People keep comparing rent subsidies to minimum wage increases.
This isn't even close to the same, and implies a very poor grasp of basic economics and business.
Quick thread. π§΅π
2. Idiots say if you raise the minimum wage by $1, it'll result in much more expensive food.
We know that's not necessarily true, because a $1 increase to labor is not a $1 increase to product output. It doesn't take a whole hour.
It takes 5 min. So it adds 9 cents.
3. Giving cash subsidies for market housing is very different. When the cost of shelter is rising fast, the market can more easily absorb it.
That's how high home prices are justified. They cut interest rates, so now people can carry a higher cost of housing.
4. The upper limit of housing costs are determined by how much money the marginal buyer has. When they credit, home prices cap as well.
This is why we saw home prices start to top in 2019. Rates were climbing. Then the BoC started buying mortgage bonds, which lowers rates.
5. The market was ripping a little higher at the start of 2020. The BoC said it was just a "routine" operation to buy these bonds. They never explain the impact.
It was obvious they were installing a QE mechanism. When the pandemic hit, mortgage rates plummet, QE implemented.
6. Rents are normally constrained by wages though. Low-interest rates don't mean much to someone paying rent. It certainly doesn't mean they have more rent money to use.
That's why rents have failed to rise as much as housing. But the industry knows people are idiots.
7. So they began purchasing towers of rental units, that don't make sense. Bad rent, huge prices. Except, they aren't filling the apartments as people leave.
There are rental complexes in Toronto with over 100 units vacant.
They're applying pressure to the rental stock.
8. It's the same concept as a busy bar with only 2 washrooms, and one goes out of order. There was a lot of demand before, but now there's excess.
This brings up the total cost of rent, but it's still constrained by wages. FUCK. Tragic, I know.
9. So you get it from the government. They'll give money to "finish" the apartments, refurbish livable places into luxury units, and add value. The gov claims it's creating housing, but it doesn't. It improves
margins.
But anyway, back to cash subsidies.
10. Pressure on the market's rentals mean the apartment a person is staying in, is now worth more than they're paying.
Apartments have a type though. Some older apartment may be more working-class than a glass tower with butler downtown.
This is that income constraint again.
11. You can only really substitute like tenants at the lowest rung. They only have maybe $12,000/year to spend on rent. But now, with the cash subsidy you know they have $17,000. You can jack up the rent on that demographic to market.
Congrats, you're a supervillain now.
12. I know, you're thinking, "you can't just kick someone out!"
a) if the profit is higher than the penalty, you go for the illegal move. This has always been the operating mindset of businesses aggressively looking for profits.
b) They offer a cash payment. Yesterday I heard an elderly woman with a disability was offered $7k to leave her apartment by her landlord.
She can't higher rents elsewhere for very long. But she's low income. She's either homeless in a couple days, or homeless in a few weeks.
13. Point is, the goal is to extract as much capital as possible.
Low rates and a gov focused on delivering more capital to housing produced monolithic property companies.
These aren't mom and pop landlords, with a few dozen apts. These are professional sociopaths in finance.
a. I missed the part where the low income, disabled tenant was threatened with being evicted if they didnβt take the money anyway.
If youβre wondering why so many people are on the streets in Canada today, itβs directly related to the gov pumping property prices.
Me (2016): Corrupt politicians from China are washing their money in Vancouver, in one of the biggest grafts in history.
YIMBYS: RACIST! That's a lie!
China (2017): Canada. Turn over our fucking criminals.
3.
Me (2017): We built one of the most elaborate capital tracking systems, more complicated than the gov. Money laundering is rampant in Vancouver. This is how it comes in, right down to the gang.
YIMBYS: Fake news!
BC gov (2018): Stephen's right, down to the gang and origin.