Canada has fallen into a Housing Speculation Economic Trap.
But Canada is not alone.
[[
speculation crowding out productive investment -> fall in productive investment -> low output caused by money sucked out of the economy -> low interest rate to increase money supply required for economic growth -> enabling highly leveraged speculation -> speculation crowding out productive investment ->
]] if loop not broken, continue until economic reset, also know as a great depression
If economy self supporting loops forcing economies into a downward spiral scare you, GREAT! Because you should be, because if the imbalanced economies causing this spiral of self destruction are not resolved, it will only end after an economic reset also know as a great depression
There are two fundamental ways to break the "Speculation Economic Trap" spiral. The first way is discussed in detail in the paper I have cited. It is simply raise the interest rate to prevent highly leveraged speculation. Raising the interest rate will force overly leveraged Housing Speculation Investors to sell their assets.
This has are least 3 problems:
- The first is the vast majority of Housing Speculators are Home Owners who invested their retirement savings into Housing. The forced sale of overly leveraged Housing will drive down prices substantially and these retiring Home Owners who are speculators not by choice will loose their retirement money.
- The second, the real problem is land speculation.
- The third problem is that price of the best farm land which is usually near cities is often set by Housing speculation not Farm crop productivity. As result the best farm land is permanently lost.
I proposed solutions that address the real problems directly.
Speculation driven home prices also sucks enormous amounts of money into speculative investments out of the economy away from productive investments.
Also excessive housing cost driven by speculation is a major reason families are not having children and economies are suffering as a gray recession result.
1) 30% to 40% of all new development should be Co-Op so that home buyers are not forced to be property speculators. This will free up home owner's money to be spent in the economy stimulating growth through more productive investments.
2) At the provincial level subdivided home lots are too small for redevelopment into mid / high rise buildings and provide no opportunity for community parks to replace peoples back yards. And cul de sac need to be removed to allow for high density communities.
3) At the City level remove individually approved redevelopments creating cronyism and replace it city wide redevelopment regulations.
Another problem with the current individually approved redevelopment, is it hides the land redevelopment value and creates a gambler's game. The gambler's game makes it possible that the land property will be worth a lot more than imaginable today. Of course we don't know which properties will win the payout, But because all the gamblers know that properties will probably eventually pay out, all the gamblers bid up the prices to unimaginable values. Gambler pricing which is speculative pricing ECON101
4) When farm land or other green space is taken, set money aside in a trust fund to reclaim under utilised land and return it to farm land and forests.
http://www.tandfonline.com/doi/abs/10.1080/00036846.2016.1231905
http://sci-hub.cc/10.1080/00036846.2016.1231905
