men, in an attempt to raise money to pay off student loans and other debts." IBTimes.co.uk 2012.

Housing unaffordability and income disparity is a result of a patchwork policy by government that has failed to get capital investment into productive employment. Instead we have metro land valuations promoted as if in a casino in a country that has an excess of land and resources. We encourage our citizens to flip real estate to satisfy state revenue needs with the collection of gross consumption taxes on every trade.

Meanwhile new generations of young inheritors of our social contract enter the culture as a rank commodity to be exploited by daddy.

Canada could use an overhaul of its collective aspirations.

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Vancouver Named Sugar Daddy Capital of Canada 2013

Here’s a look at the top 10 Sugar Daddy destinations:

Paris, France
Puerto Vallarta, Mexico
Palm Springs, California
San Juan, Puerto Rico
Chicago, Illinois
Seattle, Washington
Punta Cana, Dominican Republic
*Vancouver, Canada
Las Vegas, Nevada
Barcelona, Spain

*Vancouver Sugar Daddies spent $4,307 monthly on their younger counterparts on average, more than anywhere else in the country.
Vancouver Sugar Daddies are 40 years old and make $292,506 annually, on average. CTV NEWS 2014

Government by Lottery

1/1/2017

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2017 kicks off with the BC Government helicoptering 2nd mortgages ONLY if you qualify and agree to take on a high ratio insured 1st mortgage. Welcome to late stage STATE SPONSORED SUBPRIME LENDING.

In 1986 Bill Vander Zalm promised to lower the price of beer (page 3, 2nd bullet point, The Ubyssey October 24, 1986). It never happened but Bill caught 50% of the popular vote in that election with his "Fresh Start" campaign against the NDP.

Thirty years later the average price of a detached house in Vancouver has risen more than tenfold while average earnings have only gone up 2.5 to 3 times and the government plan now is to stoke a consumption mania with zero interest and principal 2nd mortgage money for 5 years as well as beer in your barbershop. The next BC provincial election is in May 2017 and the credit tap is wide open. Place your bets.

Changes to B.C. liquor rules allow barbershops, salons and other retail outlets to serve alcohol.

January 23, 2017, is when barbershops, salons, spas, cooking schools, art galleries, bookstores and other B.C. businesses that do not have bars and restaurants on their premises can apply for a liquor-primary licence so that liquor can be served to customers in these non-traditional establishments. All sorts of businesses will be able to apply for a liquor-primary licence as long as they do not operate from a motor vehicle, or target minors. And this may be of great interest to many small retail businesses that would like to provide, as a courtesy, a glass of wine, champagne or other alcoholic beverage to their customers without fear of breaking the law. Globe and Mail November 19, 2016

This "1st-time" homebuyers grant only serves the 'privileged,' says Nathanael Lauster UBC Associate Professor in Sociology

Inside 'House of Debt' with Amir Sufi

Canadian household debt levels continue to peak.

HARD EIGHT

Anti-Trade Vancouver Edition

12/19/2016

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The Premier of BC Christy Clark is in the news again with her pre-election enticement of no interest loans for 60 months of up to $37,500 to wannabe buyers who need a bigger cash down payment to qualify for a mortgage to purchase real estate in BC's absurd housing market that has been on ice since the summer. BNN Dec 16, 2016

The chart mashup above was prompted by an observation from a reader (S.B.) that the technical structure of the Vancouver housing market is now within momentum levels for a trend change to the downside as soon as the next retest and failure of the recent highs completes; the setup being the "anti-trade". S.B. made earlier observations here "3 Vancouver Views" Sept 2016 and "Simple as ABCD" May 2016; thanks SB.

The evidence of serious downward repricing has this provincial government attempting to goose the demand side of the market with free ZIRP money provided by you and me dear tax payer. Not only will we tax payers supply the down payments to people who don't qualify under the already sub prime CHMC lending standards, but we are additionally collectively subsidizing the banking and mortgage industry that has little or no lending risk and we are continuing to feed the provincial government tax collector via the property transfer tax. "In total the property transfer tax brought in $1.53 billion for the government, $605 million more than budgeted" said BC Finance Minister Mike de Jong CBC NEWS July 2016.

Ontario and Toronto are also implelled to goose the fence sitters into buying into the market:

Ontario land transfer tax rebate doubled to $4K for first-time homebuyers. City News November 2016.

Ontario’s land transfer tax rises from 0.5 per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto’s land transfer tax is one per cent on the first $55,000 and two per cent on the rest. Toronto offers rebates of up to $3,725 for first-time homebuyers.

Sousa also announced a freeze in the property tax on apartment buildings while the government reviews how the tax burden affects rental market affordability. (Will landlords pass this along to tenants?)

Taxation and picking electoral sectors to reward or punish has created overly complex bureaucracies that exist in their own bubbles far removed from those they claim to serve. Every election brings new promises of reform (kiss that recent electoral reform goodbye) and at some point in the election cycle we hear that tax reform is on the agenda but reform never seems to make the cut. We may have to wait for a new generation of engineers armed with big data and new algorithms to simplify the tax structure. My favoutite is The Automated Payment Transaction Tax. It would do away with the tax department and with having to pay for the accounting and filing of overly complicated annual tax filings. The problem in this country is not the absence or lack of money creation.

Political ideology at all levels of government since the post war "invention" of CMHC has destroyed any possibility of a social contract that includes affordable housing as a basic right of tax payers. It appears to me that governments at all levels in Canada will continue to promote and urge Canadians to add even more household debt to their balance sheets that are already at historic levels nationally and globally. Although the Federal Government appears on the surface to be more rational than the provincial governments by warning Canadians who already have high levels of debt, they are not concerned with Canadian Banks who continue to be sheltered by tax revenue from the private sector. What they are concerned with is a RECESSION and THEIR OWN FEDERAL CASH FLOW. Is it irony or finger wagging and buck passing? The government is hooked on the commodification of real estate; it's a cash cow with a golden udder of debt that we are all attached to.

Here is the Federal Government at work:

CHMC Promotions Oct 2016 by the Globe and Mail

1992 Allow RRSP withdrawals for home purchase.

1999 Allow purchase with only 5% down payment.

2003 Remove house price ceiling on insured mortgages.

2003 "Green" mortgage insurance premium reduction and environmental incentives.

2005 Self Employed can self declare a 15% gross up of income and access all mortgage insurance products.

2005 Amortization increased to 30 years on insured mortgages.

2006 Amortization increased to 35 and 40 years on insured mortgages.

Warning from the Bank of Canada:
Risk of household financial stress and a sharp correction in house prices.

Some notes from the Satyajit Das videos below:

Real growth was produced from the Industrial Revolution.
But since the 1980's, growth has been fuelled by debt.
An asset's income should pay for its debt.
In the 1950's $1 to $2 of debt paid for $1 of GDP.
By 2007-2008, $4 to $5 of debt paid for $1 of GDP.
China in 2016 needs $6 to $8 of debt to pay for $1 of GDP.
In the 20th century, population doubled and was an organic driver of growth. Now population does not drive growth.
Innovation contributes to growth but productivity is falling.
Now we have a service economy not a productive one.
Innovation rates are falling dues to lack of R&D funding.
We cannot repay debt without growth.

As I like to say, if you are going to take on a large mortgage to buy property, make sure your cash flow from rents or employment is amortized for the same length of time that your debt is. The government can always raise taxes, but can you raise your income?

Property is an illusion by Satyajit Das

The End of growth as we know it by Satyajit Das - Key themes of his new book "A Banquet of Consequences"

Sentiment Reversal

11/28/2016

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Vancouver detached housing prices peaked in July of 2016. Sentiment shift is accelerating via observers on their keyboards reporting from their neighborhoods in real time.

I looked at a new detached listing in my hood a couple of weeks ago on a rainy weekend. It's still unsold at close to $2mil despite the steady stream of lookie-loos and pent-up demand for a SFD close to downtown and amenities; perhaps because the list price is 31% above the total current (July 2015) BC Assessed value and because it's very old construction requiring even more money, time and effort to bring it up to modern standards. The structure is only valued at 18% of the BC assessor's total value. Flippers are few and far between. Perhaps fundamentals really do matter.

Meanwhile as the photos above indicate, vendors are repricing lower, and buyers are bidding below assessment. The only flipping that buyers are doing now is in their point of view. Hat tip to FIVRE604

Zombie Real Estate

10/31/2016

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Zombie real estate in Vancouver BC is a problem. The owners have placed a high value on keeping them empty when vacancy rates are at historical lows. See the Beautiful Empty Homes Vancouver archive. In March 2016, theGeorgia Straight reported some 10,000 condos were vacant. The city now wants to tax the owners between a ½% and 2% of the assessed value; CBC News Sept 14, 2016.

As I argued recently in July in Part III of "Death & Taxes" if we all leased our land from the state (ourselves) and were left with only the market rates for the improvements that sit upon the land, housing would be affordable. Owners of the physical improvement of a dwelling, a factory or hospital would not be subject to wild swings in land value. The cost of servicing the land with utilities would be paid for by long term leases. Zoning could be amended when a change in land use was required. The stigma of renting would relax if we all were tenants in common.

As it is now with the state playing monkey business with interest rates (ZIRP and NIRP) and removing credit risk from a lender's balance sheet (CMHC) and reacting with "supra" taxes layered upon individuals deemed to be distorting the market, we end up with more complexity, uncertainty and unproductive investment.

Land management should not be in the hands of short term profiteers. There are alternatives. Land in the Fiji Islands is managed through three complementary systems. Leased land covers 90% of their territory (83% "Native Land", 7% "Crown Land") and 10% of the land is "Freehold". Source

If land costs were built on productivity incentives and protected from the boom and bust of demographic pressure, urban planning departments could create longer term strategies and developers could be more productive on the improvement side of land development. But with very high land costs, the market forces us to build to the minimum of efficiency standards and the maximum of financial rewards.

The crappy little toaster that you call an electric baseboard heater inside an inefficient envelope is indeed just a heat transferring conduit. The condo boom is a commodity arbitrage not an affordable housing plan. (The Condo Game, CBC Doc Zone, January 2015)

The Democratization of Production
Be lazy like a fox. WikiHouse

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Tesla's Powerwall 2 and Solar Roof Launch

The sun provides more than enough energy in just one hour to supply our planet’s energy needs for an entire year. Your home can capture this free, abundant energy source through rooftop solar tiles, turning sunlight into electricity for immediate use or storage in a Powerwall battery. Tesla, October 28, 2016

3 Vancouver Views

9/6/2016

3 Charts of Vancouver Housing Prices to August 31, 2016
Monthly HPI & Average vs Inflation Adjusted Projection
See also this reader supplied prescient
Elliot Wave Chart from May 13, 2016

1) My chart based on the REBGV HPI® dataset.
SOURCE and HPI Explained

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2) REBGV Chart using average prices (not HPI®)
SOURCE

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3) Average Annual Peak Price CHART SOURCE
I think the source author is YVR Housing
If you can confirm, please do.

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The Forces that Cause the Bubble to Burst

The bubble bursts when excessive risk-taking becomes pervasive throughout the housing system. This happens while the supply of housing is still increasing. In other words, demand decreases while supply increases, resulting in a fall in prices.

This pervasiveness of risk throughout the system is triggered by losses suffered by homeowners, mortgage lenders, mortgage investors and property investors. Those losses could be triggered by a number of things, including:

1. An increase in interest rates that puts homeownership out of reach for some buyers and, in some instances, makes the home a person currently owns unaffordable, leading to default and foreclosure, which eventually adds to supply.

2. A downturn in general economic activity that leads to less disposable income, job loss and/or fewer available jobs, which decreases the demand for housing.

3. Demand is exhausted, bringing supply and demand into equilibrium and slowing the rapid pace of home price appreciation that some homeowners, particularly speculators, count on to make their purchases affordable or profitable. When rapid price appreciation stagnates, those who count on it to afford their homes long term might lose their homes, bringing more supply to the market.

The bottom line is that when loses mount, credit standards are tightened, easy mortgage borrowing is no longer available, demand decreases, supply increases, speculators leave the market and prices fall.

Conclusion
A simple and important principle of finance is mean reversion. While housing markets are not as subject to bubbles as some markets, housing bubbles do exist. Long-term averages provide a good indication of where housing prices will eventually end up during periods of rapid appreciation followed by stagnant or falling prices. The same is true for periods of below average price appreciation.

SOURCE Investopedia by Barry Nielsen, September 13, 2014

Death & Taxes

7/29/2016

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Last week I spotted Ted the 40-year-old Vancouver man at Jonathan Rogers Park (West 8th & Manitoba St) who has been parking his $300 Craigslist shed on wheels in various Vancouver parks along with the rising number of homeless people. July 22, 2016 Metro News

"OSFI tells some banks to test for sharp drops in Vancouver, Toronto housing markets" July 26, 2016 CBC News

“B.C.’s 15% tax on foreign homebuyers could drive money to other parts of Canada” July 26, 2016 Financial Post

"Tory won't rule out a tax on foreign real estate buyers in Toronto" July 28, 2016 Toronto Sun

"Chinese-language media up in arms over B.C. foreign buyer tax" July 28, 2016 Globe & Mail

“Does this set a dangerous precedent in the minds of foreign investors across Canada?" July 29, 2016 Mortgage Broker News

It must be my age, but when I see politicians trying to solve problems via blunt taxation, I move even closer towards being a grumpy old man - death and taxes - they suck, literally. Here are a few ideas while we wait for the July housing numbers to come out next month.

PART I - The Need for Tax Reform

In November 2011, I came across the idea of the APT, the ‘Automated Payment Transaction Tax’ which eliminates the need to file tax or information returns. A year later I posted links to the APT and since then I have continued to encourage media, politicians and potential influencers to at least look at the thesis.

To my dismay I have had insignificant response. I think this is because we have too much tax and are immersed in its complexity and we have not enough death of tired old ideas that should be retired with every generation.

The Automated Payment Transaction Tax

In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/payments system.

The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base.

The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure.

The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost.

Think about the desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction tax.

Implementation of this elegant and simple idea in Canada would allow Canadians to create an original, authentic social organization that would eventually be copied by other nations. Let's apply the power of the internet to get this Automated Payments Transaction Tax idea into the public square of discussion and then into application.

Canadians, write your Member of Parliament." Foreign readers take this idea back to your jurisdiction and spark the conversation there. Some country will be first in the implementation of the APT thesis.

In my opinion the APT or a variant of it will happen one day as sure as Uber, Airbnb and Torrents have arrived and driverless freeways will eventually emerge. It’s a peer to peer thing; it’s the internet, it’s inevitable. “Software is eating the world.” Marc Andreessen.

A micro tax on all financial transactions reduces the burden on all individuals and allows our governors to manage our spending requirements in a transparent progressive way. The APT thesis calculations were based on U.S. taxation revenues and expenditures from the late 1990’s. The potential tax base has increased significantly since then; think of the machine initiated equity, fixed income and commodity exchange transactions that go on day and night. Here is a snippet from the 41 Page PDF authored by Edgar L. Feige, Professor of Economic Emeritus, University of Wisconsin-Madison:

The APT tax rate from the original study publication in 2000 achieved the goals of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction tax of only 0.15% on each side of the transaction for a total of 0.3% on any financial transaction.

The APT tax proposed is designed as a revenue neutral replacement for the present tax system. It is emphatically not intended as an additional source of revenue. It proposes to broaden the tax base by eliminating all implicit tax expenditures, all exemptions, deductions and credits while adding to the tax base the enormous volume of transactions representing exchanges of property rights to real and financial assets and liabilities. The flat rate tax required to maintain revenue neutrality is estimated to be in the neighborhood of 0.6 percent if total transactions volumes fall to half of their current levels.

PART II - The Need for Policy Reform

Clearly, a 15% provincial tax on Vancouver housing purchases by foreign buyers will simply move what little demand there is from this sector to other jurisdictions. Hot speculative money whether clean or dirty is transnational.

Look at Canada’s record of Federal Direct Investment; in full year 2015 there was a huge spike in FDI OUT such that for every $1 of FDI coming into Canada there is $1.31 going out to get a better return on Capital and Labour. In short, our Canadian investor class, like most other global players, looks for leverage and arbitrage opportunities outside of Canada. This is a trend that has been widening and unbroken since 1997 throughout the last five federal governments (4 Liberal, 1 Conservative).

Meanwhile after seven years of nitro-fueled Zero Interest Rate Policy, we have only increased our consumption habits and widened our debt load across both private and public sectors. While the private sector binges on low cost credit, our multi-level governance is shifting more to fiscal policy since monetary policy has not worked as promoted. Yes - CPI remains muted, No - we have no control over what consumers will do with easy credit especially since competing governmental departments encourage minimum equity positions when borrowing. After seven years, the Bank of Canada is still trying to figure it out:

With the next renewal (of the “Inflation Control Target”) approaching in 2016, the Bank is focusing its review and research in the following three areas:

1) The Level of the Inflation Target
2) Financial Stability Considerations in the Formulation of Monetary Policy
3) Measuring Core Inflation

We have a failed Canadian central bank policy of ZIRP and NIRP threats that ape the U.S. Fed policy as well mirroring many other central banks since the pit of gloom in March 2009. It’s been a race to the bottom, and here we are.

We have the outdated 20th Century wild west mortgage insurance liability of CMHC which was created in 1946 as an elaboration of previous housing incentives beginning in 1919 (Wikipedia).

We have an irresponsible overpriced exclusionary and predatory real estate industry that obfuscates, monopolizes and fails at basic fiduciary behaviour.

This combination of patchwork policy has failed to get capital investment into productive employment. Instead we have asset valuations that exceed the worst possible, measured globally, and we have settled for consumption and waste. Asset values may look good on a balance sheet in terms of credit worthiness, but the social contract does not serve our collective needs.

Nowhere is there public debate or care about tomorrow except in the tedium of blogs and anonymity. Governance has clearly failed and the media is busy chasing sirens and shootouts. It’s shameful. It’s time for reform and modernization using the tools we already have.

PART III - The Need for Land Entitlement Reform

“The social state is advantageous only when all have something and none too much.” A paraphrase of Jean-Jacques Rousseau from his Du Contrat Social ou Principes du Droit Politique of 1762.

The APT does not solve the problem of the current historic asset valuations in Canadian housing prices which are at crisis proportions and which cannot now be easily solved with ZIRP, NIRP or a revolving door of political ambitions.

Let’s consider the end to private fee simple land ownership and move all our land and territorial limits into the hands of all of us.

Here’s how I see it:

All land and territorial space inside the jurisdiction of Canada (the Land) would be owned by the Canadian Government (the State) on behalf of Canadian taxpayers (the Tenants).
The land would be leased to the tenants.
The state would set the value of the land lease and term according to use.
Only the improvements allowed on the land are owned by the tenant or transferable to another tenant in an open and free market place.

This simple idea would put an end to the endless inflation of the cost of land since the value of the land would be set by the central organizing body of the state which would assess the needs of the community of tenants and the responsibilities of all of us towards the wellbeing of our health and environment.

The improvements on the land would by definition be valued by their utility and composition of materials all of which are readily assigned value by an open marketplace and would be more prone to deflation than inflation because improvements have to be maintained to retain value.

Valuations would be rational, transparent and immediate. Affordability would be easily controlled. Tenancy agreements on the land would be available to both domestic and foreign users and when combined with the ‘Automated Payment Transaction Tax’ outlined in PART I above, all land lease revenue and all improvement transactions would trigger APT revenue to the state for reinvestment.

How economic inequality harms societies - Richard Wilkinson
"If you want to live the American dream, go to Denmark.”

We humans have accomplished a lot of ambitious and technically challenging projects and have expanded our knowledge base to a degree that suggests we should be able to transform our puny little financial problems in a politically impartial way free of ideology to the benefit of the greater good.

I don’t expect that this post will trigger any change during my remaining lifetime to the status quo of 20th century and older ideas that we remain wedded to, but I publish this because ideas precede action and I am not the only one thinking about this.

According to this December 2015 study by Azoulay, Fons-Rosen & Zivin “Does Science Advance One Funeral at a Time?”, Max Planck’s observation is indeed the way our knowledge base and idea implementation grows.

“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it."

Real Time with Bill Maher
Michael Moore – Where to Invade Next

<<Previous

Just Right For Earthlings

Look for headlines soon to come out of Toronto documenting their experience of renovictions. Everyone has to pay more for housing now because of 9 years of ZIRP & NIRP

Capitalism Doesn't Work at 0%

Guessing Game

Thanks to Steve Saretsky, Realtor for his
Vancouver Real Estate Market Update February 2017

Need for Speed

Charles Nenner Interview February 21, 2017

Market Crash Recession
by the 5th of November, 2017

Yellen Will Raise Rates in March
FEB 15, 2017 BNN Interview of Jim Rickards

March 15, 2017 is the Date to Watch
Everything Will Grind to a Halt
David Stockman FEB 27, 2017

Trumponomics

Moderated by Prof. Sebastian Edwards, a former chief economist of the World Bank; this discussion reveals the surprising insights of UCLA Anderson Forecast economists Prof. Ed Leamer and Prof. Jerry Nickelsburg, FEB 16, 2017

David Frum on Trump
"This is the most phoney baloney administration ever"

The Rolling Stones - Doom and Gloom

50 Shades

Vancouver Named Sugar Daddy Capital of Canada 2013

Government by Lottery

This "1st-time" homebuyers grant only serves the 'privileged,' says Nathanael Lauster UBC Associate Professor in Sociology

Inside 'House of Debt' with Amir Sufi

HARD EIGHT

Anti-Trade Vancouver Edition

Warning from the Bank of Canada:
Risk of household financial stress and a sharp correction in house prices.

Property is an illusion by Satyajit Das

The End of growth as we know it by Satyajit Das - Key themes of his new book "A Banquet of Consequences"

Sentiment Reversal

Zombie Real Estate

The Democratization of Production
Be lazy like a fox. WikiHouse

Tesla's Powerwall 2 and Solar Roof Launch

3 Vancouver Views

3 Charts of Vancouver Housing Prices to August 31, 2016
Monthly HPI & Average vs Inflation Adjusted Projection
See also this reader supplied prescient
Elliot Wave Chart from May 13, 2016

Death & Taxes

Real Time with Bill Maher
Michael Moore – Where to Invade Next

History, Charts &
Curated Readings

Archives

Categories

Look for headlines soon to come out of Toronto documenting their experience of renovictions. Everyone has to pay more for housing now because of 9 years of ZIRP & NIRP

Capitalism Doesn't Work at 0%

Thanks to Steve Saretsky, Realtor for his Vancouver Real Estate Market Update February 2017

Charles Nenner Interview February 21, 2017

Market Crash Recession by the 5th of November, 2017

Yellen Will Raise Rates in March FEB 15, 2017 BNN Interview of Jim Rickards

March 15, 2017 is the Date to Watch Everything Will Grind to a HaltDavid Stockman FEB 27, 2017

Trumponomics

Moderated by Prof. Sebastian Edwards, a former chief economist of the World Bank; this discussion reveals the surprising insights of UCLA Anderson Forecast economists Prof. Ed Leamer and Prof. Jerry Nickelsburg, FEB 16, 2017

David Frum on Trump "This is the most phoney baloney administration ever"

The Rolling Stones - Doom and Gloom

Vancouver Named Sugar Daddy Capital of Canada 2013

This "1st-time" homebuyers grant only serves the 'privileged,' says Nathanael Lauster UBC Associate Professor in Sociology

Inside 'House of Debt' with Amir Sufi

HARD EIGHT

Warning from the Bank of Canada: Risk of household financial stress and a sharp correction in house prices.

Property is an illusion by Satyajit Das

The End of growth as we know it by Satyajit Das - Key themes of his new book "A Banquet of Consequences"

​The Democratization of Production ​Be lazy like a fox. WikiHouse

​Tesla's Powerwall 2 and Solar Roof Launch

3 Charts of Vancouver Housing Prices to August 31, 2016Monthly HPI & Average vs Inflation Adjusted ProjectionSee also this reader supplied prescientElliot Wave Chart from May 13, 2016​

Real Time with Bill Maher Michael Moore – Where to Invade Next ​

History, Charts &Curated Readings

Archives

Categories

Thanks to Steve Saretsky, Realtor for his
Vancouver Real Estate Market Update February 2017

Market Crash Recession
by the 5th of November, 2017

Yellen Will Raise Rates in March
FEB 15, 2017 BNN Interview of Jim Rickards

March 15, 2017 is the Date to Watch
Everything Will Grind to a Halt
David Stockman FEB 27, 2017

David Frum on Trump
"This is the most phoney baloney administration ever"

Warning from the Bank of Canada:
Risk of household financial stress and a sharp correction in house prices.

The Democratization of Production
Be lazy like a fox. WikiHouse

Tesla's Powerwall 2 and Solar Roof Launch

3 Charts of Vancouver Housing Prices to August 31, 2016
Monthly HPI & Average vs Inflation Adjusted Projection
See also this reader supplied prescient
Elliot Wave Chart from May 13, 2016

Real Time with Bill Maher
Michael Moore – Where to Invade Next

History, Charts &
Curated Readings