Making Housing Affordable
Jim Taylor — August 31, 2010
As a spin off from another post on this blog, I put the following on my blog this morning. It will require some adjustment to how we presently do things, but is quite workable if there is the will.
The will would have to come from the grass roots level as the current ‘lords’ have no intention of changing anything.
Sweat Equity + 0% Mortgages + 0 Taxes
= Affordable Housing
The recent meltdown of the world financial systems will not be explained or understood by this humble fellow. In fact after listening to and observing all those ‘not-so humble’ fellows explaining what is going on, I have concluded that they don’t know either. The other conclusion, is that regardless of the positive talk coming from some leaders about how good the Canadian economy is, if the other shoe drops in the USA and we do get a ‘double dip’ recession, things might not be as rosy as we would like to think.
In the meantime, back on point. The housing craziness which ripped through Canada and the US in recent times is no doubt a serious component in the recent fiasco that is still shaking things up. Housing prices simply were outrageous, driven by human greed and fueled by a herd mentality and facilitated by a banking system also consumed with greed.
Making Housing Affordable
When my father and my wife’s father were young men with young families, they rolled up their sleeves and actually built their homes with their own hands! Neither were carpenters by trade and both relied on the help of skilled people for some parts of their construction. However, for the most part, they cut the lumber and drove the nails to create their own homes. They also did this , I might say while holding down full time jobs by working in the evening ( no four hours in front of the telly ) and on weekends.
“But they were different back then” you might say, and you would be right, however there is no reason that today’s generation could not be equipped with the same skills if our educators valued those skills as highly as inputting data into a computer or any number of other jobs which don’t really need doing.
So, the first step in providing affordable housing is equipping people with skills which would allow them to roll up their sleeves, get dirty and tired and sore and actually contribute something to their home except the promise to make mortgage payments. Getting this current generation off the couch and away from their video games, pc’s or cellphones long enough to break a sweat is a challenge for someone else, I am just offering a valid answer to the cost of housing.
Zero % Mortgages
Now before you say it can’t be done you need to understand something about where the money comes from the bank puts out at 5-7% which gives you the privilege of being their slave for 30 or 40 years.
When they issue a mortgage for $200,000 at 6% for 35 years, they do not take the money from the savings accounts of their customers, whom they are paying nearly 0% interest. No sir, they have the right to issue the money to cover the mortgage with the stroke of a pen. So in effect they get to collect all that interest from YOU on money which was never theirs in the first place. How in the world can the banks not be making money? Of course they are, just take a look at some of those executive bonuses sometime, but take a Valium first.
Applying 0% to a mortgage of $250,000.00 if repaid over a 30 year term would mean a monthly mortgage payment of $695.00, now compare that with the $1500.00 the same mortgage would cost with 6.5% interest amortized over 35 years.
These figures are not precise but are close enough for a good comparison of the difference in funds that would be left in YOUR pocket if the bank did not charge you interest for money which does not exist.
Foreclosures would be a thing of the past as clearly keeping up a $695 house payment is far easier than paying $1500 for the same house. You simply have removed the money the banks suck out of your pocket over the 30 years or so. Ever wonder why they are called ‘MORT’ gages? Mort refers to death, which is how long you can expect to be paying the lenders under the current system.
All that extra money you have to spend should have a tremendous spin off on the rest of the economy as you would be able to spread your extra money around instead of stuffing bank coffers every month.
Zero Taxes On Housing
Of course I am not talking about municipal taxes which are required for roads, water, sewer and the like, I am talking about ALL taxes that are levied on ANYTHING associated with the construction of residential housing … period!
That means NO PST, NO GST, NO HST and NO BST either. Anything associated with the construction of providing shelter in the form of residential housing would be tax exempt from the get go. The number of dollars that are built into and hidden in the final cost of housing in the present form is beyond my ability to calculate, however I am sure it is considerable.
Think Outside The Box
That is a common expression bandied about these days and certainly would have to be applied before the above suggestions will ever see the light of day in the real world.
It would require some real political will to shake up the current banking system, change the way people view manual labour and force governments to give up some of their appetite for more and more taxes.
It would however put ‘affordable’ housing well within the reach of most healthy people with average intelligence who are willing to roll up their sleeves, get off the couch and do something for themselves instead of relying on someone else.
It would also take massive amounts of YOUR money out of the hands of the banks and move it into the general economy where it should create all sorts of jobs for everyone, doing something actually productive.
Before becoming reality it will also take a HUGE paradigm shift on the part of Canadian society, which as near as I can tell would be a good thing. It would also have to start at the grass roots level as neither our politicians or banks or big business want to upset the status quo.
Posts and Comments on Nanaimo Governance 
I spent some of my earlier years in a home built by my father and his buddies. For some months we lived in the basement while the work continued above. Some factors to throw into this mix: my father and his friends, husbands, fathers, and first-time home-builders all, had come through WW II, an experience which had taught them the importance of teamwork and both self-reliance and reliance upon one’s buddies. Another: the price of the lot our house sat on pretty well equalled, give or take five dollars, one month’s salary for my father, and that was on the commercial market, not a Veterans’ Land Act price, since my father was a British veteran, not a Canadian veteran. Are there any areas left in which one month’s salary would buy a residential lot in a pretty good subdivison? Those veterans, both men and women, came home with a “can do” attitude, and they *did*. Not only homes were built, but also community halls (the old term), swimming pools, and ice rinks. In smaller communities there was no calling for tenders, no signing of contracts–people simply showed up with saws, hammers, nails, paint brushes, cement mixers, and got to work.
Since many cities and municipalities didn’t have the residential construction bylaws they have now, there weren’t regulations that required a time limit from the time construction began to the time the house appeared, at least from the outside, to be “finished.” One house, not ours, sat for well over a year with the family living in the basement with an unsightly temporary roof over it while money was saved to pay for the completion of the rest of the house. Many houses, in that time when stucco was a common choice for exterior finishing, sat for two or three years with black tarpaper cladding covered by chicken wire that would later hold the stucco in place. That wouldn’t happen now.
Our house was built by my father buying building supplies at the local Co-Op store on a charge account, paying it off, and then buying more building supplies for the next stage of construction. By the time the house was completely finished, about two years, the charge account at the Co-Op store was paid off, and there was never a mortgage on the house.
Up until about the last three or four generations, a larger part of the population didn’t expect ever to own their own homes. They expected they would be lifetime renters. And those who were able to buy a house bought a house for life. There was, I believe, less of the attitude of “Buy it, improve it if necessary, wait for a real estate boom, and then sell at a profit and move up the market to another house.”
I think we’re facing “the mother of all convergences” here: so many factors, working together, to make home ownership once again something that many may never enjoy.
It’s not the boomers who lived in the best of times–it was the pre-boomers like me.
Jim — creative out of the box thinking and I think a terrific basis for further discussion. 2 quick things:
inflation — if I lend you say 100 grand in 2010 dollars and you pay me back over say 20 years in 2011,12,13 etc dollars, the purchasing power of the money with which you repay me is reduced dramatically by inflation. I’d take quite a loss.
default: you touch on this quite rightly that the frequency of it would be reduced due to the lower payments but there would be some. Who takes the hit when someone walks away from their commitment to repay the debt? Either the government or the bank would have to make good for it.
Why would you presume there must always be inflation and devaluation of currency? The only reason currency keeps losing value now, is our method of producing it, makes it of less value all the time. That is one of the real dangers of all this government debt. If they just crank up the printing presses to pay that $500 billion off, a dollar will have less value than toilet paper.
That aside. The money does not come out of YOUR pocket, it comes from the same place the banks money comes from, the Central Bank just issues some more ‘tokens’ which is what dollars are anyway. Those are used to pay the hard costs of producing the shelter.
Second point: by virtue of the REAL equity that comes from the sweat equity portion (at least 25%) there would always be enough REAL value in the home that it’s sale would more than cover the money borrowed against it.
It requires a whole lot of ‘out of the box’ thinking.
This is far from outside the box. It borders on impossibilities.
A single family lot in Harewood is $140,000 plus HST, which is a lot more than I make in a few years, nothing like the one months pay mentioned earlier.
Zero percent mortgages are a dream and will not happen, because as stated earlier, the value of a buck decreases over time so a fee must be imposed on the usage of todays dollar to be paid tomorrow.
It is the dreams political parties are made of, but never see the light of day because there is always some legal reasons it cannot happen.
Jim, I think you’d find economist Jim Stanford pretty interesting on this stuff — it’s over my head for sure but I’m reading up on it lately. Here’s chapter 17 (Inflation, Central Banks and Monetary Policy)from his book Economics for Everyone.
Click to access Chapter_17.pdf
Others can correct me if I’m wrong but I think this discussion of how and why housing is and isn’t affordable is directly relevant to our blog on life in the city…
George, nothing is impossible if there is the WILL to make it happen. As for the lot in Harewood, it is only worth that IF someone will give you that for it. Ten years ago I bought my house on a lot in Townsite for less than that. The prices in the marketplace have been seriously out of whack for years now.
There are brand new 3 bedroom, two bath, two car garage townhouses in the north end, that were first listed at over $369.000 and now are on the market for $299,000 and are not selling.
As for land, you don’t have to go very far on the island to realize just HOW MUCH of it is not being used. The Crown has lots of land that could simply be given away if the WILL was there to do it.
Zero percent mortgages are very much possible, again there simply has to be the WILL to do it.
As for legality, it is people that make the laws. It used to be illegal for women to vote once upon a time too.
Oh sure, blame the banks and ignore every other factor that has driven the housing prices up in Nanaimo in the past ten years. Forget the population growth and the influx of people with money in their pockets paying asking price for homes without question. Just forget the house flippers and speculators that have been buying up everything in sight for the past few years. And don’t even bother to think of the aggressive marketing campaign of Nanaimo that’s been taking place across the country.
Spend some time talking to Nanaimo’s new homeowners. Find out how many of them are new to Nanaimo. Quite a lot of them are very recent arrivals. Ask them if they’d bought their house sight-unseen. You’d be surprised at the number of people who answer “yes” to that. Then ask them if they’d payed asking price. Guess what? So many of them come from places where the housing prices are so much higher that they thought they were getting a good deal when they shelled out their money. My husband, who usually does the talking, takes great pleasure in letting them know that if they’d bothered doing a bit of research they probably could have purchased the property for thousands less.
Stop and think about it for a minute. How are housing prices determined in a market? The real estate agent researches the neighbourhood to see what prices houses have sold for within a certain time frame. The price is then determined by whatever the market will bear. If it were just locals buying and selling homes here, the prices would be a lot lower. But we’re getting people coming from all over Canada – from places where they’ve just sold their house for a million dollars or more, and they come here and think that $370,000 is a great deal.
And why are they coming to Nanaimo? Because for the past few years, Nanaimo has been at the centre of a very agressive marketing campaign on television. I’m sure you’ve seen those “Amazing Nanaimo” ads on television and probably haven’t paid much attention to them – other than to laugh at the ridiculously optimistic picture they paint of this city.
A couple of years ago I was travelling to Manitoba and back visiting family along the way. Every province we stopped in, Alberta, Saskatchewan, and Manitoba had those ads playing every day during primetime on television. Family members who had come from Ontario had also seen those ads promoting Nanaimo as a great place to live, work and play. They even remarked how they didn’t see any other cities promoting themselves as aggressively as Nanaimo was.
And you’ve got to admit, Nanaimo is an attractive place for a retiree. Great weather, very little snow, beautiful scenery, easy access to the shopping and entertaiment venues of Vancouver. And they’re willing to pay for it.
So you’ve got this huge outside demand for housing coming from outside Nanaimo. Of course that’s going to attract the speculators. The home flippers have been very busy in Nanaimo in the past few years. Houses that formerly a lower income family would buy and fix up for themselves now disappear off the market almost immediately only to reappear a few months later with a fresh coat of lipstick and mascara and a much higher price tag. Even houses that are sold as “tear downs” for just the value of the land are refurbished, resold and a profit made.
So, you can blame the banks all you want, but I’m more inclined to take a very different view on the matter.
Oh, and one other thing. @Wendy regarding land prices: I happen to own one acre of land in Manitoba that I’m holding onto for my retirement years. I’ve got the tax bill in front of me. It’s currently valued at $2,700. Subdivided, it would be easily within reach of a person wishing to pay one month’s income for the land. And the main reason for the huge difference between land prices between here and there? Location. No one wants to retire to the cold winters, and mosquito-ridden summers of Manitoba. But Amazing Nanaimo is a great place to live, work and play.
Survivor, are you a banker?? :^))
Those are all valid factors as to what has driven prices in recent years, no dispute.
That still does not justify the amount of money you will pay a bank for money that is not theirs so you can rent a house from them for 30 – 40 years. The spread between what they charge for a mortgage and what they pay a depositor is absurd, as are their profits and CEO bonuses. In the end it turns out that even if they completely mismanage their affairs, the don’t go broke, as the taxpayer, that is you and I, simply bails them out. Ireland is a good example right now.
BTW if no one would want to retire to mosquito-ridden Manitoba, why are you keeping a retirement lot there??
I agree Nanaimo is Amazing, and I would like to see the next generations be able to afford to live, work and play here.
Providing affordable housing is one way, and removing interest on mortgages is one clear way to make it happen. That and cleaning up the giant fiscal mess my generation has made with out of control government spending.
Survivor is correct that the majority of new home owners come from elsewhere. Nanaimo has over ridden with speculators and investors.
Many people have bought homes here that have their regular homes and jobs in Calgary and other parts of the country. They have the jobs that pay the money that they can afford an extra mortgage. The homes sit empty except for the short times they come and visit or friends visit and stay in the house for a few short weeks or a month.
A lady I was chatting with yesterday on the waterfront worked in the lower mainland her entire life and sold her house in Langley last year. She had another home in Powell River and after 8 months discovered it was too small and too many ferries from the big city, so she bought a small home here in Nanaimo for less than a fouth of the value of her house in Langley. How could she refuse when it was only $233.000?
Most Nanaimo people that sell their houses and buy others in Nanaimo are either speculating or downsizing. Very few of them have the income to upsize.
Rather than trying to change the banking system we should be trying to change our city into one that entices business. We need big businesses that hire local people and pay them a good decent salary instead of minimum pay type jobs. Too many local residents under the age of 40 earn less than $10 or $12 an hour and that ain’t going to pay no mortgage.
Let us build office buildings in Nanaimo instead of residential towers. Make the tower at Port Place a business tower. Put up the company name in a huge logo on the roof like the CIBC and ROYAL do in Vancouver. Bring business to Nanaimo, or as some say BC = Bring Cash!
The way Habitat for Humanity works is Sweat Equity = 0% Mortgages.
Habitat usually has the land donated by the city within which they are building the housing so the only cost to the homeowner would be construction.
Habitat for Humanity is a great program, Gord, however how many homes have they done for Nanaimo in how many years?
Do any of the original “homeowners” still reside in the homes they got in exchange for minimum work required?
Do you know how many they plan on doing in the next few years?
George, the point of making housing affordable is not to accommodate people of my generation who have ridden the real estate gravy train from times when homes could be bought for $15,000 and sold today for over $200,000.
The prices (not real value) of real estate over the past ten years is simply nonsense. From $150,000 to $350,000 in ten years??? If you were starting from ground zero as a young person wanting to raise a family, how do you afford a $350,000 house, or a $250,000 house for that matter??
The purpose of my suggestions is to provide new home owners with a viable alternative. The three points I have outlined here, would make new housing affordable to the next generation.
Just as an afterthought, we may think we have a half million dollars of wealth in our real estate, but if we ever have to pay off the deficits our governments have run up on our behalf, we likely are not as wealthy as we think we are.
Good discussion here bloggers, if I might say so. Ideas exchanged, challenged, discussed with thoughtfulness and even outbreaks of civility!
Post on All About Cities blog with an interesting take on home ownership prospects in urban centres…
http://allaboutcities.ca/housing-still-a-good-investment-in-some-us-cities/
No, Jim, I’m not a banker. I’m just someone who almost had enough money for a downpayment on a house a few years ago who became someone who now can’t afford a house and can’t get into a mobile home because almost all the mobile home parks in Nanaimo have gone 55+. Talk about lack of affordable housing!
I’m holding onto land in Outer Bushgolia, Manisnowba because by the time I retire, there is no way I’ll be able to afford to live in BC. It’s part of the old family homestead, and I know the land is fertile enough for me to plant enough food to keep me going through the long Prairie winters. Maybe throw in a few chickens to raise, and install some of that newfangled indoor plumbing and I’ll be all set!
That’s exactly what my brother-in-law and his wife did. Each member of the family is given a piece of what is basically bush land as a wedding gift, and he hung onto his for close to forty years. One advantage they have is access to a community-owned and run water supply, so no outdoor plumbing required. They sold here and retired to the fringes of the Okanagan. The winters there aren’t as mild as they are here, but they sure aren’t bad compared to the prairies.
I really wonder why no one has tried a law suit against mobile home parks with 55+ regulations. I wasn’t aware of that and don’t understand why it isn’t against the law. Could someone explain?