- cross-posted to:
- brainworms@lemm.ee
- cross-posted to:
- brainworms@lemm.ee
You must log in or # to comment.
This is simply wrong.
The article goes into details about the profit margins for developers, but they are not the problem.
The problem is the land value appreciation over time.
A recent study by the Cooperative Housing Federation found that coop rents in five major Canadian cities were on average twenty-five percent lower than “market” rents. What’s more, the differential widens over time, with co-op rents becoming one-third lower on average than market rentals.
They’re a third lower because they don’t increase their prices at all to match the market rate, because the land cost was locked in at the lower rate and unlike private entities they’re not trying to maximize profits by matching current value.
Then the article makes the biggest mistake by saying that the government can just do it. Unfortunately there’s almost 0 government owned land in cities where people want to live. That means they would have to buy it on the private market. Buying any reasonable amount of land for this would cost an astronomical amount of money, even if you wanted to reach a goal of 10% non-profit housing the land cost alone would bankrupt the government, and 10% isn’t enough to significantly drop the overall prices on the market. It would just mean a bunch of people win the lottery and get a low cost unit, and 90% of the population gets no benefit.
The only viable path to affordable housing is by crashing the value of land. The government could do this in multiple ways by implementing policies or taxes. 100% capital gains, or preferably an ongoing Land Value Tax (not the same as a property tax) that is large enough to eclipse any potential increase in value.
Unfortunately those policies are political suicide right now, far too many Canadian voters own a home and are not willing to give up the value they’ve accumulated in this pyramid scheme.
I just looked at a breakdown from precondo.ca and land cost in Toronto is about a third of the per sqft building cost. Profit margins are 12-20%. That doesn’t sound insignificant. Also whether the building is for-profit or not-for-profit affects the hard costs. A for-profit building might opt for more glass and flashier “luxury” materials whereas a not-for-profit could keep it down to functional materials.
Condo builds are risky, a 12% profit margin is for a successful project, plenty of projects and developers fail and go bankrupt. I bet you the average return for every attempted project is much lower, but that’s not being calculated into that number. A non-profit can still fuck things up and lose money, even (and maybe especially) the government.
The land costs for a condo should be nothing they use almost no base land per person, but even in this case it’s still a third of the price. Condo land prices should be a smaller part of an apartment, that’s literally the best case scenario for land use per person and why we build giant sky scrapers in the first place. Unfortunately they’re also not optimal outside of city cores, and most families don’t even want to live in one.
Now go look up the land price vs house price for a 4 bedroom home in the immediate suburbs of a large city.
https://www.realtor.ca/real-estate/27750787/236-w-12th-avenue-vancouver https://www.bcassessment.ca/Property/Info/QTAwMDAwMVJYQw==
3.5 million dollars, Assessed at 3 million, and land value assessed at 2.8 of that 3 million. Even if you bought that property and build a new detached house on it from scratch for 1 million dollars, it would still be 75% land costs.
How about further out, somewhere in a random Richmond neighborhood.
https://www.bcassessment.ca//Property/Info/QTAwMDA1WE1UVg== https://www.realtor.ca/real-estate/27926782/5280-cranbrook-avenue-richmond
This property is being advertised as basically a single lot for a single home rebuild and it’s 2 million dollars. A million dollar home build on it would give you a 66% land cost.
You’re absolutely right that a non-profit may build slightly cheaper buildings, but again, it’s not going to be a lot.
The bankruptcy risk does not exist for the federal government. So a government funded non-profit development project that’s built by the same construction company (charging the same money) that a for-profit investor would hire, would save that 12-20% for that project straight up.
Yes for single family homes the calculus you describe makes sense.
But we aren’t building ourselves out of this shit show with single family homes. I think most recognize that given the push for rezoning. So in my mind, looking at multistorey buildings is the only interesting scenario. And I think my argument that there’s savings in the elimination of the profit and the “luxury” factors is reasonable.
It wouldn’t save 12-20%, in a situation where the development “fails” it just means that the costs far exceed the revenue and it becomes a tax burden on the public. Just because no bankruptcy is declared doesn’t mean there aren’t negative consequences for stakeholders.
I’ve just skimmed through the report you mentioned (link: https://chfcanada.coop/wp-content/uploads/2022/11/The-Co-op-Difference-report.pdf)
Table 1.3.2 on page 7 of the report (page 18 of the pdf) shows a table comparing co-op rents vs market rents. Not sure if I’m reading it correctly.
It seems like co-op rents are more expensive than market rents in Toronto and Ottawa?
If so I don’t know why and couldn’t see a reason in the report why that is the case. One thing to note, the report stated rent variation between cities is less in co-op rentals than market rentals. But this reinforces the observation earlier. Some cities have co-op housing being more expensive than market rentals.
I wonder if location in the city plays a role. If more co-op rental units are concentrated in downtown as opposed to the suburbs and if the percentage for market rentals is different.
Coop prices stay fixed over time, that’s the big benefit. They don’t increase rental rates, because they don’t need or want to generate profit.
That’s how they become cheaper over time, but you’re right, they’re often not cheaper the day the open up.
I agree with you on those points but I’m trying to find why in Table 1.3.2 why co-op prices are higher than market rents for Ottawa and Toronto.
You are misreading the very poorly captioned table. The percentages are showing a comparison of the rent of co-ops and market rent against the average in the same category of the five cities in the study. So co-ops are being compared against the co-op average. It’s just to show that rent prices of co-ops and market rentals are similarly affected by the markets in the respective cities.
You are on the right track, but you have to be a bit more strategic.
Here is my proposal to get a LVT-like system with property owners embracing it and with less legal hurdles.
Keep the current system and make the minimal necessary changes.
E.g. if property tax is 0.6%, then make it 1.2% for houses that are vacant for a long period. This right there is a tax on speculation.
For undeveloped, derilict and/or underdeveloped lots, also double the property tax. E.g. if the property is worth less than 50% of the average property per area of land.
Now this extra revenue should flow directly to home owners and affordable housing.
For owner-occupied housing, make property tax up to half the average property tax deductible. E.g. if the average property tax is 6K, then two adults owning a home together with an 8K bill could deduct 6K from their tax.
For affordable rent, if the house is occupied, then half the property tax is given to the tenants.
All these figures are illustrative. Exact figures should be determined by good analysis.
Such a scheme would easily enjoy popular support and fix the housing crisis.
And it would kinda approximate the LVT, in the sense that it also provides similar corrections to the housing market that a LVT would have.
I have a different idea.
LVT is significant, like 25-50%+ of land value.
Use that money to fund a Universal Basic Income.
The goal is to crash the price of land for everyone, probably by like 75% or more in many areas. The ongoing cost to owning land should be something you’re willing to pay because you want to live there, and the benefit should be shared by all citizens of the country because that’s what the country is… land.
The amount of the UBI should offset the amount an average family would pay in increased taxes if they’re using a “reasonable” amount of land for their family size and location.
This way if you use more land than you should be, you pay for that privledge, and if you use less you benefit a bit.
The amounts would be fairly self-levelling, as the now significantly lower price of land would still reflect the desirability of an area because people are essentially now bidding on how much they’re willing to pay in taxes since the tax amount would be much higher than the fixed land cost on a yearly basis.
A family property that’s $500k in land today, with a $300k home on it would drop to like $100k in land and $300k in home value, going from a total price of $800k to $400k, which would be like a $4000/month mortgage swapping into a $2000 mortgage plus $2000 in land value taxes (at 25%), and then the family of 5 living there would see a $400 per person UBI which offsets the tax cost.
Meanwhile, grandpa and grandma living in that same paid off large home would see a $2000 per month tax increase, and only a $400 per person UBI which means they can either pay $1200 extra per month to stay in the too-big for them home, or they could downsize to something more reasonable for just 2 people.
Sure, nice idea. I supported it back in 2008 or so.
But it will never get passed in any functioning democracy.
So better to figure out schemes that most people will actually support.
It will absolutely get passed, it just needs to sit on the back burner until home ownership rates drop to probably around 40-45% rather than the 65% we have now. Non-home owning voters need to outnumber home owning voters, with a bit extra to deal with cultural inertia.
Small adjustments will just keep the pain going for longer, but eventually enough people will get upset enough to flip the table.
“Let’s wipe out the vast amount of wealth for the majority of the country” is unlikely to play well basically ever.
“Grandma and Grandpa need to take a $300k wealth cut so that we can force them out of the neighborhood they’ve lived in for 30 years because it’s not the optimal use of that land” is going to always go over like a wet fart. You’re coming across like a technocrat here rather than a feeling human being.
Grandma and grandpa did absolutely nothing to earn that money. They paid $50k for that property and house. Why does society owe them $700k for their retirement because of that?
You’re right that it’s unlikely to go over well, but that’s because people are greedy and don’t care about the harm it’s causing the next generation.
My wife and I have made about as much as a full additional third income in equity appreciation over the last 15 years by simply living in a house. We did nothing to earn it. I’d trade it in an instant for the house prices to go back to what they were 15 years ago.
That money has to come from someone, it’s a giant pyramid scheme that should never have existed in the first place. Our kids are absolutely fucked, they will never be able to afford a reasonable home because we have treated homes as investments and by default investments need to appreciate faster than inflation.
