Sunday, May 28, 2017

CPC Leadership - Wrap-Up

It felt like the first time. It was not the first time.

Scheer won in a nail-biter - the closest leadership race I've ever seen, he was behind on the first 12 ballots, and he came right up the middle through the narrowest gap in politics. It was an impressive performance by his team, and I'd like to congratulate him and wish him good luck in uniting the party behind his leadership and defeating Trudeau in 2019,

Now, if you'll excuse me, there's something I need to get out of my system.


I won't pretend to be happy about this result. I think Scheer was less well-positioned to win the next election, as well as being less likely to do anything useful if he does win. I have a sinking feeling that we might be here in a few years doing this all over again. Trudeau was never going to be easy to beat(even if you don't respect the man's smarts, he has a pretty good team and a boatload of charisma), and we just made it harder.

That said, the comment I made about Scheer and party unity before the vote was "Anyone who leaves the party over him was never ours to begin with". I stand by that. He's a generic conservative, very much like Harper was, and while I think we could do better, we could've done much worse. I have friends who are talking about being sure that they'll vote Liberal to punish the CPC, but I don't agree with their decision at all. I mean, maybe the 2019 platform will be so terrible that it's the right call, but promising to do that two and a half years out is grossly premature. I don't think the platform will be nearly as nice as the Bernier platform that could have been, but I can imagine a platform like Harper's in 2006 that is simple, to the point, and composed of some pretty good stuff overall. I'd happily support that. My gut right now expects something more in the "grudgingly support" realm, with a lot of annoying micro-policy and minimal vision, but I'd be happy to be proven wrong there.

Good platform or bad, though, it'll be a nightmare to win the election. Scheer did astonishingly well in Quebec, but by all accounts he did it by signing up people who'd mostly never vote for us in the general election. I don't expect him to win many seats there, and winning without Quebec is incredibly hard. In all of Canadian history, there have only been four majority governments that didn't need Quebec's votes. Two(1958 and 1984) were nationwide landslides that won Quebec as well, and simply used the extra seats to run up the numbers. One was the wartime election of 1917, where the Conservatives and Liberals, the only two parties of note at the time, basically formed a coalition government and ran a slate together everywhere but Quebec(English Canada went 150-20 for Borden, and many of those 20 were in Francophone-heavy ridings), The fourth and final example of a no-Quebec-required victory was the 2011 election,

2011 looks like an outlier here. It was no landslide(Harper won 39.6%), and it doesn't seem like anything particularly out of the ordinary as elections go. But if you break down the numbers a bit, you see exactly how hard it was. If you exclude Quebec, Harper went from 54% of the seats to 69%, from 39.6% of the vote to 47.7%. That's almost as big a landslide as Mulroney won in 1984. And even then, that wasn't enough on its own. We also needed the worst result for the Liberals in Canadian history(including the aforementioned 1917 election, where they barely existed across 2/3 of the country), with a shockingly strong NDP splitting the opposition vote - without that, we'd still have fallen short of a majority even with the huge support we got in English Canada bolstered by the bare handful of MPs we scraped up in Quebec.

Long story short, Quebec is large, populous, and very different than the rest of the country. You can win elections without them, but it's bloody hard. Scheer already threaded one needle yesterday, but if he wants a majority government, he needs to thread another one that's just as thin. Again, I'd be happy to be wrong here, but I'm not sure he's got it in him.

I expect there's going to be some people who have problems with the process. It always happens after an election like this, especially one where the voting process had as many problems as this election did(for those not in the loop, the process of mailing out ballots to voters was rocky, and I know a couple folks who simply never got a ballot in the mail - normally, not a big deal when you can just vote in person, but when there's only a dozen or so in-person polling locations in all of Canada, it really can be). Likewise, a lot of people had trouble with the "ID in outer envelope, ballot in inner envelope" system, and apparently the spoiled ballot numbers were high. From what I can see, none of this seems to have been targeted at any given campaign, and it was just a rocky process from a party that hasn't run one of these since 2004, and may have forgotten important details about how to do it well.

People will complain, but losing teams always complain about stuff like that. With a race this close it may have even made the difference, but we can't re-run the election to find out, so it winds up being a hazard of the game. I'm not thrilled about that, but I don't want to see people getting too bitter about it.

The other part of the procedure side that I find interesting is trying to figure out how Scheer will extend an olive branch to Bernier's camp. He won fair and square, so he's entitled to run on whatever policy he likes at this point, but if he's smart he'll try to keep the 49% of his party that wanted some pretty radical changes to our approach on-side. He'll keep harping on the things that they agreed on, of course - no corporate welfare(I doubt Scheer really means it from how he cozied up to the dairy farmers, but he'll at least pretend), balancing the budget, and all that. But if he starts talking about one of Bernier's bigger policies, I won't be too surprised. It won't be supply management, of course, nor will it be devolution of healthcare to the provinces, but I think Bernier's equalization policy might be an interesting one. It'll play well with the party base, he can have Bernier spearhead it to take the sting off for the Quebecois, and everyone always whines about the details of the formula no matter what happens, so it gives you political cover for doing just about anything. There's constitutional issues with changing it too much, of course(s.36 explicitly requires the existence of equalization), and the Supreme Court has not been known for its deference to Conservative policy efforts, but I think it's more likely than most.

It'll be interesting to watch, in any case. If Scheer starts acting like the "real conservative" he billed himself as, I think some of my more pessimistic friends may come around. We'll see.

The last thing I'll note before I start finding something to blog about aside from Canadian politics is that the reporting on this race was profoundly bad. Stupid and obvious questions are par for the course("You were the frontrunner and led on the first 12 ballots, how does it feel to lose?"), but the number of people who didn't even spend thirty seconds to learn the rules was really sad. Talk of "delegates" in reporting was common, some people didn't seem to understand that the votes had already all been cast, and I saw one reporter get Scheer and Bernier mixed up - not in random discussions in the newsroom, no, she asked one a question that was obviously meant for the other, because she didn't know who she was talking to. Argh.

The real gold-star, A for effort, achievement in failed reporting award, though, goes to someone who isn't actually a reporter at all - it goes to Kevin O'friggin'Leary, the guy who could plausibly have won this race if he'd kept his head in the game. After the first ballot results came in, he was talking about how he predicted Bernier was still going to win, but it was going to take longer. He'd originally said a win on the 5th-7th ballot, but now he was saying the 9th ballot. Small problem - that was a completely insane prediction, on the verge of being mathematically impossible. Bernier would have needed to be the second choice of 93% of everyone else's voters, including those of candidates who despised him, in order to win on the 9th ballot. Winning on the 5th would have required him to be over 47% on the first ballot, when O'Leary's(excessively generous, as it turns out) prediction was 35%. Mr. Wonderful didn't seem to understand that all the votes were already cast and candidates couldn't drop off halfway through. Despite having tried to drop out of the race himself and not being allowed to. Good lord, man. I am so glad that he realized he wasn't a serious candidate, because it would have been a disaster to have someone so clueless running the show, and he might have been able to get there.

Edit: I found a journalist who actually covered the race the right way! (Well, mostly - that isn't any Lux I've ever seen)

Saturday, May 27, 2017

Friday Night Video - First Time

It's interesting being on a campaign that may actually win. I spoke of this a bit earlier in my series on the Conservative leadership, but it's still odd. I'm the guy who supports people way too principled to actually win, not the guy who backs the frontrunner. I know I'll probably be disappointed, and I have several friends who'd tell me I'm putting too much faith in a partisan politician, and I probably am, but it's worth a shot. Better to have someone who fails to live up to their principles than someone who never had them in the first place. Still, being on the winning team? It feels like the first time.

Also, because I forgot last week, I have a bonus video this week, and it's a tribute to another fallen musical great. It's interesting looking through the list of songs on my computer by Chris Cornell to see what I should post for him, and seeing names like "Fell on Black Days", "Let Me Drown", "Like Suicide", "Pretty Noose", "The Day I Tried To Live", and "Show Me How To Live", all of which seem to be in incredibly poor taste right now. So I'll pick one a bit more uplifting, and which I like better as a song too.

Friday, May 26, 2017

Light and Heat

Consider three items - a big 10-lb log of wood, a litre of gasoline, and a stick of dynamite. Which one would you throw on a fire?

What a stupid question.  Throwing a log on a fire is routine and harmless, throwing a bunch of gas on a fire is the stuff of crazy Youtube videos, and throwing a stick of dynamite on a fire is suicidal. Everybody knows that. And yet, if you look at how much energy each of them produce - the total amount of light, heat, and so on that's released when they burn - the gas is 40x more energetic than the dynamite, and the log is twice as energetic as the gas.

The difference, as any child could tell you, is in how fast they burn up. The dynamite goes off in a tiny fraction of a second, the gas takes a few seconds, and the log will happily burn for hours. So yes, the log produces the most heat, but it spreads it out over such a long time that you'll sit around it for hours roasting marshmallows and chatting with your friends. That heat doesn't build up to damaging levels,your body sweats away excess heat if it needs to, you can move your seat back if it's getting too warm, you might walk away for a while and miss some of it, and so on. With the others, none of that happens - the energy is released quickly, and it'll blow you away or singe off your eyebrows if you're too close, and you won't have any time to react.

Now, imagine how clueless you would sound if you said "I don't trust logs as an energy source - fire is basically the same as an explosion, and they last such a long time, so it'd never be safe to go anywhere near a burning log". They're actually correct about fire and explosions being basically the same thing chemically, and they're also right about how long the log lasts, but their conclusion just doesn't follow. The danger of an explosion exists precisely because it's short, due to it taking a small amount of energy and lighting it all off in an instant. More total energy isn't much of a problem as long as you can react as it happens, particularly if it lasts long enough that you won't even be around for a big part of it.

If you've ever complained about how radioactivity lasts for millions of years after a nuclear accident, this is exactly how you sound to people who understand nuclear science.

Wednesday, May 24, 2017

The Road To Hell

I've spent a lot of time debating over the years, and yet I still manage to find ways to get into trouble saying the same things that have gotten me in trouble over and over again in the past. One of the worst of these is me talking about good intentions.

Good intentions are a pet issue of mine. The first substantial post I wrote on this blog was on the topic, and it's one I find myself going to over and over again. I see society getting polarized and hateful, and I get frustrated by it. Very few people want to watch the world burn, we just disagree on how to build it up. Criticizing the other side for being malicious is totally missing the point. If everyone acknowledged that everyone else just wants to help, you'd eliminate half the malice and spite from politics.

The thing that gets me into trouble is that people hear this argument and think I'm saying something that is on its face quite similar, but that has a huge difference in practice. They hear me saying that other people aren't malicious and that we should respect them as people, and they think I'm saying that we should respect their opinions. Now, it's probably my fault that I'm not more clear about this, but it makes a world of difference.

The first thing you get as a response if you start talking about how someone can be a decent person even when they're wrong is "What, so you think all truth is relative or something?". People treat a knowing defence of the wrong as an attack on truth itself. I see why they'd pattern-match it that way, but that's not what this is about at all.

Even the most basic logic will show that if there's someone saying X and someone saying not-X, one of them is wrong. No amount of feel-goodery will change that. Right and wrong exist - they are not merely in our heads, they are actual truths about the physical world. Some opinions are factually correct, and others are factually incorrect. When someone is saying things that are factually incorrect, being a good person doesn't change that fact - there's no law of physics that says "You're going to jump off a cliff and try to fly by flapping your arms. Normally you'd go splat, but I can see you really mean it, so sure - what the hell". The universe does not care about what we intend, it only cares what we do, and doing the wrong thing will lead to the wrong outcomes. Getting things right is genuinely important.

The problem is, we are flesh and blood, not beings of pure logic. We do not have any infallible tools for telling right from wrong. We have some very good tools for some situations - science, basic human decency, and so on - but those tools all have blind spots, all have weaknesses. Yes, it's easy to be pretty sure today that leeches aren't as good at treating illness as penicillin, but a lot of very smart people have thought the opposite through history. If we want to do better than them, we need to have some humility. Not so much that it leads us to a swamp of nihilism and existential paralysis, but enough that we can at least learn from the errors of those who have gone before. We need to at least notice the skulls.

I do the best I can to find truth. I'm not perfect, because nobody is, but I've given these things a lot of thought over the years. Using the best tools I know of, I've come to a large number of beliefs that I feel confident in the truth of, and I will argue for them passionately and at great length. I try to balance that with humility and acknowledge that others may have good points I haven't considered(and several times in my adult life I've assimilated large chunks of arguments directed against me into my own worldview), but trying to find balance and stay humble is not an excuse for abdicating the responsibility of determining right from wrong.

Like most good ideas, this is hardly original. You see it over and over again in any culture that requires both conflict and camaraderie. Sports teams will try as hard as they can to beat each other, but they don't go around trying to kill each other. People love to quote folks like George Washington arguing against party systems, for fear that they'd break the nation into squabbling factions(and while it's outside the scope of this post to explain, I think he had a pretty good point). The formulation of this concept I like best is much older, though.

"Love the sinner, hate the sin"

I'm not a religious man, so my definition of "sin" will differ slightly from the usual here, but the core of the idea is the same. People make mistakes, and those mistakes should not be ignored. Acting correctly is important, and we should encourage it as best we can. Morality isn't just one of those old-timey concepts like phlogiston that we're better off without. Making mistakes about important things is genuinely pretty terrible - in living memory, we've seen a single error get repeated over and over and kill a hundred million people. Anyone who doesn't hate that sin has lost their claim to humanity, as far as I'm concerned.

The people who made the sin, though, were not simply living incarnations of evil. They had hopes and dreams, loves and hates. They were people, and their lives mattered as much as those of their victims. The only true moral compass in the world is helping people, and people who have made mistakes are still people. We've all made mistakes, and we've all needed to be forgiven our sins. That isn't to say that all sins can be forgiven, but it's a sad thing to have to put down a rabid dog even if it's the right decision.

If someone is wrong, oppose the error. Fight for truth! But when you're fighting for truth, your opponent is falsehood, not a person. The person is what you're trying to save, not what you're trying to destroy. Victory is bringing the other person to truth, not destroying them for their falsehood. And while that's true in a fuzzy love-thy-neighbour sense, it'd also be true even if you didn't care about them as people. If you destroy someone on the other side, you leave a void. If you convert them, you have an ally. Attacking ideas to save people is a force multiplier, as well as a good way to actually be a decent human being.

So yes, I defend people who are wrong against those who are right sometimes. Not because I agree with them, and not because I want to see mistakes spread, but because it's too easy to get overzealous. When you think of something as a struggle, the desire to crush your enemies is a natural one, but we forget in the process that those enemies are people too, and that destroying them is something we'd rather avoid.

Sunday, May 14, 2017

A house! A house! My kingdom for a house!

It's been a busy few weeks for those paying attention to the Canadian real estate market. First, BMO decided to sell mortgage-backed securities in a way that hadn't previously been done in Canada. Then Premier Wynne started taking notice of the chronically overheated Toronto real estate market, and brought in a series of proposals designed to make housing more affordable. And then, a mortgage lender ran into serious financial trouble due to allegations of impropriety from the regulator.

The combination of these three was to bring bubble talk to the front of mind for people who pay attention to this sort of thing, myself included. I'll go into that momentarily, but I think the first thing that needs to be addressed is much more basic - what a bubble is and how it works. Bubble psychology is a complex and misunderstood creature, and it's caused a lot of devastation historically, so getting it right is important.

Basically, bubbles are one of those wonderful phenomena that happen because the future in uncertain. Consider for a second how things would work in a market where the future was certain. An asset that is bought and sold in an efficient market with perfect future information would have a price that reflects its supply and its demand, and the future supply and demand will feed into future prices. Future prices will be limited by present prices, because you can always just buy it now and hold it until then to get a guaranteed profit. Nobody would be trying to time the market or guess at future prices, because they'd already know. You generally get a smooth price curve, growing at a flat interest rate, and that's it.

In reality, of course, we're flying blind. People disagree about what will happen, and some of them are wrong, but we don't know who's wrong until it's too late. As such, people act on incorrect predictions and make incorrect moves, ones that they'll later regret. One particular sort of error is the one that leads to the bubble - the idea that an asset will keep going up. Not even forever, necessarily, just for a while longer. If an asset goes up quickly for a while, there's two natural theories as to why - either it's random chance and it just had a good run, or there's a narrative as to why this happened, why it needed to happen, and why it will keep happening. And remember, we cannot tell in advance which one's right. History certainly has plenty of examples of both - yes, the dot-com bubble was kind of nutty, but Apple really did take over the world.

Thing is, people like narratives. The more mathematically inclined among us may sometimes poke fun at the habit, but it seems to be a very important part of how brains work - after all, a brain is mostly a tool for turning scattered observations into predictive theories so that we can understand the world around us. So people see a compelling narrative as to why a particular asset is sure to keep going up, and they'll believe it a bit more than they should. If that was the worst that happened, then it wouldn't be so bad. But the thing is that assets sold in a marketplace are prone to supply and demand, and the narrative creates demand. After all, if something is going to rise in price forever, I should really buy it now while it's cheap. This demand raises the price, which strengthens the narrative. Bam, you've got a positive feedback loop. And just like feedback into the microphone at a concert, it rapidly turns what was originally just a little bit too loud into a shattering squeal.

Many people like to blame bubbles on fiat money, or evil speculators, or the errors of a capitalist economy, or a hundred other politically motivated bogeymen, but they're all wrong. Bubbles come from people. They're a natural consequence of human psychology, and they will always be with us. People can be trained out of them, usually by seeing the ugly consequences of a burst bubble, but as people who've never seen one up close grow up and get into positions of power(even as simple a power as having enough money to buy into the bubble), they come back. As soon as you think "Oh, that can never happen", it happens. The problem is within us, and it will never go away. Sure, you can make them a bit smaller by getting rid of some of the incidental factors, but that doesn't eliminate them.

This understanding of bubbles makes a lot of political narratives look really ugly. For example, look at the biggest crash of our lifetimes, the 2008 real estate crash in the US. There's a few big narratives of what happened, but I don't think any of them hold up.

The pop-culture belief seems to be a belief that weird banking products let banks gamble all of our savings on mortgages like crazy people, tame regulators didn't do anything about it because they were incompetent and/or corrupt, ratings agencies gave AAA ratings to IOUs scrawled on dinner napkins, and it all blew up. There's a bit of truth to that, but not all that much. The banking products weren't that crazy, and the ratings agencies did do an honest job of rating them with the tools they had available.


To understand how these fancy products work, consider a simple example. Let's say I have a company that flips coins as a side business. Every time a coin comes up heads, I make $2, and every time one comes up tails I make nothing. I can choose to sell you the results of the coin-flip before we actually do the flip - perhaps I want a more certain income stream, or perhaps you're a gambler. So, how much should I sell a coin flip for? Well, a child could tell you that a fair price is $1. So I can sell you the flip for $1, you get your $2 or nothing, and statistically we're each equally well-off as we were before.

But let's say I've noticed that most people don't want to gamble, and they want something a bit more stable. So instead of selling flips one at a time, I bundle the week's flips into a "Flip-Backed Security"(FBS), with 10 flips in the pool. I sell 10 shares, and each share will get 1/10 of the total payout. Each share is still worth $1, but the payout is much more likely to be $1.20 or $0.90 or something like that - in order to lose all their money, I'd need 10 tails that week, and that's less than a 0.1% chance. Well the market likes that, and my FBS is selling way more quickly than single flips used to.

Still, some people feel like they're taking on too much risk. So I get clever. Instead of selling equal shares, I divide it up into three groups. FBS-A gets the first two payouts, no matter where they happen - if flips #3 and #7 are the only heads that week, owners of FBS-A will still get a 100% payout. On 10 flips, getting two payouts is almost guaranteed(~99% chances), so this one will sell for about 99% of a maximum payout - in this case, $1.99. Similarly, FBS-C gets the last two payouts. They need nine flips to get anything, and ten flips to get the full $2 per share. That's really unlikely, so it'll sell for about one cent - the real gamblers will buy those, or maybe I'll just hold them myself to avoid the hassle of marketing them for a penny each. The middle set, FBS-B, will get flips #3-8 - those are the tame normal ones, and they're still going to average a dollar each, they'll just be a bit swingier now because the sure things on both ends have been taken out of their pool. The whole set still has the same probability it started with - the average flip pays $1, the whole pool of 10 flips is worth $10, and we can expect five heads. But different people are getting different cuts of it.

If a rating agency thinks 99% payout is what a AAA rating requires, that FBS-A will be a genuine AAA security, even though the underlying investment is nothing but perfectly random coin flips. You've taken a gamble and called it AAA, and you are entirely correct to do so. It's not a scam, it's not a lie, it's just applied statistics.

This is actually a lot closer to how mortgage-backed securities worked in the real world than you might expect. Sure, a mortgage being paid back is more complex than a coin flip, but the broad statistical principles are the same, and the reasoning was pretty similar too. The problem was in one embedded assumption, one buried so deep that very few people ever thought to question it.

What if the coin is weighted?

What if, instead of the flips all being 50/50, they're all 60/40 or 80/20? If it's 80/20, that AAA-rated FBS-A security is now only worth $1.52/share, instead of $1.99 - it was rated as a sure thing, but it just lost almost a quarter of its value. Some pension fund was relying on it to pay people back, and it just tanked. And that was supposed to be the safe part of their portfolio! Worse yet, that $1.52 is an average - more than 10% of the time, there will be zero heads, and they'll get nothing at all. Once people see what's happening, they'll stampede out of the markets and the chaos will start destroying banks, so the stocks will do even worse. The AAA rating is looking a bit foolish now, isn't it?

All the models used to rate mortgage-backed securities made the assumption that each house stood alone. They figured that people would default, but they made no plans for a whole nation suddenly defaulting, for a few scattered failures caused by individuals overreaching or losing their jobs turning into millions of people walking away from their underwater houses and saddling the banks with the bill. As soon as the risks aren't random, but instead start moving the same way at the same time, the statistical principles used to turn lead into gold stop working. Whoops. It's not fraud, not even particular incompetence - they just got blindsided by something that was buried in the math.


Of course, today, nobody has any desire to repeat those mistakes - the financial industry knows what happened, and normal people won't touch MBSes with a ten-foot pole. We're safe from the same thing happening again for at least a generation, until the people who remember the lessons of 2008 are a minority. (Something else may happen, of course, but that's a risk with literally everything)

The left's belief is that problem was deregulation. According to them, the biggest error was laws like Gramm-Leach-Biley, which allowed commercial banks and investment banks to exist under the same roof, when previously they'd been kept apart. (More well-read commentators will discuss other examples of deregulation, but this one example gets about 90% of the headspace in discussions of this topic).

The right's belief is that the problem was over-regulation. According to them, the biggest error was laws like the Community Reinvestment Act, which forced banks to give more loans to people in poor neighbourhoods(who are less desirable as credit risks, or so the narrative goes).

Both of these can be dealt with by the same sentence: The first bank to fail was British, the worst-hit housing market was Spain's, the worst-hit banking system was Iceland's, and the country that got hurt most overall was probably Greece. Why on earth are we blaming this on American laws?

Everyone looks for a scapegoat. The left blames the right, the right blames the left, and society blames bankers. Nobody thinks to look in a mirror. The housing market went crazy because we let it - we kept buying, telling ourselves things like "I had no choice!" or "It's a sure thing!", and we bid prices up to unsustainable levels because we wanted to believe we were getting a bargain. Bubbles come from people, and I don't mean all those icky people over there. Regular people, like you and me. We suck sometimes.

So, is it happening again? Is Toronto real estate a bubble? Well, herein lies the rub - if it was a sure thing, we'd already be past it. If it was 100% sure to be a bubble, then everyone would know it and it'd be popping. If it was 100% sure to be sustainable, who would ever be selling their house before it hit the new normal price of $firstborn for a semi in Regent Park? So I don't offer a definite answer here, just the arguments on both sides.

On the side of no, or possibly the side of "paying in kidneys will be the usual thing for a while yet", the fundamentals pushing these price increases are stronger than a lot of people give them credit for. See, for example, my Globe and Mail piece from last year on the role of interest rates - long story short, we would expect house prices to roughly double, over and above the effects of inflation, simply from the gigantic fall in interest rates over the past few decades.

And of course, that's not the only fundamental. Toronto is growing at a ridiculous pace. It's both by far the largest destination for immigrants in the country(and Canada accepts a very high number of immigrants by global standards), and it's also the hot spot for Canadians who want to move to the big city. The era of cities being ugly, crime-riddled hellholes like they were in the 70s is long over, and people are moving back. Toronto is by far the most popular destination for this crowd as well. It's a rich, growing, vibrant city that is massively appealing to the diversity-loving young professional, and so they're moving in like crazy too.

Toronto proper is growing by 23,000 people per year, and the GTA is growing by 73,000 per year. That means that every week, 500 people are moving to the city and another 1000 to the surrounding suburbs. That's a gigantic growth rate, and every single person in that group needs somewhere to live. An average household is 2.8 people, so that means 26,000 new housing units a year are required to keep up with demand.

A lot of that demand can be met with condo towers. Toronto's condo boom is legendary, and justly so. A few years back Toronto had significantly more high-rises under construction than the entire United States, and for all I know that may still be true - there's certainly enough cranes around. Problem is, most people don't want a condo. It's a good way to build some equity and get a starter home, but most of us grew up in a detached house. Whether you're from a Canadian suburb or a Filipino village, owning your own land is a convenience(particularly when you have kids), a status symbol, and a solid investment.

The problem with giving everyone their own detached house is math. Everyone wants a detached house in a pleasant neighbourhood where getting around by foot, car, and transit are all viable options and you can have a bit of quiet while keeping easy access to downtown. In a small town, that can be done. In a big city, it can't possibly work that way. Downtown is physically small, and you can't have more than a certain number of detached houses close to it. Sure, you can sprawl forever in principle, but people want a detached house in the Annex, not in Aurora. Occasional neighbourhoods fitting that description exist, but they're roughly synonymous with "where the rich people live" - Rosedale and Forest Hill and Hogg's Hollow are all fairly secluded, easy to get around for locals, spacious, quiet, and reasonably accessible to downtown, but not coincidentally they're all places where $5M houses don't raise any eyebrows. And unless somebody starts paving Lake Ontario, they're not making any other land that's equally desirable anywhere.

It's important to emphasize this - this isn't politics, this isn't foreign buyers, and this isn't a trick of developers. This is math. If we wanted to give a detached house downtown to everyone who wanted one, we'd need about 20 times as much land as actually exists downtown. It is not physically possible to give everyone what they want. The limited supply of downtown land will be rationed by some means or another, and in our economy that usually means the people with money get it. That means higher prices, until only as many people can afford to move in as can actually fit.

So we're a bit stuck. We have tens of thousands of people moving here every year who want to live in desirable neighbourhoods as much as the locals do, and no more space in those neighbourhoods. What happens is that every neighbourhood will move up the income scale. If 50% of the city could live in detached houses in Toronto proper before, and the population of the city doubles, now only 25% of the city can live there, and the houses will go up in value from what a median household can afford to what a top-quartile household can afford. (This is an oversimplified analysis, of course - desirability is not just a single number that people try to maximize, and some will prefer condos/semi-rural living/whatever - but the point stands)

Supply and demand is real. We have a mountain of demand and virtually zero new supply in the most desirable sector of the market, and even in less-desirable sectors it's looking like we have shortages. On top of that, everyone can afford more than twice the prices my parents could when they were my age without needing to make any higher a mortgage payment. Is it any surprise that prices are shooting upwards?

On the side of yes, there's some definite bubble psychology going on. Every anecdote about home sales I've heard is that buyers have turned into a ravenous mass of raw demand, and they haven't done it for fun - they feel like it's the only way to get a place to call their own. Tales of sellers getting 40 bids, all of them above the asking price, within an hour of bids opening are common. In that market, you only have the choice of playing crazy or not playing at all, and that's exactly what a late-stage bubble always looks like. Prices are going up by north of 30% a year in some segments of the market, and that is of course grossly unsustainable. A 30% annual rise in prices for another decade will leave average house prices north of $10M, which clearly can't be afforded by more than a few thousand people in the whole city no matter what interest rates are. The city is growing, but not so fast that we should expect a couple million Conrad Blacks to move here in the next decade.

On the whole, I think the 30% growth rate is a bubble in action, but I don't think that bubble popping is going to look like the wastelands of empty developments we saw in Florida a decade ago. Prices will stop shooting up like crazy, and they'll correct a bit, but I don't think we're going to see Toronto turn into Detroit unless a meteor hits the city. As long as people want to live here, it'll cost a fair bit of money to buy your way in.

So, prices are going up like mad, and even if it's a bubble, the fundamentals underpinning it are real and worthy of some notice. So, what do we do? Well, if the problem is supply and demand, the solution is to fix one or both of those.

The demand side is fairly easy to solve, in some sense - if people don't want to move to the city, housing prices will drop. So all we need to do is tear up the roads, shut down the subway, ban banking and movie shoots, and release a few thousand rabid skunks downtown. Housing prices would drop right away!

...Yeah, no. The right solution is to embrace Toronto's desirability, and build it into a city worthy of that desire. That means letting people live here. The problem there is that everyone always has a reason why development is bad and we need to oppose it. "It'll change the character of the neighbourhood!" or "It's too tall, it'll cast shadows!" or "It's being built on land that's green, and Canada has a desperate shortage of greenery!" or whatever.

People have a status quo bias, and they're suspicious of people who want to change the status quo just to make a buck. To be fair, developers have a long history of trying to get around anti-development laws, and they're doing it to make money in large quantities, which makes a lot of people deeply suspicious. Of course, everyone who has laws passed against them tries to work around those laws, and everyone tries to make money, but developers get a special dose of ire nonetheless. Like I said above, the problem is math, but there's a lot of people who would rather find a scapegoat for this math than understand it.

And hey, scapegoats aren't hard to find. Just go to China, they have about 1.4 billion of them. If Canadians are moving to a city and starting families en masse, and the cities aren't building enough houses for them, it must be the fault of non-resident Chinese billionaires trying to hide money offshore by buying houses to get in on the 30% growth rates. Only they clearly don't care about money, because legend would have it that they're allegedly sitting vacant in a market where you can rent a used refrigerator box for $1200/mo, so I'm not sure what the plan is. But damn it, it must be their fault - stats say that non-residents are about 3% of the market, and clearly those 3% matter way more than the other 97% of us.

Blame CanadaChina, shame on CanadaChina
The smut we must cut, the trash we must smash
Laughter and fun must all be undone
We must blame them and cause a fuss
Before someone thinks of blaming us!
Some people call me cynical, but they're just bitter.

So, we want to let Toronto grow. Let's see what our provincial government came up with to help with prices.

1) A non-resident speculation tax, like Vancouver's. "Speculators" are always blamed for price movements that people don't want(as if "Quick, buy now before the price goes up!" isn't speculation), but if the stats are wrong and there is actually some secret epidemic of Chinese billionaires taking all the new supply off the market, then this might help a bit. If they're as price-insensitive as people suggest then a 15% tax won't make a huge difference, but maybe it'll do something. Of course, Vancouver's didn't, and they have about twice as many foreign buyers, but it's worth a shot I guess?

2) Expanding rent control. This has some knee-jerk appeal, because a few renters really might get pushed out by huge increases, but I think they went way too far. Rent control has long proven itself to be a bit of a mirage - it helps the politically connected, and it helps people who can afford to spend $100,000 to buy a key for a $400/mo apartment, but it doesn't actually drop the price of housing overall. It picks a bunch of people to get cheaper rent, and a bunch of people to get totally boned. Making it a worse idea to build new housing, especially high-density housing, is going to make things worse, not better.

3) Standardized leases, and similar admin changes. These seem inoffensive, though they don't help with prices at all.

4) Opening province-owned land in the city up for development. Big thumbs-up here - this will help for sure. It's not a lot of land, so it won't solve things itself, but it's a concrete action that will make it better to some extent.

5) Allow cities to charge a vacant homes tax. Much like #1, this will help a bit if the problem is real, and not have much impact if it's not, so that's fine.

6) Synchronizing property tax rates between rental buildings and owner-occupied buildings. This makes good sense, and I know that Toronto(and possibly other places) have been moving this way for a while, because it got way out of whack. It's odd to see this as a provincial program, but I don't know the procedures here well enough to comment much.

7) Spending $125M to rebate development fees on rental buildings, As should be expected of Liberals, they're rebating fees with a new program, and not merely lowering the fees for everyone, but this is okay, I guess?

8) Giving municipalities more flexibility to create incentives for development via property taxes. Inoffensive, but really microscopic.

9) A "Housing Supply Team" with a multi-ministry work group to identify barriers. When you're hip-deep in buzzwords like that, you know they're just padding the list.

10) Working to understand and tackle speculative and tax avoidance practices. See #9.

11) Updating the rules around realtors, in particular ending the right of realtors to represent both sides of the same home sale. Makes sense, but it has nothing to do with prices.

12) Establish a Housing Advisory Group, which is somehow different from the Housing Supply Team and the unnamed investigators of #10. This is straight out of Dilbert.

13) Educating consumers on their rights. Again, cool I guess, but meaningless when it comes to prices.

14) Working with the CRA on tax reporting. This doesn't make anything better for home buyers.

15) Creating more rules for elevator repair timelines. I can see the appeal, but this isn't supply-related.

16) Updating the growth plan for the GTA, but explicitly refusing to allow for any changes to the Greenbelt. So basically, this is a null.

For those of you keeping track at home, that's one small but sensible improvement, five small things that could hypothetically help but probably won't do much. one fairly major harm to supply, four pieces of bureaucratic nonsense, and five things totally irrelevant to house prices. The end result, I suspect, is a difference of about three housing units in the next decade, and a new $300M/year bureaucracy to take credit for it. Ugggh.

The province wants to take credit for throwing money around, encouraging affordable housing, and all that, but they totally miss the point. People need to live somewhere. If a bunch of people want to move somewhere and there's nowhere for them to go, you will have serious issues with a hot housing market and ridiculous levels of demand. Throwing money at home buyers just bids up the prices, giving units to people who need affordable housing means they don't go to someone else, and the problem never improves. To solve an overheated market, you need supply.

What kind of supply you get doesn't even really matter in the end. Let's say 10,000 new luxury units come on the market tomorrow. Well, who's moving in there? Probably people who live in nice, but less luxurious, places in the city, and will move out of them into the new building composed of nothing but penthouse suites. That'll free up units one tier down from the new places, and the people moving into those will probably be the ones two tiers down. This process will continue all the way down - at some point, a new unit will be occupied by somebody, and unless Kenneth Thompson decides he wants another 10,000 condos, those people will be moving out of somewhere to make the space. A new unit means another person who's out of the market and no longer getting into bidding wars. I want poor people to have places to live, of course, but we should build units first and distribute them second. If nobody has a place to live, the poor won't be helped by the process.

Here's my proposal, and it's one that might actually help.

1) Kill the Greenbelt. It was a stupid idea from day one, and it's caused a non-trivial part of this problem. Protecting farmland, seriously? Canada has no shortage of land that can be farmed, but a severe shortage of land where people can work in Toronto.

2) Allow as-of-right construction of all development projects. If the land is zoned for a 40-storey tower, you can build a 40-storey tower with no further say on the part of City Hall. Their job is to set zoning rules, developers can take those rules and build accordingly any time they want.

3) To prevent abuse of #2, zoning must be defined on areas of a certain minimum size. Perhaps 100 metres in each direction would be the smallest area you can zone. Developers would also be allowed to complete any project where ground has been broken, even if zoning laws were changed thereafter. Cities have a role to play in defining how the city is going to look, encouraging density near mass transit, and the like, but they should not be allowed to cater to NIMBY nonsense and tie up developments for years. (Edit: A friend showed me this article on Japanese zoning rules, which seems quite relevant.)

4) Give new-build rental properties an exemption from rent control for 20 years, instead of the flat 1991 cutoff, and then cap rent growth at inflation+5% thereafter, and require perhaps 90 days notice for increases. That gives room for prices to adjust reasonably to changing market conditions, but prevents people from being kicked out of their homes by ludicrous increases hitting them out of the blue. Rent doubling with no warning is a real problem, but going fully draconian on rent control is not the solution.

5) Change rules to allow for smaller units in more places. Affordable housing in a city where land is worth a million bucks per square foot means small housing, and builders might be less inclined to aim at the top of the market if 150 square foot bachelor condos were more saleable. Likewise "laneway houses", basement apartments, and so on. Turning the same amount of land into more units is a good thing.

6) Throw in some of that small-fry stuff from above. Couldn't hurt.

Oh, and as for the bank failure? They're talked about as a big player, because people are only looking at a tiny portion of the market. The bank's total balance sheet is about $15B. Royal Bank's is about $1200B. The only thing interesting about this is that they were foolish enough to name themselves after one of Canada's few bank failures, and that it's pretty funny to watch what happens when a bank goes scrambling for funding(22.5% on a line of credit? Yikes). If it was because of market conditions I'd be worried, but when it's a fraud scandal, it's probably a one-off. This isn't a big deal.

Friday, May 12, 2017

Friday Night Video - No Rain

The things that inspire musicians are always interesting, though in a lot of cases I'm happy that they're interesting from a distance. For example, on the surface this is a simple happy 90s one-hit wonder. Nothing much to it, right?

Turns out the backstory is a lot more involved than that. Apparently someone the songwriter knew had some manner of mental illness - agoraphobia, social anxiety, something in that vein. (It's been years since I've heard the story, and I'm going from memory, so sorry if the details are a bit off). This person almost always stayed inside and avoided most human contact, but they still got sad whenever there wasn't rain - you see, when there was rain, they had an excuse to stay inside, and nobody would fault them for it. When the sun was shining and it was nice out, they'd still be inside, but now they'd be standing out and drawing attention to themselves. Something that was a cause of happiness to most actually made their troubles even worse, because it was something they couldn't share.

I've been pretty lucky in my life, all told - I've had problems, of course, but I've gotten through them, and there's been nothing so bad as that. Others aren't so lucky. The weather we've had recently is what got me thinking about this song because good lord was that a lot of rain last week, but the song itself is about a lot more than the weather. A lot of people have those hidden depths to them as well, and folks who go blundering about on the surface(a group I'm occasionally a part of myself) can cause a lot of pain without even realizing it. I've got a mostly-written post in the hopper on a related topic, and a couple more I'm thinking about, but I figure I can at least hint at it through song. And it is still a nice song, even if it's not a happy one.

Saturday, May 6, 2017

Friday Night Video - How Soon Is Now?

When it comes to music, it's a truism that most people listen to the stuff they pick up relatively early in life - perhaps age 10-25. After that, you start getting busy with jobs and kids, and by the time you glance back at the music scene it's moved light-years away from what you like, at which point most people start grumbling in ways much like their own parents did a generation earlier. And so the cycle continues.

The side effect of this dynamic is that it means most music is either aimed at teenagers or nostalgia(and even then, usually it's for the stuff that was aimed at you when you were a teenager). And while the usual meme that teenagers are stupid is false, as a group they really can be enamoured of the bold, dramatic, and edgy. For some that means aggressive music, for some it means esoteric music, and for some it means emotional music(or, when heard by someone over the age of 30, vulgar, "just noise", and whiny, respectively). This band is basically the patron saints of that last category - playing tunes for the kids who just want to feel things. I was never one of those kids, and so I always found their music to be whiny and obnoxious.

Except this one song. Not only is the instrumentation much more to my liking, but the lyrics always struck me as being much less angsty. Yes, yes, "I am human and I need to be loved", but there's also "You shut your mouth!" and the like. But the one that always struck me was the opener - "I am the sun and the earth" is almost bragging, which seems really out of place in one of their songs. It struck me as being a great line, one that made me think they had some brass to them and not just more fuel for 15 year olds trying to write bad poetry. I gave them credit for that, thought better of them for using lyrics that sounded proud and not sad. Even the emo kids need to feel proud sometimes, right?

So imagine my disappointment when I found out I was hearing the lyrics wrong, and that he is in fact the son and heir of a shyness that is criminally vulgar. sigh...