I got my laptop back, finally, after spending three days in intensive care and undergoing surgery. So to celebrate, I thought I’d put up a brief (hopefully) post for your weekend reading pleasure.
Well, “pleasure” might be the wrong word here, given the topic and the issues… but it will give you something to think about over your Saturday morning coffee. If afterwards, you feel like adding some bourbon to your java, I wouldn’t blame you.
This is a “big think” piece if you will, where I try to figure out what I think about something by reading what I’ve written about it. It will not affect your business in any way shape or form, at least for a while. But if you have an interest in real estate, in housing, and in politics — as I do in all three — then let’s you and I go on this intellectual journey together.
The Agenda Panel from Canada
I ran across this video while doing some research, and it sent me down this particular rabbit hole.
Let me say at the outset that I’m not Canadian, don’t live in Ontario, and have never watched TVO (TV Ontario). I have no idea how popular this program is. Perhaps my Canadian friends can tell us. But I do note that the YouTube channel has 131K subscribers, so this isn’t some low-budget no-name blogger doing a video blog.
The gist of the panel, or at least my take on it, is academics wringing their hands about housing affordability, talking about housing as a human right, and two banker types spending the entire time alternatively apologizing and making excuses.
The general point from the academic side appears to be that people and companies should not make money from housing, because housing is a social good. Social goods should not be “financialized” — not sure what that means, since the only definition I found is that financialization is “the increase in size and importance of a country’s financial sector relative to its overall economy” — but the idea generally is that housing shouldn’t generate a profit.
The key statement, I think, comes from the new documentary, Push, which TVO makes available for streaming in Canada. (Sadly, I couldn’t watch it here in the U.S., so I’ll have to try and find some American streaming service.) The main narrator/character, Leilani Farha, says, “Gold is not a human right. Housing is.” We’ll talk more about her below.
The banker on the panel, from CIBC Capital Markets, spends a lot of time talking about “labor market mismatches” and talking about how income is not rising. Then the one real estate market analyst says that 35% of the condo stock in Toronto is owned by investors, and that 80% of the housing stock in London is foreign-owned:
Then we get into a bunch of inside-baseball-economist-policy-wonk stuff that moves nobody. The analyst and the banker are talking facts and figures and rental rates and income stats and so on and so forth.
Then we get something interesting. The panel starts talking about the “homeownership mindset” and how that’s harming average people. Even the banker suggests that maybe it should be socially laudable to rent until you’re in your mid-thirties with a family, instead of urging people to buy their own homes. Plus, society has to increase supply, maybe by reducing development fees, etc.
That’s followed by Martine August, Professor at Univ. of Waterloo, who sets forth the solution from her perspective, which I think I can comfortably classify as being from the political Left. The government shouldn’t subsidize construction, homeownership, give tax breaks to developers, etc. “We don’t need a middleman to make this profit.” Her solution is for the government to provide “social housing.” So she wants the government, “which has lots of money” invest in “social housing” and not low-quality social housing, but “wonderful, net-zero emissions, destigmatized” social housing. Oh, plus, rent control so that rents will stay low so that people will have security and stay in their communities.
This is the future of housing politics, both in Canada and the United States, and I think likely worldwide.
The Intelligentsia Has Turned Against Property Ownership
I think based on that panel, as well as the documentary the panel was discussing, the global intelligentsia located mostly in our universities, think tanks, media, entertainment, and governments, have turned against property ownership. Perhaps to be more precise about it, I think they have turned against mass property ownership. They want public property ownership, and are likely fine with large institutional property ownership as long as the government controls and regulates that ownership, but average families owning their own home? I don’t know if they still think that’s worthwhile.
Here’s why I say that: the documentary, Push. It appears to be a well-done film. It has won multiple awards, albeit from left-wing “progressive” film festivals. The emotional content of the clips I’ve seen is intense. Take a look at this “sneak peek” clip:
A sneak peek of some footage from the film:
If you don’t feel something watching those people tell their stories, you’re not human. Of course you feel something. You feel terrible for them. You don’t know their stories, nor the stories of the landlords or the owners, but you naturally want somebody to do something to help these people who are clearly suffering.
But what I found even more interesting is the main narrator/character, who the film follows around the world: Leilani Farha.
Her title is “United Nations Special Rapporteur on the Right to Housing.” She is also the current executive director of Canada Without Poverty, and was the former executive director of the Centre for Equality Rights in Accommodation. And here she is at a recent TED Talk:
She is eloquent, compelling, and tells a wonderful story. She almost has me convinced, except that I have a passing acquaintance with economics. But read some of the comments: she has a lot of people convinced.
I can’t say for sure, obviously, but I’m willing to bet that most of the people Farha is convincing are younger people, Millennials and Gen-Z.
Millennials and Housing: Reality Check
At every real estate conference you will attend this year, you will likely hear some speaker talking about how Millennials make up the majority of homebuyers. And thus, the real estate broker and agent had better get smart about how to market to Millennials, how to work with them, and so on. Builders have conferences and release studies showing the kinds of features that Millennials want in their homes, in their walkable communities, and what kind of organic kombucha is best to serve at open houses.
What you are quite unlikely to hear is that Millennials are the most divided generation ever, and that outside of the top 15-20% Elite Millennials, they are absolutely screwed.
He talks about the impact of zoning, of environmental regulations, and other political constraints to affordable homeownership. He knows what’s up and what’s been going on. They all know, because they’re highly educated.
And many, many of them are pissed off:
And so the real reason millennials can’t seem to achieve the adulthood our parents envisioned for us is that we’re trying to succeed within a system that no longer makes any sense. Homeownership and migration have been pitched to us as gateways to prosperity because, back when the boomers grew up, they were. But now, the rules have changed and we’re left playing a game that is impossible to win.
We start earning less money, later. We have more debt and higher rent.
Which means we aren’t able to save.
Which means we can’t buy a house or prepare for retirement.
Which means that unless something changes…
All of us are headed for a very dark place.
Now, the Elite Millennials might be the only Millennials that REALTORS know (unless they have older children, but in that case, their children may very well be Elite Millennials), but the reality is something rather different than what you’re going to hear from real estate conferences that are focused on sales, marketing, and lead generation.
Check out these numbers from Toronto, since the panel above was in Toronto, but you and I both know that these numbers also apply to just about every large metropolitan area in the U.S.:
- Average Millennial income: $36,000
- 1BR Rent: $27,000 per year, or 75% of annual average income (37.5% for dual-income couples)
- Average sold price in Toronto: $852,000
- Downpayment required: 5% of $500K, 10% of $352k, or $60,000.
Forget buying a house; the average Millennial in Toronto can barely afford rent.
If you were the average Millennial in any large North American city (which is where most of the jobs are), would Farha’s message about private equity funds and Black Rock making enormous profits on housing resonate with you? I know it would with me, and I understand economics. It might still be, “Screw them! I can’t find a place to live.”
Since Millennials are the future consumer, it also means that they are the future voter. How do you imagine they’ll be voting in the years to come when the issue of housing, housing regulation, or for that matter, defining housing as a human right and taking “The Shift” as Farha advocates, comes to the forefront? Especially when the intelligentsia in universities, the media, policy think tanks, and governments all agree that housing is a human right, and not a way to make money?
Meanwhile, in REALTOR World…
In the past week or so, I’ve been inundated on Facebook and elsewhere with a peculiar meme.
Might I suggest that this particular meme is coming at an interesting time, historically and politically speaking?
If the intelligentsia has turned against the bankers and private equity funds making enormous profits off of a “social good” or a “human right” like housing, how do you imagine that REALTORS with their commission checks are going to fare?
So here’s the $64 billion question: What has been the industry’s response to date?
Are we ready for the political firestorm that is just over the horizon?
I’m going to suggest that we’re not. Maybe that’s fine, because who cares what some radical leftist NGO activist says on TEDxQueensU, right? Who cares about some fringe radical socialist movement, right? So some college professor wants government to build wonderful net-zero emissions social housing because it has lots of money; aren’t all academics living in fantasy land? Maybe the kids will all grow up, realize that the world owes them nothing, and get on with it.
Or, maybe they just vote in politicians who will declare housing a human right, and not something to make money on.
Like I said, this is a Big Think piece. But that doesn’t mean it’s an entirely theoretical piece. If this political conflict is coming ten years from now, might I suggest that maybe we start preparing now, perhaps with wider education of the public on what drives housing cost, what construction costs are, what maintenance of rental properties is like, why profits matter (because private equity funds get their money from somewhere, usually bigger funds like… pension funds that pay for retirement of teachers and fire fighters… and radical leftist college professors…), etc. etc.? Maybe instead of spending tens of millions on a REALTOR brand that is meaningless (because everyone has it) NAR could spend it on counter-programming the youth on why housing is not immune from supply and demand? Maybe instead of focusing our advocacy efforts only on politicians, we focus some of that on the future voters who will be putting said politicians into office?
And maybe, as I’ve said in that previous post, it’s time that REALTORs really turn their attention to the problems of Millennials today, so that we’re not all seen as handmaidens of bankers and private equity robber barons ten years from now.
Just a thought. A sunny thought for what I hope will be a sunny weekend for everyone. Your thoughts are, of course, welcome as always.