Canadians 'drowning in debt': 47% will borrow to cover costs, survey says

[blankall]

Originally Posted by opendoor

Did you read the article? These people are sitting on a $4M asset with no money owing on it and are complaining they can't afford a $2K tax increase. Never mind the fact that as seniors, they are eligible to defer 100% of their tax bill (including the new one for $3M+ houses) until they sell their house. They don't have to front a dime and yet they're still complaining about a tax increase because their kids might get $3.95M when they die rather than $4M.

People also never take into account the cost of supporting property within a city, when they look at the senior who's "paid off" their property. What about the ongoing infrastructure costs? The costs of maintaining roads, power lines, sewage, etc... Who's responsibility are those costs?

It's criminal how low property prices are in Canada, generally. We've got working people who cannot afford their own properties subsidizing these costs so that retired babyboomers can live cost free in an over sized property they don't use and can't physically maintain without assistance.

Calgary's property tax rates typically fluctuate between .3 - .4 %:

https://www.cbc.ca/news/canada/calga...cast-1.4320615

That's absurdly low, when compared to most developed nations. To put that into perspective, here are property taxes in the UK:

0% up to £125,000
2% between £125,001 and £250,000
5% between £250,001 and £925,0000
10% between £925,001 £1,500,000
12% on anything over £1,500,000

There is no accountability under the current Canadian property tax regime. The real cost of maintaining property is subsidized via income tax.

[burn_this_city]

Originally Posted by blankall

People also never take into account the cost of supporting property within a city, when they look at the senior who's "paid off" their property. What about the ongoing infrastructure costs? The costs of maintaining roads, power lines, sewage, etc... Who's responsibility are those costs?

It's criminal how low property prices are in Canada, generally. We've got working people who cannot afford their own properties subsidizing these costs so that retired babyboomers can live cost free in an over sized property they don't use and can't physically maintain without assistance.

Calgary's property tax rates typically fluctuate between .3 - .4 %:

https://www.cbc.ca/news/canada/calga...cast-1.4320615

That's absurdly low, when compared to most developed nations. To put that into perspective, here are property taxes in the UK:

0% up to £125,000
2% between £125,001 and £250,000
5% between £250,001 and £925,0000
10% between £925,001 £1,500,000
12% on anything over £1,500,000

There is no accountability under the current Canadian property tax regime. The real cost of maintaining property is subsidized via income tax.

5% of $500,000 is $25k a year. You would have to cut a large amount of income taxes to make this workable. I think people forget that the province transfers a significant amount of income tax to the municipalities.

[jayswin]

This thread has been amazing, sincerely. I've learned so much, I wish more threads were like this.

[Scroopy Noopers]

Originally Posted by burn_this_city

5% of $500,000 is $25k a year. You would have to cut a large amount of income taxes to make this workable. I think people forget that the province transfers a significant amount of income tax to the municipalities.

That’s insane property tax for houses of that value. Also people understand that if your home has appreciated you don’t just have extra income to spend on tax hikes right? So everyone for this, is for pushing people out of their homes? I can’t accept that, and I want one of those homes.

Edit: clarified below.

[blankall]

Originally Posted by burn_this_city

5% of $500,000 is $25k a year. You would have to cut a large amount of income taxes to make this workable. I think people forget that the province transfers a significant amount of income tax to the municipalities.

These are marginal rates. So it's 5% of the amount between 250 and 925. These are also pounds not dollars (1.7 pounds to 1 CAD). So in the example, someone with a home worth $500k CAD, would pay no tax on the first $425k and then 5% on the remaining $75k or $3,750 total.

I agree the British model is flawed. There's obviously a pronounced element of socialism and wealth redistribution in the UK model. The North American model, however, where virtually no property taxes are levied has the opposite problem. Working people subsidizing upkeep on property for wealthy landowners is absurd. Provincial revenue being transferred to municipalities is a major part of this problem. The cities should support themselves by raising property taxes.

[burn_this_city]

I probably should have read the details. Those UK taxes aren't wildly different than what we pay here. $500k in Calgary nets $3,327/year split roughly 65:35 municipal and provincial. What probably needs to happen is the removal of provincial portion and allow the cities to collect the difference.

[puckedoff]

Oh lawd don't let SPENDSHI see that property tax table. For the record when I bought my home, I budgeted the maximum I could conceivably afford and then bought just above that

[peter12]

Originally Posted by blankall

These are marginal rates. So it's 5% of the amount between 250 and 925. These are also pounds not dollars (1.7 pounds to 1 CAD). So in the example, someone with a home worth $500k CAD, would pay no tax on the first $425k and then 5% on the remaining $75k or $3,750 total.

I agree the British model is flawed. There's obviously a pronounced element of socialism and wealth redistribution in the UK model. The North American model, however, where virtually no property taxes are levied has the opposite problem. Working people subsidizing upkeep on property for wealthy landowners is absurd. Provincial revenue being transferred to municipalities is a major part of this problem. The cities should support themselves by raising property taxes.

I sit on a couple of municipal committees here in Metro Van and I've consulted on Translink 2050. It is amazing how much future planning is based on hypothetical revenue transfers from the provincial and federal governments.

[CroFlames]

Originally Posted by jayswin

This thread has been amazing, sincerely. I've learned so much, I wish more threads were like this.

People get intimidated by financial discussion and so just ignore it to their own detriment.

Having a discussion is half the battle.

I also found this thread to be very interesting and I'm glad it's not an echo chamber. Some actual diverse thought here

[GreenLantern]

When my wife and I initially built our house it was a bit of a stretch at the time for us, but we knew our situation was going to be improving short term so we did it anyway. The first little while in here was pretty stressful and money was tight, now that things have ironed out the way we knew they would we are much more comfortable.

I think it was good for us to get a little taste of what life COULD be like if you don't live within your means, now that our 'means' is a quite a bit further ahead. This will serve us well as we move forward in life and continue to grow our family. I definitely would never want what things were like at the beginning to be our normal.

Side story to this, when we were working with the bank for our mortgage we went in to sign papers and as we were flipping through one they just casually mentioned that we had been pre approved for a fairly sizable amount of cash in the form of a line of credit. Just sign here. I said, excuse me? Yea just sign here and we give you this line of credit. I dont want that line of credit. But... but.. you're pre approved??!

This banker literally could not understand that we did not want the line of credit. So I refused to sign the paper, he at one point tried to make it sound like the deal wouldn't go through unless we did, at which point I hinted I'd love to speak with his manager about this issue. I imagine that he gets some kind of bonus or kick back for selling us on that extra.

The thing is, I already had a line of credit, at $0 where I like to keep it. It's only there for a HOLY CRAP OH #### moment that my savings can't handle.

The part that pissed me off was just how casually and nonchalantly they tried to tack it on to the mortgage. Many, many young families take it I am sure thinking "hey we will only use it if we have to" then they go buy new furniture on it, maybe go on a little trip etc.. etc.. and find themselves tens of thousands of dollars in debt for things they didn't need or even really WANT to begin with.

It had a super greasy feeling to it, we never dealt with that specific banker again. And eventually grew so tired of these same sort of tactics from the rest of the bank, we moved our mortgage. Nobody has your best interests in mind except for you, don't listen to the bank and do your research on everything they tell you or try to offer to you. They are a business first and foremost, and their primary goal is to make money off you.

[jammies]

Some of you are uselessly hung up in which generation's "fault" it is. First, no generation is a monolithic, uniform bloc of people all behaving the same way. Second, it's far more interesting and useful to talk about how to identify and solve problems, not just try to apportion blame.

FWIW, I agree with peter12 that sprawl is a huge problem, not just economically but as a drag on quality of life. I live a 90 second walk from work - why can't 75% of the population have the same commute? How do we set up shared spaces so they become more attractive than tiny personal plots of land? How do we enable people to easily have pets and kids in high density housing? How do we make the 1 or 0 vehicle inner-city family convenient and workable?

We didn't get into this situation in a year or two, it took decades and decades, so we have to look at gradual changes that will make high-density living more attractive than low-density. And this can't be due only to punitive taxation on sprawl and greatly increased costs for detached homes in the suburbs, but with inherent advantages in lifestyle and convenience that reverse the flow outwards.

[Weitz]

Originally Posted by GreenLantern

When my wife and I initially built our house it was a bit of a stretch at the time for us, but we knew our situation was going to be improving short term so we did it anyway. The first little while in here was pretty stressful and money was tight, now that things have ironed out the way we knew they would we are much more comfortable.

I think it was good for us to get a little taste of what life COULD be like if you don't live within your means, now that our 'means' is a quite a bit further ahead. This will serve us well as we move forward in life and continue to grow our family. I definitely would never want what things were like at the beginning to be our normal.

Side story to this, when we were working with the bank for our mortgage we went in to sign papers and as we were flipping through one they just casually mentioned that we had been pre approved for a fairly sizable amount of cash in the form of a line of credit. Just sign here. I said, excuse me? Yea just sign here and we give you this line of credit. I dont want that line of credit. But... but.. you're pre approved??!

This banker literally could not understand that we did not want the line of credit. So I refused to sign the paper, he at one point tried to make it sound like the deal wouldn't go through unless we did, at which point I hinted I'd love to speak with his manager about this issue. I imagine that he gets some kind of bonus or kick back for selling us on that extra.

The thing is, I already had a line of credit, at $0 where I like to keep it. It's only there for a HOLY CRAP OH #### moment that my savings can't handle.

The part that pissed me off was just how casually and nonchalantly they tried to tack it on to the mortgage. Many, many young families take it I am sure thinking "hey we will only use it if we have to" then they go buy new furniture on it, maybe go on a little trip etc.. etc.. and find themselves tens of thousands of dollars in debt for things they didn't need or even really WANT to begin with.

It had a super greasy feeling to it, we never dealt with that specific banker again. And eventually grew so tired of these same sort of tactics from the rest of the bank, we moved our mortgage. Nobody has your best interests in mind except for you, don't listen to the bank and do your research on everything they tell you or try to offer to you. They are a business first and foremost, and their primary goal is to make money off you.

Was the rate better than your current one? That would have been an easy negotiation to get a great rate.

I'll agree though the amount of added garbage places try and tack on to purchases of any size is hilarious.

[Canadianman]

Originally Posted by Scroopy Noopers

It’s a fun hobby for some. I’d rather be outside maintaining plants than any other summer hobby. I’d buy an outhouse if it had a decent sized yard I could maintain for enjoyment.

plus, free fertilizer!

[Geraldsh]

I downsized this summer from a 980 sq. Ft. Bungalow to townhouse in a complex that does all the yard work and snow removal. In order to get a double garage (a must have for my woodwork hobby) I had to settle for 1400 sq ft of living space! Often don’t see my cohort until lunchtime.

[Enoch Root]

Originally Posted by blankall

It wasn't easy for boomers during that 2-3 years and then things began to adjust. My point is we are in that tough period, but there seems to be no adjustment coming.

Also household incomes, adjusted for inflation, are lower now, but the average family works for more hours. This doesn't take into account the rising costs of daycare and food.

It wasn't easy for the boomers during that massive recession. But the recession level tough times, would actually be a slight relief but today's standards.

Calgary may also be a bad example, as they probably have the least housing pressure in the country. They have an above average jobless rate, had a recent construction boom, unlimited surrounding land, and the population growth has slowed dramatically to about 1.4%.

So basically by your example, if you can find a job in Calgary, you can afford to buy a house at a comparable economics pressure to the hardest possible time the babyboomer generation experienced.

2 to 3 years? Mortgage rates were over 10% from 1973 to 1992. Twenty years. So 3 renewals, assuming a 5 year mtge.

Originally Posted by opendoor

There are no savings from lower interest rates. The purchase price of housing has simply been driven higher to compensate for lower rates.

So it's true a person with an $80K mortgage in 1980 has a similar mortgage payment to person with a $600K mortgage now after accounting for inflation. But paying off your mortgage was vastly easier back then. My parents managed to pay off their house in 15 years just by devoting a fairly modest 5% of their more or less median income to extra payments. To pay off a similar house now in 15 years with a similar income would require putting aside over 20% of your pre-tax earnings.

It's probably been discussed, but you are far better off having your money go towards the principal (an asset) than interest (an expense)

[GirlySports]

Originally Posted by Geraldsh

I downsized this summer from a 980 sq. Ft. Bungalow to townhouse in a complex that does all the yard work and snow removal. In order to get a double garage (a must have for my woodwork hobby) I had to settle for 1400 sq ft of living space! Often don’t see my cohort until lunchtime.

Do the condo fees kill you?

[Enoch Root]

Originally Posted by opendoor

That only has value if you're cashing out and not buying a new property, or when you die and your heirs get a windfall. That pales in comparison to the much higher risk of economic damage due to price fluctuations that comes with higher asset values. A 10-20% drop in prices could put a homeowner underwater by 1-2 years in their salary. In the early '80s a 10% drop in value for the average house was equivalent to a few months of the median income. It'd have taken a 40-50% drop to even get to 1 year of median salary on the average house back then.

And of course that's comparing one tough market to another. Try comparing it to the mid '90s when the average Calgary house cost $130K ($201K in today's dollars) with 7-8% interest rates. A $130K mortgage back then cost about $950 ($1475 in today's dollars). So the average house cost about 2.35 times the median family income and the annual mortgage payments were equivalent to 21% of the median family income in Canada. That kind of mortgage payment these days would barely get you $300K.

First of all, there is a lot of disdain in this thread that boomers have built lots of equity in their homes. Now you're arguing that the equity gain is only valuable if you sell. Well yeah, same for them. But come retirement, that equity is valuable. This is why home ownership s so valuable.

To the bold: A drop in home prices is irrelevant unless you sell. And the boomers that you all hate so much will have experienced exactly this, many times.

[peter12]

Originally Posted by Enoch Root

First of all, there is a lot of disdain in this thread that boomers have built lots of equity in their homes. Now you're arguing that the equity gain is only valuable if you sell. Well yeah, same for them. But come retirement, that equity is valuable. This is why home ownership s so valuable.

To the bold: A drop in home prices is irrelevant unless you sell. And the boomers that you all hate so much will have experienced exactly this, many times.

A very Boomer thing to say.

[GGG]

Originally Posted by jammies

Some of you are uselessly hung up in which generation's "fault" it is. First, no generation is a monolithic, uniform bloc of people all behaving the same way. Second, it's far more interesting and useful to talk about how to identify and solve problems, not just try to apportion blame.

FWIW, I agree with peter12 that sprawl is a huge problem, not just economically but as a drag on quality of life. I live a 90 second walk from work - why can't 75% of the population have the same commute? How do we set up shared spaces so they become more attractive than tiny personal plots of land? How do we enable people to easily have pets and kids in high density housing? How do we make the 1 or 0 vehicle inner-city family convenient and workable?

We didn't get into this situation in a year or two, it took decades and decades, so we have to look at gradual changes that will make high-density living more attractive than low-density. And this can't be due only to punitive taxation on sprawl and greatly increased costs for detached homes in the suburbs, but with inherent advantages in lifestyle and convenience that reverse the flow outwards.

When you look at sprawl the new burbs really aren’t the problem. Comparable to the sunny side / hillhurst infill areas I believe. So at those densities it’s still not possible for everyone to have a short commute.

The question is how do you make a 3 bedroom Condo enough space and how do you convince Condo developers to build units with family friendly spaces. It’s a tough chicken and egg problem.

One thing that should be done is a large component of property tax should be on the lot square footage your a house occupies. A 50 x 200 lake bone vista lot should pay 3 times the density tax of a modern 35 x 100 lot. A condo might only have a few hundred square feet of lot size for this component. This would better reflect operating cost to the city then the current system. What percentage of property tax should be density based would be based on determining what proportion of city costs are sprawl based and what are population based and allocating appropriately. This should drive down the living costs of condo living.

The goal should be that each choice of lifestyle reflects the cost of that choice of lifestyle to the city with some progressive taxation of higher values property pay more thrown in.

When we think of sprawl we shouldn’t think of Yop Gobblers vs latte sippers by focusing on home location, instead we should focus on lot size.

[peter12]

Oh yeah, places like Sunnyside/Hillhurst are actually part of the problem. I guarantee that Community Associations have made sure that those areas are very difficult to rezone, even though they are high demand neighbourhoods that would benefit from a large influx of young workers wanting to live closer to downtown.