Columns: Real Estate Crash Should Be A Wake Up Call For City

By Mike Archer. Individuals, companies, and governments with high debt are in for a very rough year in 2013 if economic indicators are any guide.

2012 was a bad year for those at the City of Abbotsford who have simply based all of their spending decisions over the last decade on a fictitious future filled with high population, more taxes, greater revenue and endless economic growth.

Abbotsford and area economic indicators for everything from building permit values, housing starts, home sales to employment fell steadily in 2012 ( and sometimes precipitously).

Those indicators have put paid to any notion that putting all of our desperately needed infrastructure upgrades off until a rosier future was ill-advised now that we are in that future and it is not so rosy.

It is important that, instead of their usual smart-assed confrontational style our senior civil servants in Abbotsford develop a more respectful and thankful tone when dealing with the advice being provided by the citizens who pay them.

If Parks & Rec Director Mark Taylor, Economic Development Manager Jay Teichroeb or recently departed former City Manager Frank Pizzuto had listened to any of the advice their citizens were desperately and vocally providing they would not have made some of the awful, embarrassing and disastrous decisions they did with our money.

A different attitude will be required if we are going to get out of the mess they have made.

With residents worried about their net worth, it would be foolhardy for those who have put us in such a precarious financial situation at City Hall to give away money we simply don’t have.

In case you are among those who think that the economy happens outside of Abbotsford, after Fred Thiessen has made his controversial presentation to the City about the YMCA, he told the blunt truth about the current economic situation in Abbotsford outside Council Chambers.

“Realtors and developers are going broke. They can’t make a living in Abbotsford,” he said when trying to explain why he believes it is an extremely bad idea to be giving tax dollars away to a not-for-profit part of a public sector development (Fraser Health Authority) when nobody can sell real estate in Abbotsford or fill their buildings.

MacLeans Magazine’s cover story for their last issue was titled Inside The Great Canadian real estate crash of 2013.

It makes for an interesting read. While most members of the mainstream media have preferred to keep their realtor and developer clients happy by either downplaying the danger of the real estate bubble or, in the case of local newspapers in Abbotsford – simply not telling their readers about it at all, MacLeans has taken a proactive approach and decided to face the issue head on.

It’s something journalists used to do.

The article has some useful information for anyone trying to plan ahead rather than maintain the fictitious past that was so much more pleasant than the future which is now upon us.

Inside the Great Canadian real estate crash of 2013

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[excerpts]

“Keith Roy began warning his clients about a faltering Vancouver housing market in early 2012. The realtor says he was tipped off not by industry statistics, but by chatter across backyard fences. “When you hear about a homeowner who thinks his neighbour got too much money when he sold his house, you know there’s something going on,” says Roy. “That was the first clue.”

“The next shoe to drop was a handful of homes in desirable west side neighbourhoods that took a few extra days to sell. Sensing a shift in the market, Roy put his own house up for sale in June and penned a blog posting the following month that advised people to “cash out.” Though he was criticized by fellow agents for breaking rank, Roy says he now feels vindicated after watching Vancouver home sales crumble to their lowest point in more than decade, with prices falling 3.5 per cent since hitting a high last May. The lesson? Recognizing a looming real estate downturn is more art than science; once it shows up in the numbers, it’s too late to do much about it. “One day the phone just stops ringing,” Roy says. “Then you’re in it.”

“The only question now is how bad things will get. If the decline picks up speed, as many believe it will, there could be a nasty snowball effect. Construction jobs will be lost. Homeowners will end up underwater. Consumers may stop spending. “I’m getting very nervous,” says David Madani, an economist at Capital Economics, who has been predicting a drop in housing prices of up to 25 per cent in Canada. “I know I’m a bear, but the housing market itself has the potential to put us in a recession, let alone what’s happening in Europe and the U.S.”

“Even with the market slowing, many experts believe Canada is unlikely to experience a “U.S.-style” housing crash. The riskiest mortgages are guaranteed by taxpayers through the CMHC, thereby insulating the financial sector from the sort of meltdown endured by Wall Street in 2008.

“But a mere collapse in home sales—and prices—would be bad enough. Ben Rabidoux, an analyst at M Hanson Advisers, estimates that 1.3 million people, or seven per cent of Canadian workers, are employed in the construction industry, with housing being the main driver. He argued in a recent report that a U.S.-sized housing slowdown could result in the loss of 370,000 jobs and push the unemployment rate well over nine per cent, compared to 7.2 per cent now. And that doesn’t include job losses in related industries.”
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The reality described above is not one which lends much credibility to any sort of scheme to either borrow more money, give money away or even expect to be able to pay back the millions we owe our DCC fund.

The ‘happy news’ of the out-of-town newspapers may serve their own purposes but it is of little use to those of us trying to make the right decisions in a dangerous economic time.

When Fred Thiessen spoke to Abbotsford Council’s Executive Committee on January 21 he warned our politicians and senior staff about the financial shape of the City and told them we cannot afford to be giving any money away to pay for developers to build stuff when we are in such a precarious financial position.

Thiessen, as well as Councillors Henry Braun and Moe Gill have made the point repeatedly – we have no money. Our DCC fund is in deficit, our capital reserve fund is on life support and the money coming in from our high taxes and excessive water rates is going to pay for the mindless commitments of the past eight years to professional hockey team owners, U.S. event management companies, a $650,000 museum and the long term debt for Plan A.

We are simply not in a position to go further in debt with money we don’t have.

Editor’s Note: For a deeper understanding of the optimistic disease which infected bureaucrats and politicians the world over during the last decade The Knowledge Network’s, ‘The Party’s Over’ is a very instructive video.