They've been around almost as long as someone got the idea to sell apartment units but in the last few years I've noticed quite a few apartment buildings in my hometown converting to condominiums. And it's a nationwide trend also. One can understand why on the surface landlords are doing this; one can make more money selling the units individually than as a block -- even the condo fees can earn as much as low-income housing.
But that's the crux. Many of the units being converted used to be public housing or rental units at rates below market. It may be a good thing to get people back into our downtowns, but is it also good to force people onto the streets?
While the real estate barons sleep on thread counts of ever increasing numbers, their ex-tenants struggle to find a place to live -- and eventually they wind up taking no-down payment mortgages. Guess who backs those up?
The Government of Canada. The banks have no risk whatsoever but it's the taxpayers who foot the bill for defaults. It's nowhere near as bad as the subprime scandal in the States but it's getting to the point where eventually it will be awfully close.
There's no question ownership is far preferable to renting. But shouldn't we give people an incentive to save to do so? It's time to bring back the federal home ownership savings plan -- shelter some of one's savings until he or she is ready to make their first home purchase. If there aren't going to be any more apartments, the least we can do is give people a head start.
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1 comment:
I think you have an excellent, excellent idea. Finding ways to assist buyers in saving for a home is the best investment a community can make in its citizens.
As someone who has worked in real estate in the US, I envy the intelligence (if that is what is was, or aversion to risk, or just blind luck) by which Canada has kept some sense of perspective on how finance for home ownership should work. I hope the painful lessons in the US are learned before Canada goes further down the path of "free credit."
It has been alarming to see just how available - and sometimes pushy - some finance entities have been in enabling folks to get into mortgages with little or no money down (or negative equity upfront) to get into a home they can ill afford.
Before anyone paints real estate agents or lenders with a broad brush, there are many, many good people who work to truly assist their clients in making wise decisions - letting them know their options but making them well-aware of the risks. I'm happy - and relieved - to say that in nearly 10 years as an agent, no client with which I have worked has ever defaulted - and I have worked 75% of the time as a buyer's agent. I can say the same for many other agents, and I have known many excellent lenders who advise their clients as if they were their own children (I mean that in the kindest sense). They would never sleep if they felt they had tried to convince someone to take on a loan beyond their means. But the climate overall in the US has allowed an overwhelming amount of bad choices to abound and flourish in the market - and many times has turned a blind eye when those options were abused or mis-represented by those willing to do so.
A particularly under-reported part of this story is the fact that the worst abuses have been in relatively moderately priced areas of the country. Surprisingly, some of the most expensive markets have a vastly lower share of these benignly labeled "negative amortirization" loans. In other words, the problem was not caused by high prices. They were triggered by poor financing options being readily available at great risk to those who get into them with little or no risk to the entities offering them. I'm not saying that affordable housing is not an issue - it is. I'm just pointing out the finance debacle is an entirely separate animal. You may realize that, but I stil think many people somehow think "high prices' in themselves resulted in this still-unfolding situation.
I think there is a really strong case to be made that low down payment loans can be a great benefit to folks just getting started and trying to get into their first home. But zero-money down loans, and financing schemes (my word for it) through which a person can erode their own equity through negatively amortized loans, inflated appraisals for home equity lines of credit, etc, should just be outright banned. The difference between a 3% down payment, which in essense provides a basic cushion should the market falter, and allowing a new homeowner to start out 5, 10, or even 15% in the hole compared to market value - or that allows the person to go beyond the real equity of the home - are night and day. The latter is a pure recipes for a personal financial disaster from which many people may never really recover. And, sadly - and perhaps not well-known in Canada - this is all unfolding just 2 years after sweeping legislation was passed to make it much more difficult for an individual to claim a personal bankruptcy. Changes to the law, I might add, that were strongly pushed by the credit industry and passed by a Republican congress with little or no Democractic votes, after prodding and full endorsement by the Bush administration.
So, again to your point, the company providing bad financial options are protected - leaving the individual holding the bag.
I am hopeful yet that some meaningful reforms will come out of this mess. But at this point I really don't think the politicians understand the issue (I mean that honestly, not as a slam) or have a sense of quite how to unweave the tangled mess that has been created.
Canada should study it, though, and learn the lessons now before heading any further down the US path.
As that time old saying goes, "There is no free lunch."
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