VaultBoy
Active Member
I wonder what the biggest thing preventing Edmonton renters from being owners is. For me it's saving that down payment
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- Thread starter Daveography
- Start date
constance_chlore
Senior Member
Probably the down payment for a lot of people, but I'm sure a lot of renters are also students or workers who might be uncertain of their long-term plans. Even those who do want to stay in Edmonton may not be sure where they want to live, so they may rationally choose to put off that decision.
ChazYEG
Senior Member
Saving for down payments is probably the biggest one. But also the lack of different options might be a big turn off for lots of people. Not everyone wants to live in the suburbs (I suspect A LOT of people don't), and most of our non-rental purpose built stock is out there, be it condo, townhomes or SFH. Say, Old Strathcona has very few condo or townhome options, for example (and SFH are incredibly expensive). Same goes for other areas which are dominated by purpose built rentals (Garneau, Winketowin, etc...).
I would rather rent than buy anywhere that's not dense, central and urban, doesn't matter how much more it costs me.
kcantor
Senior Member
It would have been nice if they had disclosed all of their input costs and assumptions...
They say that homeowners in their analysis typically built $200,000 - 500,000 in equity over the past 10 years. That's an awfully large spread and they don't say how they calculated it or what they used for the individual provinces or cities they're ranking. In Edmonton for example, average home prices have only escalated roughly $55,000 over the past 10 years (albeit with single family homes being higher than that and condos less but it's averages that appear to being used here).
It doesn't look like they've attributed an opportunity cost to the funds used as a down payment which over a 10 year period could be substantial, particularly in expensive markets where substantial down payments are needed to being the monthly payment amounts down to qualifying levels.
They haven't attributed sales costs upon disposition which could easily be $25,000 - 30,000 on a $700,000 home.
They're assuming that maintenance costs in a low-price market are the same percentage as those in a high-price market when in fact it would be the dollar amounts that would be roughly equivalent and the resulting percentage costs being highly variable.
There is no risk allocation cost - it seems to assume firstly that everything happens on a straight line basis, secondly that the market when selling is perfectly liquid, and thirdly that individuals have complete control over the timing of changing real estate needs due to personal or employment reasons.
It assumes that a 4.25% mortgage rate will remain constant over the entire 10 year term noting that a 1.25% increase that rate to 5.5% would see monthly mortgage payments increase by close to 30%.
The sales costs after 5 years of ownership aren't going to be much different than after 10 years but the impact on the return over half the term will be quite disproportional. The same is true of the up-front 1% CMHC insurance which is the same regardless of how long you stay.
They say the devil is in the details and this is a perfect example of that.
They say that homeowners in their analysis typically built $200,000 - 500,000 in equity over the past 10 years. That's an awfully large spread and they don't say how they calculated it or what they used for the individual provinces or cities they're ranking. In Edmonton for example, average home prices have only escalated roughly $55,000 over the past 10 years (albeit with single family homes being higher than that and condos less but it's averages that appear to being used here).
It doesn't look like they've attributed an opportunity cost to the funds used as a down payment which over a 10 year period could be substantial, particularly in expensive markets where substantial down payments are needed to being the monthly payment amounts down to qualifying levels.
They haven't attributed sales costs upon disposition which could easily be $25,000 - 30,000 on a $700,000 home.
They're assuming that maintenance costs in a low-price market are the same percentage as those in a high-price market when in fact it would be the dollar amounts that would be roughly equivalent and the resulting percentage costs being highly variable.
There is no risk allocation cost - it seems to assume firstly that everything happens on a straight line basis, secondly that the market when selling is perfectly liquid, and thirdly that individuals have complete control over the timing of changing real estate needs due to personal or employment reasons.
It assumes that a 4.25% mortgage rate will remain constant over the entire 10 year term noting that a 1.25% increase that rate to 5.5% would see monthly mortgage payments increase by close to 30%.
The sales costs after 5 years of ownership aren't going to be much different than after 10 years but the impact on the return over half the term will be quite disproportional. The same is true of the up-front 1% CMHC insurance which is the same regardless of how long you stay.
They say the devil is in the details and this is a perfect example of that.
constance_chlore
Senior Member
For people doing these calculations for personal use, I recommend the New York Times's rent vs. buy calculator: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
kcantor
Senior Member
It will never be "an entirely independent corporation" other than on paper and even there I would be surprised if the board structure was not set up to cede oversight and directional control to a combination of administration and council representatives.
It will get preferential treatment on access city owned land and it's projects will get preferential treatment from administration and council. This won't be mandated but a simple "perk of ownership" that will come at the expense of the private sector, intentional or not.
It won't be treated the same by lenders or consultants or contractors, for both better and for worse.
It also won't be treated the same by potential employees or potential management. Employees will likely get benefits - including tenure - that will be more attractive to employees as the private sector doesn't typically compete in that arena. At the same time, the corporation will have difficulty competing with the private sector for senior management, particularly in areas like bonuses and participation, and if they follow the pattern of similar corporations like Surrey's can often overcompensate with base salaries and in both cases there can be a lack of transparency.
kcantor
Senior Member
That's a good tool for moving past "averages" that make no sense on an individual basis.
For a Canadian to accurately use it, as interest and taxes are not deductible expenses in Canada, it looks like you would need to input a marginal tax rate of 0% to reflect that. You would then need to further adjust or impute your marginal tax rate on the disposition of investment income/capital gains at the time of disposition as the program is then doing that at the 0% when it would be your actual marginal tax rate (at 50% if it remains as capital gains and hasn't been changed to be treated as income).
You might also want to adjust for Canadian mortgage interest calculations which are more advantageous for the borrower than US mortgage interest calculations.
policyenthusiast
Senior Member
My guess as someone who recently bought for the first time - Edmonton's demographics include a large proportion of students and young professionals. Your career, especially in your early 20's, often requires moving to different cities for work. Renting makes that process much more painless.
archited
Senior Member
Formula: 18-22 Mom's basement; 22-27 shared apartment unit (stashing away 15% of income for future domo-purchase); 27-32 solo apartment rental with SO still preserving 15% of income for DP; 32-37 first residential purchase (so-called starter home) with 25% of net income assigned to mortgage; 37-42 choice -- either investment in starter to upgrade to dream home or sell starter for new residence still applying 25% of income and start 2.5 kids family (adopted or otherwise); 42-70 pay off mortgage; 70-100 sell all property and travel the world; 100-150 back to work and invest in youth; 150+ count your lucky stars you lasted so long!
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David A
Senior Member
In general students and young professionals are at a stage of their life where they expect and are more open to changes, as opposed to someone 5 or 10 years older who may be more established or have started a family.
The moving could be across town to work for a different company, to somewhere else in Canada or the world. Likewise there are also some younger people coming here from elsewhere in Canada partly because of affordability.
David A
Senior Member
I lived in Old Strathcona for years and was very comfortable there, but condo prices there were (and probably still are) higher than elsewhere and selection seemed more limited.
However, it has a good selection of affordable rentals. I agree the same is true to some extent for other core areas where there are a lot of purpose built rentals.
policyenthusiast
Senior Member
Investors are increasingly buying up Canadian farmland, then renting out the land to the farmers who sold it to them - with the ability to "evict" them should the property ever become valuable. Investor interest is also increasing the value, and in turn the taxes, applied to land owned/operated by Canadian farmers.
https://thelogic.co/news/the-big-re...mland has become an,farmland is only going up.
The realm of "alternative investments" is a nightmare.
Regulations restricting investor ownership in some provinces also limit land consolidation among non-farmers. In Manitoba, for instance, non-Canadian entities can only own 40 acres of land. In Saskatchewan, foreign investors are limited to 10 acres, and large investors including Canadian pension funds are barred from the market—a rule the provincial government implemented in 2016 after intense backlash to CPP Investments buying 115,000 acres of land growing wheat, barley and canola. Last year, Quebec issued a moratorium on investment funds buying farmland under an act meant to preserve the province’s agricultural lands.
Alberta does not have any of the same protections, as best I can tell.
https://thelogic.co/news/the-big-re...mland has become an,farmland is only going up.
The realm of "alternative investments" is a nightmare.
Regulations restricting investor ownership in some provinces also limit land consolidation among non-farmers. In Manitoba, for instance, non-Canadian entities can only own 40 acres of land. In Saskatchewan, foreign investors are limited to 10 acres, and large investors including Canadian pension funds are barred from the market—a rule the provincial government implemented in 2016 after intense backlash to CPP Investments buying 115,000 acres of land growing wheat, barley and canola. Last year, Quebec issued a moratorium on investment funds buying farmland under an act meant to preserve the province’s agricultural lands.
Alberta does not have any of the same protections, as best I can tell.
northlands
Senior Member
In Alberta, foreign citizens and foreign controlled corporations may own or beneficially own up to 2 parcels of controlled land not exceeding 20 acres in total. Whether we have pension fund protections, probably not, but don't give them any ideas.
That said, it's hard out on the prairies here to outbid Hutterites for acquiring ag land, even for the big corps, particularly if it is a neighboring parcel. These colonies essentially have near zero labour costs and run exceptionally efficient farming operations, usually with the best tech/equipment money can buy (just without radios), so their costs are generally far below even the most high end corporate farm operations.
policyenthusiast
Senior Member
This is a very interesting topic IMO. Looked into protections in AB against the purchase of ag land by pension funds. MLA Glenn van Dijken slated a bill that would have prevented pension funds and trust corporations from buying up AB farmland after Sask passed a similar law, but it died on the floor, likely due to the Legislature proroguing.
So we have protection against foreign interests (as you described) but not from institutional investment.
