Death of the dream?

My colleague’s blog yesterday drew a red line under a sobering fact. Most people are pooched. Bad habits. Lousy finances. Poor prospects. They’ll run out of money far before they run out of life.

The reaction among many in the steerage section was dismal. YOLO now and suicide later. Pathetic.

How did we get here?

No, it’s not the government’s fault. Nor that of immigrants, bankers, MPs and the prime minister, REITs, needy GenZ children, Tiff or Galen Weston. Real estate did this. It gave us $1.2 trillion in mortgage debt, crushed annual RRSP and TFSA contributions, Hoovered personal savings and skewed millions into an unstable one-asset financial strategy that now threatens them with a penurious future.

So here we are. Houses cost far more than people can afford. Real estate ownership has divided us into smug owners and covetous renters. The wealth gap has never been this wide. And governments have been floundering wildly – and failing – to deal with a ‘housing crisis’. Soon we’ll have a federal election, and this matter may well determine the outcome. But whatever the vote yields, real estate will still be unaffordable.

Is this the end of the road? Should we just stop sacrificing family finances and future security chasing the goal of owning a costly property albatross?

Perhaps the tide’s already, inexorably, turning. In the last few years the financialization and commodification of residential real estate has exploded. Every since the US housing bust ended in 2008, big investors have been vacuuming up properties they turn into stable long-term rentals. Invitation Homes has 80,000 single-family homes in the States. Tricon owns 35,000. Increasingly venture capital money is transforming the face of real estate. And it seems unstoppable.

This is despite the efforts of lawmakers who cling to the 19th Century aspiration that every family needs a homestead it owns (or the bank does). This made sense when 30% of income was needed for shelter. These days, says RBC, Toronto families shovel over 70% of their incomes into maintaining a roof they possess. In Vancouver it’s a stunning 93%. In short, urbanites – unless they’re 1%ers – cannot buy and carry a detached home and still look after their families or their futures. We may be on a path, therefore, leading to a cliff.

In the US Democrats are trying to stop the corporate investors, claiming they compete for homes, lessen supply and probably increase prices. The End Hedge Fund Control of American Homes Act of 2023 would force these companies (including REITs) to sell off the SF homes they own over 10 years and eventually ban them from the market. Along the way big new taxes would divert money to subsidize down payments for individual buyers.

Another bill, the American Neighborhoods Protection Act, would force owners of more than 75 homes to pay ten grand per home per year into a trust fund used to help lower-income families finance real estate purchases.

Neither bill is likely to pass. But this political movement begs a question: what’s so great about owning a house sucking off most of a family’s income for property tax (very high in the US), financing charges, maintenance, utilities, insurance and renovation? How is this actually helping anyone when future property values could be crushed by higher interest rates, or economic reversal and job loss? Is this not just luring lower-income folks into a high-cost, risk-laden scenario?

Meanwhile a new model of home ownership is emerging, acknowledging that residential real estate is now financialized, and never be going back. ‘Arrived’ is funded by big money (Jeff Bezos is involved), buying up single homes and selling shares to investors with as little as $100 to invest. Its ‘Single Family Residential Fund’ acknowledges a reality: few people can afford to buy or own a house now. Most will rent. So why not let renters also invest in the homes they occupy through a liquid financial asset?

Here’s a corporate webinar explaining it:

About 5% of US homes are currently held by corporate investors. In Toronto 50% of new condos are snapped up by individuals and families who will never live there. It’s estimated that by 2030 40% of the single-family market in America may be controlled by entities. Critics decry it as evil. But is it really?

It seems inevitable most people in a decade will rent – up from the 30% of Canadians and 35% of Americans who are currently tenants. In fact, today 51% of the citizens of Montreal rent. In the GTA, that number has hit 52%. Many pay money to small-time investors to live in condo units held for speculative capital gains. They’re subject to renoviction or being tossed out if the owner decides to move his kid in.

Corporate landlordship would end that. Purpose-owned single-family home rentals might provide superior, stable, long-term occupancy in detached structures that folks could never otherwise afford to inhabit. No cheapo mom-and-pop LLs with deferred maintenance. No capricious evictions. Meanwhile accessible fractional ownership through a model like Arrived’s would give real estate exposure in an affordable, diversified way, returning some of the rent paid in terms of dividends and distributions.

Is this crazy talk? Heretical? The shattering of a cultural dream with its roots in sod-busting mythology?

Of course. But the financialization of residential real estate is inevitable. We did that. As you watch more and more families sacrifice and consume immense risk to own and as governments vainly, heroically, expensively cave before them, it will become more obvious.

This is not your dad’s Canada.

About the picture: “My wife wouldn’t go for naming our daughter Emmylou (after the great singer, of course), so the dog got the moniker,” writes Lawrence. “Emmy came up from Texas last August and never met a shoe she didn’t want to chew.  We aren’t sure of the breed, but we guess some mix of pittie and ridgeback. Training is coming along; here she is flanked by a couple of older buddies. We remain grateful for your wisdom and wit and practical advice, Garth.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.