Zoning Reform Ideas

[afransen]

Another issue is that low interest rates help the government keep borrowing excessively to buy votes with social spending. So there's a disincentive to raising the rate too much.

The government doesn't really control rates. Rates are a consequence of broader economic conditions. If the BoC just decided to raise interest rates by 5% to control house prices, they would trigger a catastrophic depression for the Canadian economy.

 

[Undead]

The government doesn't really control rates. Rates are a consequence of broader economic conditions. If the BoC just decided to raise interest rates by 5% to control house prices, they would trigger a catastrophic depression for the Canadian economy.

I'm aware of that, but it's troublesome when the government sees runaway housing prices as a worthwhile price to pay to patch economic holes elsewhere.

edit: we're not talking about raising rates suddenly. I'm aware that would tank the economy. The way they're rushing to raise rates right now reminds me of Japan in 1991 which tanked their economy for good.

I support a "soft landing" where rates rise gradually over 3+ years to give the economy time to deleverage in the face of higher borrowing costs.

 

[Northern Light]

I'm aware of that, but it's troublesome when the government sees runaway housing prices as a worthwhile price to pay to patch economic holes elsewhere.

edit: we're not talking about raising rates suddenly. I'm aware that would tank the economy. The way they're rushing to raise rates right now reminds me of Japan in 1991 which tanked their economy for good.

I support a "soft landing" where rates rise gradually over 3+ years to give the economy time to deleverage in the face of higher borrowing costs.

A move that should have never been needed, because rates of under 1.5% (BoC) and 3% prime should never have happened in the first place.

 

[Northern Light]

The government doesn't really control rates. Rates are a consequence of broader economic conditions. If the BoC just decided to raise interest rates by 5% to control house prices, they would trigger a catastrophic depression for the Canadian economy.

Well............. LOL......

Not on paper........

In reality, there is some influence there.

Which is not to suggest moves of 500 basis points in one move or one year are desirable....

 

[Admiral Beez]

I support a "soft landing" where rates rise gradually over 3+ years to give the economy time to deleverage in the face of higher borrowing costs.

The slightest increase in interest rates will expose the middle class mirage that is Canada, where through negative wage growth, buying power and job security along with the end of DB pensions, the only way to obtain any illusion of their parents‘ and grandparents’ material wealth today’s young and middle aged adults must take on unsustainable debt loads. A 2% interest rate hike would devastate many while double digit rates in the 1980s were livable for most, heck I made a killing on GICs back then.

 

[afransen]

Well............. LOL......

Not on paper........

In reality, there is some influence there.

Which is not to suggest moves of 500 basis points in one move or one year are desirable....

Dramatically raising rates would slow consumer spending, cause deflation, strengthen the dollar harming export competitiveness, and make investment less attractive by raising the discount rate and cost of capital. BoC sets rates that don't lead to these outcomes, raising rates because they want rates to be higher cools the economy, aka raises unemployment etc.

 

[DirectionNorth]

Dramatically raising rates would slow consumer spending, cause deflation, strengthen the dollar harming export competitiveness, and make investment less attractive by raising the discount rate and cost of capital. BoC sets rates that don't lead to these outcomes, raising rates because they want rates to be higher cools the economy, aka raises unemployment etc.

We have more employment than we know what to do with.

We have more inflation than is healthy.

The economy could use some cooling.

 

[afransen]

We have more employment than we know what to do with.

We have more inflation than is healthy.

The economy could use some cooling.

Which is why BoC is raising rates. But to say the BoC should raise rates but won't because of fed govt debt or political considerations, etc. is wrong. BoC sets rates to meet inflation targets. That's it. It could not set rates higher than they do and meet the target.

 

[Admiral Beez]

Dramatically raising rates would slow consumer spending, cause deflation...

Have we ever actually seen prices drop? I think we consider slowed inflation as deflation, but it's still inflation.

 

[afransen]

Have we ever actually seen prices drop? I think we consider slowed inflation as deflation, but it's still inflation.

We see deflation in specific commodities all the time. Some consumer goods that were off-shored are cheaper now than they were, such as furniture or clothing. Microwave ovens cost the equivalent of 3000 today when they were introduced in the 70s. My first PC cost more than the one I bought recently.

We don't see broad deflation because central banks pull out all the stops to prevent it. The last time they failed to do so was during the Great Depression when there was a misguided attempt to constrain borrowing.

 

[TJ O'Pootertoot]

These are notable exceptions buuuut I think we have to allow for technology as a different thing. Obviously microwaves and PCs and TVs are a bit of a different thing, without getting into Moore's Law and such. Processing power is obviously cheaper and innovative products become cheaper once they are widely adopted and commonly mass-produced but I don't know if you can just do apples-to-apples there.

Anyway, I'm not an economics expert but it strikes me all these arguments out there are more political than economic anyway. Even if it were true, for example, that inflation is all Trudeau's fault, the "solutions" coming from the CPC candidates won't fundamentally address anything. The housing stuff, the economic stuff, it's all just one more board for them to play their games on.

 

[Undead]

Fundamentally, there's been an inflationary/MMT consensus across party lines in much of the Western world for many years now. Whether liberal or conservative, most governments have been running deficits and lowering interest rates for decades.

Look at Harper--lowered interest rates during the last recession, but failed to bring them back up substantially. So much for a fiscally conservative government. There's no true fiscally conservative party anywhere in the Western world anymore, at least in the mainstream.

I hate to be that guy, but it's beginning to look like it doesn't matter which way we vote if this consensus holds.

 

[afransen]

Look at Harper--lowered interest rates during the last recession, but failed to bring them back up substantially. So much for a fiscally conservative government. There's no true fiscally conservative party anywhere in the Western world anymore, at least in the mainstream.

The federal government doesn't set rates. The Bank of Canada does. The Fed Gov't sets the mandate for the BoC, which has been to maintain inflation at around 2 percent, as has been the objective since the 1990s. The fed government can only change rates by a) changing the mandate of the BoC or b) changing fiscal policy in a way that the BoC would need to counteract to achieve its mandate. So, short of changing their mandate, Harper would have had to use stimulative fiscal policy to induce the BoC to raise rates in order to keep inflation in check.

 

[Undead]

If anyone still thinks central banks are independent of federal governments after the last two years, I'm not sure what to tell you.

And it's a bit of an open secret that the official inflation rate has been severely skewed by asset bubbles since 2010. It's frankly insulting to take at face value the "2 per cent benchmark" when housing has been on an epic run since the last recession.

These "independent central bank" and "supply shortage" memes must cease if we're to have a hope in hell of resolving the current mess.

 

[allengeorge]

If anyone still thinks central banks are independent of federal governments after the last two years, I'm not sure what to tell you.

And it's a bit of an open secret that the official inflation rate has been severely skewed by asset bubbles since 2010. It's frankly insulting to take at face value the "2 per cent benchmark" when housing has been on an epic run since the last recession.

These "independent central bank" and "supply shortage" memes must cease if we're to have a hope in hell of resolving the current mess.

I don't think there's collusion of the sort you're implying (which I imagine to be the Minister of Finance walking over to the Governor of the Bank of Canada and saying "drop this rate"). There's honestly a simpler explanation:

1. CPI does not include home prices (from the Bank of Canada's own website: https://www.bankofcanada.ca/2021/05/understanding-consumer-price-index/)
2. Until recently, home price growth was largely regional, affecting primarily Toronto/Vancouver (and, as far as most Canadians are concerned, there's a "let 'em burn" attitude when it comes to Toronto)

The bank is only responding now because the CPI is spiking - a big chunk of it is global supply constraints, which is why it's affecting many, many countries - and if they don't respond people will lose faith that the BoC can intervene, causing an inflationary spiral. It's faith that Central Banks can intervene and prevent inflation that underpins so much of our economic/monetary system. Losing that faith would be disastrous.

This does not imply that there wasn’t a failure across multiple levels of government or institutions. For example, CPI does not capture the aspects of Canadians lives that have experienced the most cost increases: childcare, education, cost of providing for one's retirement and the replacement cost of housing (among others). OSFI and the CRA has been asleep at the wheel when it comes to cracking down on mortgage fraud. The government of Canada should have been far more aggressive earlier about curbing foreign and domestic speculation through the use of heavy capital gains taxes, preventing the use of HELOCs to fund purchases, limiting the use of assignments, creating a national transparent beneficial owners registry, mandating laddered rates as you purchase additional units, tying funding to opening up zoning, and much, much more. Provinces failed to respond to locally-rising housing prices through regional zoning or anti-speculation regulation. Municipalities have not upzoned - and still refuse to, by and large. It's just a mess.