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From our Neighbour to the East - Alberta
The results in the Alberta provincial election on Tuesday of this week were not a surprise, but they were ‘over the top’, or in Rachel Notley's comment, Over the Moon! It seemed as something of a surprise, and it seemed it had all happened in the last few weeks of the campaign, but it had begun to bubble long before that. Definitely, it came to a rolling boil with the scandal surrounding Alison Redford and her taxpayer funded trip to South Africa to attend the funeral of Nelson Mandela followed by the surprise that she was having an elaborate penthouse suite designed and constructed for her personal use at taxpayers’ expense. The arrogance and excuses that surrounded these disclosures was more than hard-working Albertans would tolerate. Enough was enough, but what she had done was too much. When voters heard Rachel Notley offer what seemed to be some reasonable-sounding options, the PCs were ‘Done’! When the dust settles, Albertans may not yet be pleased with their choice.
What does Alberta politics have to do with British Columbia?
There are some glaring similarities. British Columbia has a long history of scandals streaming effortlessly through its politics. Big or small, the wrong-doing is often rationalized and always forgiven when disguised as a mistake instead of a grievous error in judgement. Albertans had a similar experience when they gave the PCs a majority with Alison Redford as premier. All was forgiven in the moment as the fear of change threatened their way of life. British Columbians are quick to forgive as long as the promise of future benefits are able to divert the mind. The problem in BC was that people still remembered that the NDP were not without mud on their hands. For Alberta, the NDP is new. They have never formed government before. There were other parties in BC which were gathering interest, but the scandals were not big enough to move the voters.
The cautionary tale is that in spite of all the reasonable sounding promises made by Rachel Notley, the changes she and her government promised made may not have the desired effect. There are uncertainties and questions to answer specifically on natural resources and socioeconomics promises such as:
- Rachel Notley and her new government do not know what they will find when the audit of the government books is complete.
- Big oil and gas are expressing reluctance at the NDP’s plan to renegotiate natural resource royalties.
- What are the ramifications of more upgrading at source? Who will be required to build the upgrading facilities? Who will purchase the product?
- The increase in the corporate tax will quietly be added to goods and services and passed on to the public.
- The promise of a sharp increase in the minimum wage will harm some small businesses while at the same time raise the expectations of the workers who will find that cost of living will increase as a result.
Albertans bought the promises. They envision a Norwegian trust fund, higher minimum wages, more high-paying jobs in the resource sector, and “ … thousands of new jobs and generating hundreds of millions of dollars in new taxes.”
All the election promises and great political victories obscure realities and clarity of vision for the future. In the Alberta campaign, there was no mention of the debt, and how the NDP planned to manage the fiscal reality, which whether admitted or not, is the single most important and influencing factor in any plan to manage a province.
British Columbia is two years (from tomorrow, May 9) away from a provincial election. What will you really know about the state of the province’s affairs, or will you chase another dream? What questions will you ask? What will you believe? What will entice you to vote?
Who are the stakeholders in the big picture?
Let's face it, we are not building homes for families; we are building homes for everyone but families! Construction provides jobs for workers. Every step in the process of bringing construction materials to the builders generates employment, provides taxes for government, and profits for business owners. Realtors get a piece of the pie, too, When viewed from this perspective, more construction is good for the economy - until we have a recession!
All this 'good for the economy' building creates a glut of housing on the market because the product exceeds the ability of the market - local residents - to purchase the production. As soon as the market begins to slow, prices cease to increase (which is ofter referred to growth, but which is really the devaluing of currency) and the economy is affected. There is less construction, thus fewer jobs in a basic industry, less purchasing power, fewer sales, more layoffs, etc. Is the solution to this problem really more construction?
What keeps the price of properties relatively stable?
In spite of repeated recesssions arising from a glut on the market, the price of house does not suffer the full impact of over production. Virtually all real estate is protected from drastic drops by finance. Developers and builders require the support of the financial community to fund projects, whether they are huge complexes and condos or single family housing. Rarely is a home built on a cash basis. It even sounds ridiculous to suggest such a thing should be considered. "Use other people's money!" Financing is an insurance policy to protect the value of property from falling below the debt held against it.
What drives up the price of real estate?
Regardless of what is happening in the economy, real estate prices increase across time. People of influence can create a demand for housing in all kinds of ways including speculation of some new opportunity, immigration, reduction of services in small communities which drives people to the city, and the list goes on. Real estate fees, sales taxes, and legal fees all contribute to the cost of real estate but not to its value. These costs are notoriously detrimental because they reoccur every time a property is sold, and every time these costs are added to the mortgage which means years of interest is added to the total cost of the property.
Financing is more pernicious than most people are aware. Aside from the fact that interest rates on a mortgage can and do change regularly, financial institutions are permitted to charge fees for giving the mortgage in the first place. Also, financial institutions charge interest even when the initial mortgage no longer exists. They deem to have the right to collect all the interest they would have received even if a mortgage is paid in full by another institution. A borrower must pay a penalty for paying higher payments on anniversary dates to ensure the lending financial institution gets 'all' its profit.
Financial institutions do not risk anything when giving a purchaser a mortgage on a property. They do not give their own money (from profits), they do not use money that people have deposited with them (it's against the law). Financial institutions create the money for the mortgage out of nothing by having the purchaser sign an agreement to make payments on a regular bases until the total of the mortgage and its compounding interest is paid in full and an offer to turn over to the institution their property if they default on payments. Financial institutions repeat the process every time a property is sold and the purchaser finances the purchase.
It is the function of 'financing' property that causes the price of properties to increase exponentially. Each property sells at the highest price the market can bear. The market will bear an over-valued property when the purchaser is willing to take on the escalated debt. But the market will only bear a near-value price if financial institutions cannot inflate their own profits through over-financing the property. If financial institutions were controlled by governments, as they should be, they would be limited to lending only the amount of the original price plus the cost of improvements.
The benefit to the purchaser would be that the price of the property would be tied to its true value. Older properties would be affordable based upon their original price. Young families could start with an older home with reasonable down payments and low monthly payments. Live like the dream promises: Live within your means, save for a rainy day or the future, and if finances allow, move to a bigger, newer, more modern home when it is reasonable to do so and based upon the personal resources available.
Privately owned homes are better for families, particularly for the children. People will not be constantly uprooted as they move from one rental unit to another. Families are better for the community. They care about what happens to their neighbourhoods.
Liz Galenzoski, Financial Agent for BC Refederation Party.
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Authorized by the BC Refederation Party
Liz Galenzoski / Financial Agent