 crisis in Canada here on Think Tech, on view from the north with Dr. Ken Rogers in Kelowna, British Columbia. Hi, Ken. How are you? I'm very well today, even though we have a housing mess. Well, years ago, when homelessness first appeared and it became clear that a lot of people were going to be on the streets instead of in housing, thought, well, maybe that's in my city. And then you found that it was in other cities, all across the country. And then you found that not only were they on the streets, but a lot of people were on the streets because they couldn't find or afford housing. And in fact, we were in a crisis, a crisis on the housing side and on the homelessness side. And then you looked around to other countries, like in Europe, not so much Asia, I think, and found that the same thing had affected them. There was a shortage of housing, and there was a lot of people on the streets. And I remember this goes way back to the 60s and the 70s. And certainly, it's worse now. And if you make the comparison in your own mind during your lifetime, you say, gee, it got much worse. So really, the question is Canada. Where is Canada on this? We saw some photographs of people on the streets in Vancouver in one of our shows a couple of months ago, if you remember. And there was a whole lot of people that were homeless on the streets of Vancouver, which is otherwise a really beautiful city. And that also kind of expresses the point that there's a shortage of housing, also a shortage of sufficient income to pay for the housing. But one of the problems in Hawaii, a very stark problem is the lack of housing, affordable housing for the people who are here. And I submit that that's all around the country. And now we find that it's also in Canada. So what's the situation? Well, homelessness and the housing crisis are different things. The housing crisis has a variety of complex pieces. For example, since the start of this year, interest rates have increased dramatically. That affects housing very significantly, which helps illustrate why housing is different than almost anything else in our free market economy. In a free market economy, you normally think of it from an economist's point of view, you have the supply of a product and the demand for the product, and that sets the price. So if you're talking about oranges, you have how the growers of oranges are done and they have a supply and a quantity of supply. And then people would like to have fresh fruit, so they have a demand for oranges. And that sets the price. Now, the price, if the price is too low, people switch to bananas. And if the price is too high, they switch to a different product. If it's too low, they probably buy more oranges. Housing is different because when you talk about what's the supply of housing versus what's the demand? Well, demand, you basically have, what's the population? When is the population growing? Where on the supply side, do you think of, well, how many houses are there? Well, if you simply take what's happened since the start of the year in terms of interest rates, if you had a mortgage that was half a million dollars, which is reasonable in a city like Vancouver, where others cities might think that's pretty high for a typical mortgage. But if your mortgage was arranged in the middle of last year, you probably had about a 2% interest rate. And if you were to renew that mortgage right now, let's suppose you just had it for a variable rate mortgage, and it was the rate is now a little over 6% if you're in Vancouver. Well, you'd have started off a year ago where your mortgage payment was $1,800 a month. But, you know, then suddenly the banks phoned you and say, gee, Jay, too bad the mortgage payment's got to be about 30, oh, let's say a little over 3,000. So you've really had from 1,800 to 3,000 a $1,200 a month increase in your mortgage payment. Now, that's not quite double, but it's an astronomical number if you're saying what's your income or what's your wage? Well, could I have negotiated last year for a flat sum, I mean a flat percentage, so as to avoid the variable increase? Or was every bank saying, oh, we'll give you a low interest rate, whatever it was 2%, but it has to be variable because if rates go up, then we have to pass that along to you as a matter of banking business. I mean, was it possible to get a steady rate through the life of the mortgage? Oh, you could have a fixed rate mortgage and normally in Canada, those are for five years. You know, the fixed rate only lasts for five years and the mortgage is then renewed. So, you know, the example that I gave five years ago, the interest rate was greater than 2%, but not a heck of a lot greater. And so, if your mortgage was out for renewal, you'd have it, but if you'd have committed to a fixed rate mortgage a year ago, you'd be okay for another four years. However, that the idea of a housing crisis, you know, how many people were in that situation. And there's lots who picked variable rate mortgages because for the last five or six years, the variable rate mortgage has always been less than the fixed rate. And so, you'd have always been the wise decision for several years. So, it was been the wise thing in the recent past. Why not do it again? But my point with the housing crisis is basically to use one little wee example to emphasize that the housing crisis for those people who are just now sucking air for their 1200 a month or whatever their particular number is is has nothing to do with how many houses there were in the city they're in, whether there's new construction or whether the population has increased, you know, that their price of their house, like the price is really the financing cost rather than the capital cost, you know, in that person's mind at that moment. And that makes housing different than almost every other item in our free market economy. You have factors that come out of the blue that change the price and supply and demand react in turn to the price rather than, you know, a change in the demand changes the price which then will alter the supply. Now, aside from that, you've got other factors in housing that really make a crisis easy to achieve. Before we go to that, let me just ask you one question. And that is, let's assume that the number of units out on the market stays the same, but the interest rate goes up with this variable increase. That means it costs more, as you said, for an individual to buy the house. The cost of the house is greater. But if the cost of the house is greater than not as many people can afford the houses, doesn't change the availability of the house, there is still the same number by virtue of my facts here, my assumptions. Same number of houses in the market is just that fewer people can afford them. So what does that mean in terms of a crisis? How does that factor acting by itself create a crisis? That they can't afford the additional price so they're not buying? If they're not buying, then what? You have vacant houses that can't be sold? Is that what happens? Well, you start off if the monthly payment for a new person to buy a house is higher than it was last week. Then the demand for any housing from people that don't have housing is down. And anybody that wanted to upgrade their house, their demand is soft and they're not as likely to want to change. But the the mess that's caused is for those that have are in a house and it's causing them a financial crisis. It's giving them a financial squeeze. Now, warehousing is also very different in other regards is there's no product that exists in a free market economy that has as many supply constraints as housing. If you think of the four levels of government, and I use four because you have an example in in most large cities like Vancouver or Toronto, you know, there's a federal government, there's a provincial or state government, there's a city government or let's call it the metropolitan area government. And then there's, you know, these subsidies, you know, for example, the city of Vancouver, you know, metropolitan has a little bit less than three million people. But it's made up of about a dozen different legal municipalities, you know, there's a North Vancouver, a West Vancouver, you know, there's Vancouver, old city itself is less than half a million people of that three million. A couple of the, you know, satellite cities are now have more people than the original boundary of the city. Well, every one of those jurisdictions has different rules. And if you want to do a development, you've got to go through, you know, you have a subdivision regulations, which are normally in Canada set by the provincial government, then you have zoning rules in each city and each, each part of Vancouver, if there's a dozen parts, let's call them, or a dozen jurisdictions, every one of them has different rules. You know, they have, you know, what is the side yard for a building in a single family home type X neighborhood, and that's different than the type Y neighborhood. And, and so you, you just have a difference from one place to another of you shall not build that in my backyard attitude. You know, the smallest level of government has the greatest power in terms of housing, because, you know, a municipal council will meet and if enough neighbors show up and say, we don't want to have a housing for the homeless in our neighborhood, there's no housing for the homeless in that neighborhood. And, and so you get example in Vancouver, you have one of the smaller entities called West Vancouver, a very high priced area, and they don't allow anything. So presumably this means this is an obstacle to developers. It's an obstacle to building houses and satisfying whatever demand there is. So we've touched on two things. One is the variable rate mortgage, which makes it more difficult for the average working Joe to pay for the house and more expensive for the house. And then we have a shortage of housing because of bureaucratic obstacles. By the way, there was a piece in today's paper here in Honolulu that the average permitting time is now 247 days for a new house, 247 days. And I'm sure you have similar problems, don't you, about the delay in having these local municipal permitting organizations hold everything up, as well as, you know, make it make it impossible in some cases, but they also make delay, which creates another kind of impossibility. Well, that's correct. But you really have a lot of it comes down to municipal financing. If you take a city like Toronto or Calgary or Edmonton, you know, picking three large cities in Canada, they're large for Canadian purposes. You know, in each of those cities, the population is growing so quickly that you have the new subdivisions occurring on the outskirts of the city, as well as a bunch of of infilling or increases in density in the inner parts of those cities. But the municipality can't allow a bunch of that activity because, you know, the infrastructure that they have isn't adequate. You know, if you're trying to increase the density in the center of a major city, whether it's Honolulu or Vancouver, you know, you've got to have a water pipe underground that has enough capacity to handle the water from that increased population. Similarly, you need to have some method of transportation. Now, usually roads are more adequate than our sanitary sewer and water supply, especially when you're dealing with expansion on the outskirts of a city. Well, municipalities in Canada are all sucking air for money. You know, that our political structure is such that the federal government has the greatest taxing ability, and the least responsibility is for spending. And then it goes down the line, the provincial governments have responsibility for things like healthcare that keep expanding dramatically, but they have less taxing power. So as the healthcare needs expand, they're squeezed financially. Well, the municipalities are at the back end of the money parade, and so their responsibility to, you know, provide housing. Well, if they can't afford to extend the water pipeline or expand the pipeline in the inner city, which is really expensive, you know, when you're going to dig up roads to make the pipe larger so that your new suburb, the water can flow to or the sewage can flow from to where you've got your sewage treatment plant or your water treatment plant, well, so the municipality is rationing its money. Well, if it's rationing the extension of the water and sewer pipes and roads and any municipal transportation, well, what that really means is there's less land that's developable. You know, that if it's rationed financially in terms of the municipality's ability to provide the infrastructure for development, then the development's only going to go in the direction and where that infrastructure is adequate. So you've identified three factors that slow down the availability of housing, and those are three pretty serious factors. I imagine they exist in various degrees all through all over Canada, as they do in maybe slightly different ways in the United States. But, you know, what can you do? I mean, I suppose you could legislate on interest rates, I'm not sure that's going to help or that can be done politically. You can tell the NIMBY guys that, no, we have to do this for the community and we're not going to give you the same control over zoning, what have you, to stop projects and you can give more money from the federal government to the provincial government so they can build infrastructure to allow the expansion of housing. I'm guessing here, Ken, you mentioned that there are options. So are those the options? Are there other options? What can Canada do? Well, you have options that are all band-aids. For example, in Canada, in the early 1970s, when the baby boomer population was really moving into rental housing in a scale that was unprecedented, the federal government in Canada decided that they could put an income tax measure into effect that would perhaps, perhaps, alleviate some of the problem. So this tax feature enabled a dentist or a lawyer or an oil executive to reduce their taxable income if they invested money into a rental project, whether they bought a single duplex by themselves and rented it out or they joined a large apartment complex with some under a security system. And because they got that tax deduction that they could take against their professional or other income, there was a dramatic increase in the supply of the equity money available for rental housing. And Canada developed a phenomenal number of rental units in that four or five-year period that legislation existed. And so it shows that you can create an incentive that counters one of the problems. Now, why only five years? You go ahead. Well, by about 1980, the number of baby boomers that were turning 20 was less than the year before. And so your demand was decreasing, but also I don't know the reasoning for the federal government, but perhaps they felt they were losing too much tax money. It was too good a deal for high-income professionals to own a bunch of rental properties. You have other things. For example, the province of British Columbia has a brand new policy they're going to impose on all of the municipalities. And that is that a condominium association may not in British Columbia in the future have a limitation that nobody can rent. You know, a very common condo policy is to say that we don't want any renters in our building. And the law permits them to register that that's prohibited while the province of B.C. decided that they would bring that law into effect. It's not in effect yet. But, you know, for example, a condominium I live in had a age limitation of you had to be more than 45 years old to be the major owner of a unit. And they immediately wanted to call a general meeting for the Strata Corporation to vote to increase the age to 55 so that the new provincial law wouldn't apply. That still, you know, I hate renters attitude, you know, not in my backyard attitude that that governs a lot of municipal stuff. And you can say, is it or is it not reasonable for a Strata Corporation to say, you know, our building works really well with just homeowners and we don't want any renters or we don't want any people with children or we don't want this or we don't want that. And that's, you know, a free society in theory you get to do that. Well, that all adds constraints to the housing industry. You know, one item I might add is, is there are virtually nothing in our society that where the entrepreneurial skills are as great as with real estate developers. Real estate developers have so many constraints and impediments out there that it takes, you know, pretty phenomenal skill to tap dance around all of those things and make a living. So that, you know, if there's an opportunity that they will grab onto it and succeed, you've really got, you know, cities in the United States like Las Vegas is a more free enterprise city than most any other. But also, you know, it's pretty flat and there's nothing impeding the expansion of the city on every single direction. So, you know, the costs to develop there are less than almost anywhere else. Well, you know, you're tapping on a whole new factor here. And that is the environment for a developer. It's very hard for a developer here in Hawaii. And a lot of them do that tap dance and they wind up going belly up because it's, you know, surprises. Developers have to deal with surprises too. It's not just, you know, lots of variables around them. And sometimes the project doesn't work. It's belly up. And so, you know, I'm thinking and I have thought for a long time that if you want to encourage construction of new housing, you have to encourage developers. You have to make life better for developers. I also feel, unlike your opinion on this, I also feel that a lot of developers are, you know, they've been in the field a long time, their experience, they know the tap dance and all that. But we need younger developers with new ideas who are, you know, not so concerned about the tap dance, who just plunge ahead with it, you know, and build housing. I know it sounds simplistic, but the more developers, the more housing, or at least the more housing attempts anyway. And so, to me, that's another factor on your list of options, isn't it? Well, encouraging developers is not really the right, you know, way I would describe it. Let's go back to my example of how that change in interest rates affected the huge number of people that own housing that had renewable mortgages, or mortgages that had a fixed rate, but were to be removed in the near future, or somebody that had a variable rate mortgage, and so they're now sucking air because of a humongous increase in interest rates. Invisage a real estate developer, you know, who's gone through a whole bunch of efforts to get, you know, a rental building approved. You know, and as you say, it takes months and months in most cities to get something through. Well, if you started the idea of building a rental apartment building, and interest rates were two percent, you know, so you'd say, well, gee, I can rent this unit for a certain amount and that's competitive. Well, you've bought the land, you've paid for a whole bunch of stuff to go through all this red tape, and then suddenly the interest rates have changed, so the project's just not feasible anymore. You know, it has nothing to do with the competence of that developer. You know, it's, you know, unless you can say he was supposed to be a genius to know that COVID would show up and that during COVID, governments would pump so much money that they would cause inflation, and that interest rates would be artificially low to encourage, you know, the survival of the economy during the COVID period, and that when you come out of it, there was suddenly, you could realize that there was a ridiculous amount of all that money that was pumped in by governments went into the stock market and into real estate, you know, and, you know, suddenly your interest rate goes up and, you know, the developer's project's not feasible, and he may go belly up. Now, you used the phrase, we could perhaps use many new young developers. Well, I would guess most of the young developers right now are just next to being belly up, because, you know, they didn't have the experience to know that, you know, that you may have a project and you've got to sit on it for another five years or something, and do they have the whereabouts to do so or the flexibility to do so? Well, it's not an easy business, that's for sure. And, you know, there's a lot of developers who didn't make it at all ages, by the way. But I want to ask you one final question, because we're almost out of time, and that is, and that is this. You know, I mean, if we assume that there is a connection, at least some kind of supply-demand-orange connection, if you will, between the availability of affordable housing and the marginal homelessness that has to fall out of that, if you don't have enough housing that's affordable by the average working person, then, you know, they drop from the middle class and they drop into homelessness. So, it's a very big problem. It's a problem in both of our countries. It's a problem in Europe as well. And, you know, it seems to me that if you were prime minister or if I were president, and I sat down and made a list of priorities, this would be very high on the list. And it takes a nuanced view to create a system where we alleviate the lack of affordable housing across the country. So, my question to you, my final question to you is, if I made you prime minister, if I made myself president, first of all, don't you agree that it should be at a national level? Not at a municipal level, not at a provincial level. We've got to get going on this because it's eroding and, you know, it's undermining our society economically, socially, and for that matter, the economy in general, if we don't fix this. So, if I gave you the power, made you prime minister for a day, Ken, what would you do? What would you focus on from a national level to fix it? Well, if you imposed on every municipality in Canada, you'd have to start with the biggest cities that have the biggest rates of growth. You know, the demand Vancouver and Toronto are expanding so quickly that the problem of yesterday's not as big as it'll be tomorrow and the day after it'll be bigger still. Now, you can impose on those cities that, you know, in a certain big section of the city, they may not disallow a gospel mission by the Salvation Army, you know, where they provide beds for homeless at night, you know, so that that's half the way. That is, they're not at least sleeping on the street in the tent. They get to sleep in a, you know, dormitory type setting. You're going to force that, but you certainly couldn't get reelected. That's a problem. It's the political system is ultimately, it's detrimental to solving that particular problem. I totally agree. We only have a minute left here. A very similar one is a type of housing that is inexpensive, you know, mobile homes. You know, mobile homes are a phenomenal, high quality type of house, but it psychologically really comes up to be not in my neighborhood, nowhere near where I live, but don't want any of those mobile home parks, you know, and part of why, you know, some of the cities in the Southwest US like Phoenix and Las Vegas and Salt Lake City been so successful at reducing the amount of homelessness in their cities and so on is because they got a lot of mobile home parks in their suburban areas and elsewhere. Okay, we got it. We got to go, Ken, but let me just offer the thought that I think it should be federal. And I think we have to make up our minds and not worry about the political pushback. And of course, to modify that, we can, you know, try to socialize it and make people understand all over the country, yours and mine. This is a significant problem and it has to be addressed. And if that is draconian to some people, they have to understand and go along with the, you know, the solution. So far, we haven't solved it. So far, we haven't solved homelessness. Maybe we should have another discussion and soon and drill down and make it work. I'd like to make you prime minister for more than one day anyway. Ken Rogers, Dr. Ken Rogers, signed Canadian businessman who has a million ideas to share and we're coming back to him next time for more. Thank you, Ken. Bye. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.