I met a Québécois woman years ago that said their own independence movement was shut down in part because of new immigrants to Canada not wanting to leave the commonwealth. No clue if that’s right or not. But given how much of a cash cow the western provinces are for Canada, and the mega spike in immigration it makes me wonder
Obviously it will be higher in the west because incomes are higher, but the rates will be the same, which is the more salient point.
You'll see the same thing if you look at any sub-national division with high salaries - e.g. Toronto and Vancouver have similar incomes as Alberta, so pay a similar amount per person in federal taxes.
Ottawa-Gatineau is notably more of a cash cow in terms of federal taxes than Alberta, by the taxes-paid-per-person measure.
AFAIK Commercial is priced at a multiple of rent. So when an owner still has a loan on a building that was based off of multiple of 3000/mo and decides to rent it out for 1500/mo it effectively cuts the value of that building in half.
Just an accounting issue for someone who owns it out right, but devastating for someone with a loan. I think this is why you’re seeing landlords offering multiple free months of rent nowadays. It allows them to adjust to actual market pricing annualized, while being able to call the “free” months an expense
We had this experience with a local town centre where the high street basically died. Retailers priced out by high rents, which was fine when the economy was good and people were spending, but as soon as it took a dip there was nowhere to go and they had to shut up shop.
And this mechanism was why; almost all the real estate was owned by funds and leveraged. Property values based on a multiplier of rent. They could weather a long spell of zero rental income because that effectively cost them nothing, but if the rent went down then the value went down and they had to come up with the difference.
That seems like a rather inefficient use of resources. How long will a fund typically keep that on the books before they have to offload the asset or declare bankruptcy? At a certain point, that smells like a scam with a real estate business attached to it.
Commercial real estate lending typically has a clause that allows pausing of payments during a vacancy and letting the interest accrue into the balance of the loan - effectively, the banks are giving the property owners a free option to try and get the vacancy cleared without affecting long-term incomes and asset prices.
America has a long history of privatizing profits and socializing costs.
Market economies are clearly preferable over demand economies (like, no question about it), but Late Stage Capitalism is bad for everybody except the oligarchs.
John Steinbeck once said that socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.
With AI and Robotics looming over us, we would be very well served to re-examine our economic systems while we still have a chance.
> That seems like a rather inefficient use of resources.
Inefficient for society? Yes. But for the capital providers aka investment (and let's be clear: retirement) funds and banks? Definitely not.
The fundamental problem at the root of all of it is how the US does pensions. In contrast to most European countries that operate in a redistribution system, aka the current workers pay the pensions of the current pensioners in exchange for "IOU tokens", the US has everyone responsible for themselves... which leads to a constant influx of cash into all kinds of asset markets, no matter the market conditions.
And that is bad, for multiple reasons.
- it ties general economic downturns to people's pensions. That in turn factually prevents politics from doing what is right (e.g. restrict climate gas emissions), because a lot of companies make a lot of money by abusing the environment and cracking down on that would lead to them losing value.
- it creates a lot of perverse incentives. When you got almost 50 trillion dollars in total retirement funds [1] with hundreds of billions of dollars in new savings each year... that money has to go somewhere where it is backed by a physical asset or a consumption in the end. A lot of that money ends up in government bonds, which "allows" the US to cut taxes for the ultra-rich without limitations and balloon the national debt without consequences because guess what, the US can "always" borrow money. It's just as bad as Japan, only less openly exposed. What does not end up in bonds ends up primarily on the real estate market, driving the nonsense we're discussing here, and what remains goes into crap like Yo [2].
- it disincentivizes the forces of the free market from holding bad actors accountable. Under "normal" conditions, the AI bubble or Tesla would simply have run out of cash years ago because no one would give them more money, but when the scam is so large it ends up in the S&P 500, cash will flow in automatically from all the dumb money that is going into ETFs and other pension investment vehicles. Once you are in, you stay in.
- To make it worse, people are increasingly going from "moderate" managed funds to the extremes: either purely tracking funds that have virtually no fees deducting profits (and, in exchange, do not exercise voting rights) or into high-yield "activist investor" funds that love to do exploitative shit like forcing companies to redistribute their liquidity reserves as dividends (robbing the company of resilience against economic downturns) or engage in LBOs, buy-and-break-apart schemes and the likes. These almost always offload the consequences of making money for investors onto society at large... like, for example, malls falling apart because anchor stores fell victim to the vultures. Toys'R'Us is one particularly nasty example.
> At a certain point, that smells like a scam with a real estate business attached to it.
The entire pension based economy in the US is the true scam - in the end, it's all IOUs just like our "pension points" in Europe. If there is no economy around due to demographic collapse or whatever, the IOUs become just as worthless.
Normally I wouldn't even care, but unfortunately, the US pension market is so large that a lot of dollars flow out elsewhere, including our healthcare system, and I'm sick and tired of American vultures buying up everything in Europe Just Because They Can.
This is broadly accurate, but it can be a little easier to point the finger at the actual culprits, which is Wall Street.
The problem is the financialization of everything, and the insistence on ensuring high rates of return above all other goals. Which is highly related to the dynamics that you mentioned here, so we're agreeing.
But other countries don't do this because the government stops them. In this country, the financial sector is more powerful and can override democracy through a couple of obvious means that we've all seen.
The result is effectively the plundering of a previously strong economy for the benefit of a couple of people.
Ask yourself why General Motors is taking the many billions of dollars in cash that they generate from their business operations and literally sending it directly to Wall Street bankers through the form of stock buybacks rather than investing in the next generation of electric cars. It's an obvious mistake, and eventually the bill will come, but maybe not in the lifetimes of the people who profit from it. Certainly not before they have a chance to buy another summer home.
China doesn't do this. They keep savings rates high and returns low, which means the money goes into building factories and infrastructure and lots of other things that ultimately make the country much, much wealthier.
> Ask yourself why General Motors is taking the many billions of dollars in cash that they generate from their business operations and literally sending it directly to Wall Street bankers through the form of stock buybacks rather than investing in the next generation of electric cars.
Hmm, putting aside others issues (e.g. stock-manipulation to make quarterly numbers) stock-buybacks might be viewed similar to repaying a loan and reclaiming the stock that was put up as collateral...
Although I suppose if the loan is zero-interest, why would one want to do that? Even if somehow all spending options are terrible today (but might improve tomorrow) one could just sit on the cash.
All spending options are not terrible today. That's the point. Without reinvestment, the companies will fall behind and die.
The decisions by major companies to prioritize stock buybacks over capital investment in the next generation of products and innovation is the absolute core of why the financialization of everything threatens to destroy us as an industrial economy and, by extension, our prosperity and way of life.
The flip side is redistributive pensions require an ever growing population and most European pension systems will go bankrupt within a couple of decades given current birth and immigration rates.
> The flip side is redistributive pensions require an ever growing population
Stonk market based pensions require that as well! Someone has to work in the future and earn dollars so that he can give me these dollars for my stonks. And that falls apart when the working population drops - either due to demographics or because the world splinters apart and the age of global trading ends. Stonks are just as much IOUs as "pension points" are.
And no, automation isn't a panacea either, because an economy not just requires workers to do work, but also people having money to buy things - that's already setting our time's economy on fire as more and more people have to expend more and more money just to make rent.
> And no, automation isn't a panacea either, because an economy not just requires workers to do work, but also people having money to buy things
Automation is the whole reason people have money to buy things. Before we had automation everyone lived on farms and sewed their own clothes. Only noblemen could afford to pay for clothes. Your intuition is plain wrong, I'm sorry.
AI may take away purpose if it takes away literally everyone's jobs. The wealth and productivity of the economy doesn't go away. It becomes more concentrated. De-concentrating it is a political problem.
> Automation is the whole reason people have money to buy things. Before we had automation everyone lived on farms and sewed their own clothes. Only noblemen could afford to pay for clothes. Your intuition is plain wrong, I'm sorry.
Every industrial revolution to this day produced insane amounts of job losses and suffering. In fact, that's how we got the labor rights almost a century ago. Affected workers literally got shot up over labor action.
And I'm sick and tired of that cycle always repeating and governments not giving a single shit about helping affected people and redistributing the wealth gain.
> And I'm sick and tired of that cycle always repeating and governments not giving a single shit about helping affected people and redistributing the wealth gain.
You're right. And I suggested a way to make it happen this time.
Every industrial revolution to this day produced insane amounts of job losses and suffering.
(Shrug) Things were worse before. That's the part of the argument that the Luddites and their fellow travelers simply can't hand-wave their way out of.
This implies that at every stage, the best choice for the most people was to move ahead with the revolution, instead of trying to stop it.
Americans save at a much lower rate than Europeans (5% US vs. 15% EU), which I think makes your whole thesis backwards. Maybe Americans SHOULD be saving more for retirement, but they aren't!
> most European countries that operate in a redistribution system
The Netherlands does not. [1] It is also considered one of the best-run pension systems in the world.
> the current workers pay the pensions of the current pensioners in exchange for "IOU tokens", the US has everyone responsible for themselves
US Social Security works in the manner you described - current workers pay for current pensioners. This doesn't work great as we already know.
Making assets instead of workers pay for pensions isn't a bad idea per se. It makes no sense to load workers down with taxes to pay for seniors. The math only works as long as the population of workers grows or if you tax workers more and more.
Workers' labor produces ever-increasing surpluses every year. Use those surpluses aka higher productivity to support seniors.
One could feasibly make their debate topic that the U.S. is not actually a functioning country but instead has morphed into an extensive financialization scheme, and they could win that debate.
Pensions are not investment funds (for the individual employee/retiree). They are distinct from 401ks and their ilk. GP explicitly spoke about "pensions", which have almost no requirement to diversify - at least one I know of was discovered to be "invested" in luxury rugs and furniture for the CEO (Their value will go up!!! /s).
The entire industrialized world has the exact same problems with commercial real estate and rents for small businesses and people.
The common denominator across continents and political systems and economic factors and social factors: all the ownership is in the hand of the olds. Whether directly or indirectly through any kind of bank-and-funds-and-government schemes that can be dreamed up.
>AFAIK Commercial is priced at a multiple of rent. So when an owner still has a loan on a building that was based off of multiple of 3000/mo and decides to rent it out for 1500/mo it effectively cuts the value of that building in half.
Well, if the town is dying, the "value of that building" is effectively cut in half, or worse, anyway. Asking a lot for rent is not gonna magically make the building worth more - it will just keep it unrented.
It's not just accounting, it means enough things that they're incentivized to manipulate it upwards. It impacts the loans they can get and the interest they pay, enough that it may be worth it to forego some actual income to keep the fake numbers up.
But at some point it has to collapse, it seems to me. You can't forever fake a high value on a property that is bringing in no rent. Unless the real value is just being a outwardly legitimate-looking place to park money.
And they’re often owned by funds that are measured in the billions. A parking lot in New York covers for a bunch of empty middle America storefronts, as long as the valuation works out on paper.
It seems that approach is a way to generate losses without actually losing the titles. These losses are needed to offset incomes elsewhere thus not paying taxes on profits.
Investment fund's commodity is value - the rest are just tools to optimize the value.
In aggregate, the owners of these properties are investing to earn a return. Losses only lead to "not paying taxes on profits" if there are no profits. The overall portfolio has to be earning a risk-appropriate return or investors will go elsewhere.
But if there are losses there are no profits. I am with SoftTalker on this one. I figure there are things I do not know that explains how this keeps happening even though my simplistic knowledge thinks it is not sustainable.
Accounting rules allow you to extend and pretend which is common in commercial. Because loans are sucuritized by other assets there can be a lot of different assets that could all suddenly become distressed just by pricing down rent in one building
I hear people say this a lot but it doesn't make any sense. Why would the value be based on some imaginary rent rather than the actual amount of money taken in? It seems stupid for anyone to say that asking, say, $2500 rent with three free months (giving $27k for the year) is better than just asking $2000 with no free months (giving $24k for the year). If this is really what is going in then the system deserves to crash.
It’s just how commercial real estate is valued. It’s very formulaic based on the local multiplier of rents. It even applies down to single-family homes but those have competing buyers (families) - but in pure commercial you are the multiple of rents and basically nothing else (save in the strange case of someone wanting that particular property).
The key is home loans for normal families can’t be called - commercial loans can.
Even in the best of times you will have empty places so they have to ignore unrented places since there is no formula that can tell the state of the economy from just current rent. Real estate is always local so even in the worst economies there is always some place booming
Loan to Value (LTV) is a percentage that tells you how safe a loan is. You divide the amount of the loan by the value of the building. So if I buy a building for 10 million with a 6 million loan and 4 million of my own money then I have an LTV of 60%.
This means if I go bankrupt then the bank can sell the building and get its money back.
If the value of the building halves because the rent halved then I have a 6 million loan on a 5 million building. My LTV is 120%. The bank cannot get its money back by selling the building.
No bank is going to give me a loan on a property with an LTV of 120% so I’m stuck with my current bank. My current bank then increases my interest rate because I am now a very high risk customer who can’t leave. This is very expensive for me.
One way out of this situation is to get my LTV back to 60% which means I need to reduce the loan to 3 million by finding 3 million to pay off part of the loan.
Another way out is to sell the building for 5 million then pay the bank one million, exiting the deal with a loss of 1 million.
None of these are good for me. I’ll do anything to keep the value of the building high by charging high rents even if no one can actually pay the rents and the building sits empty.
Long term I might be able to exit by getting permission to convert it to flats.
Don't forget that long term the current downturn is likely to end and so I will again be able to get the rent in a few years if I can just hold on for these bad years.
... which sort of assumes that the global downturn and the local downturn are completely unrelated.
Like, if a rent hike pushes out the tenant who has been there the longest, who has the most consistent revenue stream, in other words is the surest bet, then that, all by its lonesome, should be a pretty clear risk indicator to the bank.
The commercial market is functionally frozen and illiquid. Owners can’t come down without declaring bankruptcy, bankruptcy is bad for lenders because they can’t move the property for the loan amount so you essentially have a mass delusion because accepting reality would bankrupt much of the existing players and start a crisis
Right. . . but isn't that just obviously stupid? If I say the rent is $3k a month but you get all 12 months free, why would anyone be fooled by that? Why would you base it on some hypothetical rent rather than the amount of actual money that the property takes in?
The bank knows but they maintain the fiction that they don't because their books collapse too if they count those. Banks make money from loans.
Don't forget this is typically a short term things. When the economy improves the building will be rented again. So they need the books to look good today to get through.
And commercial loans are NOT like your home mortgage. One you got your home loan, the bank no longer cares (or even can care) about the value of the house, only if you’re not actively destroying the property and maintaining insurance and paying on time.
Commercial loans are often shorter duration and roll over and highly tied to the valuation of the property or properties, and often have clauses allowing them to call the loan if valuation dips too much (think: margin call).
> Don't forget this is typically a short term things. When the economy improves the building will be rented again.
In my experience in many cases this is not true. The shift toward online shopping, for instance, has meant that a lot of retail properties have no realistic chance of recovering to previous values. The accounting shenanigans described in this thread are just a way for various people to play make-believe that their properties haven't already lost value permanently.
There have always been shifts in where people shop. However retail overall is still doing very well. Downtowns as a place people go to shop is mostly dead (in the US, not elsewhere), but people still go out to shop someplace and the new places will recover.
It is stupid, but every party involved benefits from playing by the stupid rules, so they keep doing it.
If the lender insists the property be valued based on actual collections rather than hypothetical collections based on the rate once discounts expire or the asking rate if vacant, then they will have a loan where the borrower is underwater and that's going to end up as a loss on the bank's books.
If the borrower values it factually, they will be underwater and likely have to sell for a loss or be forclosed on.
There's also portfolio effects. If rent drops are acknowledged in one space, nearby spaces may also acknowledge lowered rents and most banks have lots of loans and many borrowers manage several buildings.
I am only aware of this because we actually ran into the problem. We started allowing more subdivisions and densification in our city and the waste water infrastructure got quickly pushed to its limits now we have to halt construction while the new water infrastructure is upgraded to accommodate for the massively increased zoning density.
That's interesting - naively I would expect the wastewater infrastructure to be overbuilt enough to manage larger than normal rains, which are usually several times over typical household wastewater production.
> naively I would expect the wastewater infrastructure to be overbuilt enough to manage larger than normal rains, which are usually several times over typical household wastewater production
It depends on the city—some cities do indeed handle rainwater with the normal sewer system, but most have an entirely separate system for rainwater [0]. But either way, if you pave more roads, you're always going to have more rainwater to deal with, regardless of which system of pipes you use.
1. The parent was mentioning densification - that doesn't automatically mean more roads.
2. It's not just roads but also roofs etc., is it common to drain the house roof into a different system than the rest of the house? Of course in a house with a large lot you can drain into a garden or whatever but that's not possible in densely built areas. In our city it all ends up in one system but of course we've had a sewer system since the middle ages or so.
> 1. The parent was mentioning densification - that doesn't automatically mean more roads.
Yes of course, I forgot where I was in the thread, sorry.
> 2. It's not just roads but also roofs etc., is it common to drain the house roof into a different system than the rest of the house? Of course in a house with a large lot you can drain into a garden or whatever but that's not possible in densely built areas. In our city it all ends up in one system but of course we've had a sewer system since the middle ages or so.
I'm mainly familiar with smaller buildings, but I know that it's illegal to drain rainwater into the main sewer system, so presumably the bigger buildings are hooked up to the storm sewer system.
The climate here is kinda bizzare though: it's fairly common to get a few days of +15°C while there's still 3' of snow on the ground, and as you can imagine, that causes a ton of runoff from all the melting. And very little here is more than a century old, so everything is comparatively modern.
But our mission is really heritage trees, which we loosely define as pre-WWII. We do work with landowners to get their trees DNA tested and identified if they're interested. But despite maintaining the encyclopedia I linked in the other comment, we're a small group of volunteers (~6 people) and are mainly focused on a specific geographic region.
You are encouraged to feel bad and apologize for things that you never did but people who look like you did in the past, or you’re a bad person.
You are forbidden from being proud of things you never did but that people who looked like you did in the past, or you’re a bad person. Doubly so on both if you’re of European ancestry.
Get with the program.
