Canada, we have a problem and it’s time we talked.
Our love of real estate is not only creating a world in which new homebuyers cannot enter the market, it is also grossly distorting future opportunities.
I have built several businesses in my career, some successful, some less so. Each business has been immensely capital intensive, with some employing hundreds of people and most generating millions of dollars in revenue.
My trajectory is one that I look back on with pride, but also with irritation. After 15 years of participating in the ebb and flow of the cash-flow business world, it seems to me that I could have done just as well by investing in a bunch of real estate, sitting down employing no one and just riding the big Bubble of Canadian assets of the last decade.
That understanding means that something is seriously wrong with our economy and the way it works.
a lost decade
Western economies used to produce products and then services. Those products and services created lasting value, jobs and, above all, innovation. But we in Canada have not been involved in such projects lately. Instead, we have experienced a lost decade, a decade in which a significant amount of available capital and innovation has been poured into building glass buildings in the sky.
In fact, our current Canadian economy produces housing stocks of indebted residents paying near New York City prices for real estate in Mississauga. In the process, we have created little living space after little living space with no real, intrinsic value beyond the fact that the price of those same spaces continues to rise with each passing year.
In short, we have collectively spent a decade creating nothing of lasting value beyond monetary multiplication.
What. A waste. There is something fundamentally wrong with an economy whose primary purpose is to house people who are employed in the housing industry. To be clear, that’s not just a fancy twist on the phrase: Canadian housing is currently consuming 37 percent capital investment in this country. Such an economy will not and cannot lead the world into the 21st century.
Such an economy is essentially stagnant: an economy in which investing in a room with a view is more valuable than employing hundreds of people in actual productive work.
We need governments that can refocus economic incentives around real business value and promote programs that foster long-lasting products and services with economic potential beyond Airbnb. This will involve undoing any number of perverse incentives designed to encourage real estate growth at the expense of everything else.
Perversions like basic bank loans.
Have you ever tried to get a restaurant loan in Canada or a loan to start your own business? Good luck to you if you don’t have a house to pledge. But when someone who wants to enter the real estate market asks the bank for money for a condo, even though that person could lose their income and the ability to pay a mortgage tomorrow, the banks compete to offer government fees for the privilege of lend that same money. .
Or consider the primary residence exemption, which people can use over and over again for any amount of money made from the sale of their home, as long as they lived in it. Compare that to selling shares of an active Canadian company, which is tax-free only for less than a million dollars, and even then only available for your use. Once in life.
These perverse incentives exist throughout our system and must be addressed if this country is to stay on course.
Canada is hooked on real estate. We need to detox fast for our own good, for our children’s future, and above all for all future business creators who aspire to develop their skills in a system that encourages their efforts instead of punishing them.
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