Opinion – “Providing for your child’s future means making sacrifices and perhaps taking on risk and debts you would not have imagined yourself doing.”

rusty at VREAA 2 July 2011 at 2:15pm
“What’s your long range plan? Not owning means you have no assets to pass to your children. This is what it’s all about my friend; passing your wealth to your children. Yours will need to leave town and provide for their own future because you’re still pissing your money away on rent and toys. Providing for your child’s future means making sacrifices and perhaps taking on risk and debts you would not have imagined yourself doing. There’s no textbook or UBC course for this – just use common sense…if you’re not passing wealth to your children and others are for theirs, how much of a disadvantage will your kids be at? Take a look around you – those parents that are passing wealth off to their kids today are helping them buy Vancouver homes. And the parents that aren’t? Those kids are moving out of town, or renting or raising their kids in condos. You have the benefit of insight a generation before this happens to your kids.”

Whether you agree with rusty or not, you have to acknowledge that this way of thinking is part of what is driving buying in Vancouver. It is one facet of ‘buy-now-or-be-priced-out-forever’ thinking. Over the last ten years, those who don’t own have not been able to expand their net-worth as rapidly or as easily as their owning peers. It thus seems to many that the only road to wealth and security, for oneself and one’s family, is by owning real estate. It drives new buyers to overextend and overbid, to go into that much more debt than is prudent.
There are no safety brakes: the Governor of the Bank of Canada may occasionally make speeches imploring people to be prudent, but how many hear him, let alone listen? The majority only hear their extended family egging them on to buy, and their bank managers assuring them they are eligible for larger mortgages than they’d themselves imagined.
Built into this line of thought is the premise that prices will continue steadily upwards.
Almost needless to say, we find this line of argument fallacious. It is the kind of thinking that prevails when risk takers have been disproportionately rewarded for more than a decade. It prevails until it stops, and when it does stop, when prices plunge and the great Vancouver RE Debt Deleveraging begins, we’ll see who has actually provided for their future. -vreaa

63 responses to “Opinion – “Providing for your child’s future means making sacrifices and perhaps taking on risk and debts you would not have imagined yourself doing.”

  1. And what happens when instead of wealth, the parents will leave for their offspring *only* debt?

  2. Anyone could make money buying ENRON before the shit hit the fan and the police came knocking…. Or Nortel… or Bre-X… this housing bubble is no different.

  3. Rusty has a gift for engaging in linear extrapolation and dispensing conventional wisdom.

  4. Rusty,
    As a parent of 4 kids I can say that’s the ultimate hubris and selfish posturing.
    No one buys a house for their kids’ future Come on.. Buy them RESPs or spend more time with them if you want them to thrive.
    Take them to Disneyland or MOMA in New York.
    Even the HAM are buying for educational and cultural advantage. not for the underlying asset appreciation.

  5. The assumption is that the children will actually want to live (and own) in Vancouver

  6. My sister made this exact argument to me when I sold my condo in Surrey and moved into a rental townhouse in Burnaby. I was planning to have kids while she already had kids and a house in the Fraser Valley. She explained that I didn’t understand the importance of leaving real estate for my children. I didn’t find that argument compelling. I was moving specifically because I wanted to be a better parent. If housing prices continued to rise, I was never going to be able to move “up” out of a condo anyway, a decidedly unfriendly place to raise children. But more importantly, I was spending 2 hours a day in traffic commuting over the bridge AND my wife needed to work full time to feed the mortgage and strata fees. I decided that my children would be better served having me home for those two hours a day than they would be from this etherial real estate winfall when I die in 60 years. That’s without addressing the inconvenient logic that I pay less in rent now than the interest portion of my mortgage + strata fees + property taxes + levy to fix the roof I was paying in the other place. I am now able to put 10% of my paycheque plus all of my wife’s part time pay directly into savings. I think my kids will be ok because they will have a father they get to see and a mother that can afford to stay home with them full time. I still don’t have kids, but I’m pretty sure when they are adults they will approve of the choices I’ve made on their behalf.

  7. The average age that women are widowed in Canada is 56 (look it up).

    Rusty’s theory (like all of his theories) will work, right up until it doesn’t.

    “You must live beyond your means now so that your children will not have to live within their means later” – Rusty

  8. Is Rusty for real? Really? His comments are so broad in generalizations and so inflammatory that I can’t help wonder if they’re written to get a reaction more than being a reflection of what he thinks, i.e. “pissing your money away on rent and toys.”

    I have friends that stand to “inherit” real estate and it makes me sick to hear them talk about, “Why grandpa dies I get this and my parents house is worth this and their condo in Whistler is worth this.” Vultures full of entitlement is what you end up with, Rusty, who can’t wait for you to kick the bucket or move to a nursing home so they can use your equity to buy themselves the McMansion they so richly deserve.

  9. “What’s your long range plan? Not owning means you have no assets to pass to your children. This is what it’s all about my friend; passing your wealth to your children.

    Huh?

    a.) What kids are about is giving them the tools to survive in the world. Everything else is purely coincidental.
    b.) It is much easier for the kids to take an investment account and start over with that than some pieces of plaster and wood that require constant investment to not falling down.

    If most people think like Rusty, this will be a very rough awakening for many.

    • well the riots gave you an idea of the douchebag cross-section of the local populace..

      the housing bubble will give us an idea of the ________ cross section of the local populace.. (i’m allowing open interpretations of the blank word)

      • well the riots gave you an idea of the douchebag cross-section of the local populace..

        You know, for many people in the lower mainland the world ended on that fateful June 15th 2011 but quite frankly this was normal human behaviour, if you like to admit it or not.

        Those people aren’t any more douchy than their counter parts in Boston (who apparently flipped a bus over) or the ones in Montreal who enjoy setting cop cars on fire after a game.

        What it did show though is how little perspective exists in the lower mainland.

        the housing bubble will give us an idea of the ________ cross section of the local populace.. (i’m allowing open interpretations of the blank word)

        Well yes, in a way it did answer my question: How will people here react when things start going badly. The answer could the seen the following week when the (virtual) torches and pitchforks came out.

      • another apologist

        the kids, they were planning to riot

        what they did was reprehensible and not in the spirit of the tradition of good canadian civic order – it’s not like the league suspended the rocket in the finals again.

        just because greed and venality are normal human behaviors doesn’t mean we should excuse them.

        i have plenty of perspective on the lower mainland, that’s why the rioters pissed me off. why should they be allowed to behave like that? that’s some bullshit.

        and you’re just another global tv parrot – ‘virtual mob’ etc. we’re sitting on the couch in our basements at 3am. definitely not leaving the house. the last thing anyone wants is public citizens organizing themselves..

      • another apologist

        Where do you see me making apologies?

        the kids, they were planning to riot

        And I am sure you have the proof and handed it over to the police so they can prosecute those evil evil ring leaders that were hellbent on destroying paradise.

        what they did was reprehensible and not in the spirit of the tradition of good canadian civic order – it’s not like the league suspended the rocket in the finals again.

        Phew. “Good Canadian civic order”? Good one.

        just because greed and venality are normal human behaviors doesn’t mean we should excuse them.

        Again, I have no idea where you see me making excuses. But you proof once again that you, like most people in the lower mainland, have zero perspective. Well, not surprising really, all that navel gazing sort of limits your ability to see anything else.

        i have plenty of perspective on the lower mainland, that’s why the rioters pissed me off. why should they be allowed to behave like that? that’s some bullshit.

        Yeah, only that you need perspectives other than the lower mainland. And your little hoodlums were born and bred in the BEST PLACE ON EARTH™. So, welcome to Paradise, place of the million dollar crackshack.

        and you’re just another global tv parrot – ‘virtual mob’ etc. we’re sitting on the couch in our basements at 3am. definitely not leaving the house. the last thing anyone wants is public citizens organizing themselves..

        This makes no sense whatsoever. Can you try that again in English?

      • at this point, usually, a crowd of other schoolyard kids would gather around this pair and start chanting “fight!, fight!, fight!, fight!” In eager anticipation, full of hope that the teacher on schoolyard duty would not show up in time.

  10. Is this the evolution (or return, or deepening) of a class based society?

    • we’ve been on the road to neo-feudalism for a while now..

      i love watching new canadians bring their class system over here (in their heads) fun is had, and not at my expense.

  11. pricedoutfornow

    That’s old-style thinking. Sure, it worked to invest in real estate 30 years and hold on. But what about now? Prices have nowhere to go but down. And how is taking on massive amounts of debt good for my children’s future? Most likely I’d end up going bankrupt in the next ten years when rates normalize and I’d end up living with THEM. They would probably feel I’d wasted by life, trying to pay some enormous mortgage, meanwhile we couldn’t take them on vacations or afford to pay for piano lessons. What kind of life is that?
    The view looks good from the top…it won’t look so good from the bottom. Just ask all those people in the US who’ve lost their houses.

  12. Weird – so wealthy parents in Vancouver must purchase houses for their children? The kids can’t make it without inherited wealth?

    What is this, an aristocracy where primogeniture is the custom?

    When things are so unballanced a smart kid without family resources can’t go to University and earn enough money to pay for shelter — something is wrong.

    • Rusty is arguing for an “entitlement society” where only those with inherited land (not just wealth) get to play.

      • Just when you think we’d gotten past feudalism…

        But, seriously, in North America liquidity has been a better deal then inherited land since the 18th century. That’s why Americans did away with primogeniture and dower laws.

  13. granite countertop

    I guess I’ll leave this anecdote, since it’s apropos:
    A friend of mine, she’s an American, works in Richmond, was talking to the janitor at her workplace. He is ethnically Chinese but doesn’t have much accent, so he’s probably been here for decades.
    She mentioned that she had a teenaged daughter. He recommended that she get her daughter working as soon as possible doing “anything” so she can buy real estate as soon as possible since “that’s the only way she’s going to get rich.” My friend’s replied that the area was in a bubble, but the janitor assured her that an endless flow of Chinese money would keep the market going up. My friend had made a bit of money owning a house before moving to Canada, but then she’s watched her home country’s market tank, doesn’t have trouble imagining the local market tanking.
    Three things weren’t clear:
    What exactly was a teenager supposed to do to make enough to afford any sort of down payment? There’s one profession a teenage girl could make enough money in, but I’ll assume the janitor was just real estate crazed and not disgusting in other ways, and that he wasn’t suggesting she get into that.
    Why did he suggest the daughter get into real estate? When I asked her, she jokingly said “Oh, maybe he figures I’m too old, it’s too late for me.” I pointed out to my friend that he probably assumed she already owned.
    Are there teenagers being pushed by their parents into actually trying to do this?

  14. Note that to Rusty “wealth” is synonymous with real estate, as if there aren’t myriad other asset classes.
    Why not leave your kid some savings and stocks? The best thing you could leave them (in terms of wealth) is a prosperous small business.

  15. Hey Rusty the problem with your argument is that over the time span you are looking at there is no guarantee that things will work out as you intend to re the value or real estate.

    Here is a story for you. My father and his 7 siblings each inherited a good amount of land a in a very small country, and then political problems / civil war turned all that land into nothing that my dad has been able to benefit from for the past 25 years we own this land but get no benefits. So passing on real estate while helpful is no guarantee. My father had to start all over again in Canada in 1990 at the age of 44 arrived in Canada with less than $500 in his pocket as refugee in Canada.

    Google Cascadia subduction zone and read about it can generate magnitude 9+ earthquakes, the certainty with which you argue the value of real estate is not there.

    The biggest thing my father has taught me is how to solve problems and how to take care of family, how to learn things very quickly and get really good at what you do. I think those skills have served me extremely well, given where I started my life in Canada at the age of 14 and where I am today at age 33 I have done more than most of my friends who have family wealth that will be passed to them, If I continue at the same rate of progress over the next 15 years as I had in the past 15 years I am certain my business will be worth millions of dollars that is the game I am playing.

    Think of Bill Gates and Warren Buffet who both have said that they will not pass their wealth to their children, and good for them.

    So what do I want to leave to my children a great value system, a first class education, a great attitude, the ability to think critically, and the ability to lead in their personal lives an in their community to fully express who they are that for me is more important than real estate.

    Housing should be boring it should just be housing and not a speculative commodity, stable housing means that as a society we can focus on solving important problems for others as a way of getting ahead and gaining wealth.

    • The problem with passing real estate wealth on to children is that it usually doesn’t divide up evenly and may not be what the children actually want. Either you liquidate or figure out how to fairly compensate the other siblings.

      Concentrating on real estate as a nest egg for the younger generation is simply ignorance of other investment strategies, and that’s not meant as a derogatory comment.

      • Isn’t that why some European countries has a tradition of passing the family estate and nobility only to the eldest male while other sons are encouraged to go into military or priesthood??

      • Houses in Europe are not built of wood chips and glue, so there is a chance that a house will survive over generations. In Canada, even a house with no mortgage is a liability.

      • estates? nobility?

        lots of mini palace houses around, even little posh townhouses in rather un-posh locations for all the new lords of real estate

    • “Think of Bill Gates and Warren Buffet who both have said that they will not pass their wealth to their children, and good for them.”

      When I first read this, I wanted to believe it. You know its not true.

  16. Do not feed the trolls.

  17. There is a Chinese saying, wealth doesn’t last past 3 generations. Think about that Rusty, think why wealth doesn’t last past 3 generations.

    Also, what’s wrong with moving and living the good life elsewhere? Seriously, Vancouver is so freaking small relative to the whole planet Earth, are you saying that no where else on this planet is worthy of living in? That no where else is as good as Vancouver?? Seriously? How many people even picks Vancouver as their #1 destination for vacation/honeymoon?

  18. “It is one facet of ’buy-now-or-be-priced-out-forever’ thinking”.

    it isn’t just thinking, it’s reality. Where have you been the past 10 years Van Winkle?

    • “Van Winkle” was an American, so maybe he spent the past 10 years in the United States… a place where reality and wishful thinking diverged rather sharply.

      What supposedly can’t happen, already did. Somehow, you didn’t notice. So who is it that’s asleep?

      One definition of insanity is doing the exact same thing and expecting a different outcome.

  19. you don’t get out much do you? Most people buying detached homes are doing it because they have or are having children. And most would also tell you that the reason for buying was for stability for the child, financial included. You go ahead and take your kids to Disneyland and try to hold this up against folks who are using the equity in their homes to help their kids stay in this city. Best of luck to ya.

    • Now Rusty I know you get a hard time around these parts. Don’t take it personal like. I actually agree with you, up to that owning land in an area with population growth will have said land appreciate in value. From that point of view buying land as a vehicle for above-inflation appreciation seems like a no-brainer.

      The problem I have is that there is a disconnect between buying land regardless of valuation as a matter of investment principle, not looking at the longer term trends. But anyways that’s not going to be my main point.

      The point I revert back to is to sweep aside all the noisiness about detached listings and luxury this and that, and simplify. Look at a plain vanilla condo with most of its value tied up in the structure not the land. Here we can dissect the housing market for what it is. A condo cannot be rebuilt into anything else but a condo so the only value it brings is its revenue, mostly fulfilled through rents. From that point of view condos look a wee bit overvalued and I have a high level of certainty that a few condo owners are going to get scorched in the coming years.

      For detached, well, I don’t track it that much only because there is so much variability between properties. Me, I’ll look at what condos are doing and won’t be surprised in the slightest no matter where the detached chips fall concurrent.

  20. The one thing they can’t ever take away from you is your education.

    Land, not so much.

    With all of this land/home buying “priced out” fear, Vancouver must be sort of an odd place socially, right now.

    • IT IS VERY, VERY ANNOYING

      it has changed so much since we came here in 86.

      people talk about ‘unsophisticated’ investors, well i think we’re just overrun with unsophisticated people. whites included.

      • yeah – conspicous consumption people are really annoying. I loved Vancouver in the 1980s and early 1990s.

        Seattle had some of these problems with the grunge/ “cool city”/microsoft boom California imports in the 1990s. Too many day spas and day spa people. It sounds like that is happening to Vancouver, except on steroids.

      • we’ve always shared a culture with the U.S in many regards,

        but since NAFTA it’s been different – we are less aware of what actually constitutes being Canadian, besides geography and flag waving, very few young canadians (and a great deal of older ones) know as much about the history of their own country as they ought to, and it is this lack of knowledge that leads to the preponderance of American propa-errr media in Canada. it has fundamentally changed our values and now every young canadian male, instead of dreaming of being Bobby Orr or Wayne Gretzky dreams of breaking another man’s orbital bone in legal combat.

        the one thing that’s ‘different’ this time in vancouver is that we seem to identify as canadians without even paying lip service to any of the old canadian concepts of civility. ie: good civic order. i know vreaa has mentioned i bring up my grandfather often, but he used to always say, “if you can’t be anything else, at least be civil.” he was born in 1901, and lived his entire life in Manitoba, farming. obviously, the type of work that is below such a sophisticated investor, such as Rusty.

        my mother is fond of pointing out that canadians typically used to be slender people, now we are inundated with cheap, processed junk food.

        it goes on and on.

        don’t even get me started on the hipsters..

        this sums things up nicely.

        i am in no way blaming americans, but your corporate state has got to go. take back your democracy, please, because it’s taking ours away now, too.

      • “i am in no way blaming americans, but your corporate state has got to go. take back your democracy, please, because it’s taking ours away now, too.”

        I definitely appreciate civil Canadians. Things are much calmer here RE political discourse. Although it’s too bad that the debt/speculation cycle in Vancouver has probably changed BC politics & culture quite dramatically, and not for the better. Harper’s gov followed what happened in the states with interest rates & loose mortgages. Inflating the economy through real estate seems like a great idea. Until it isn’t.

        In terms of the USA – taking back the republic is going to take a while. Right now I’m concerned that our politicans are going to blow up the world economy by defaulting on the debt in August. Baby steps!

      • i know that there are more than a few very pro-greenback types here who really believe that it will be possible for the US to grow their way out of this funk. they’re cute..

        but i’ve read Gibbon – all the signs are these – this is the great decline, unfortunately. in regards to a US dollar resurgence and digging out of the $14Trillion dollar hole (which is only counting Federal debt, not municipal, state, corporate, let alone household, or the .. $70? $135? Trillion in derivatives flying around)

        i have this to say on the matter, there is a great Nixon quote, ca. 1973 when they came off the gold standard and became a debtor nation:

        “Of course, we could always not pay the debt back, but that would be the easy way out.” – i may be off slightly here but that’s the gist of it.

        i think that that america’s creditors have always known they were dealing with a ponzi scheme. it’s hard for me to continue mocking the tinfoil hat crowd when i see the IMF and World Bank stepping in to ‘help’ distressed countries with sovereign debt crises, while simultaneously saying ‘give us your geo-thermal plants’ or ‘give your water works to bechtel’ etc.

        weird shit is going on, and i’d like to see some protectionism return to the U.S., just to reassert it’s national will, it’s obvious it’s what’s necessary to bring back these jobs and factories – so sick of seeing the Randians get their way.

      • ‘all the signs are there‘ sorry – living off potatoes at the moment.

        societies on the rise are rigid and conformist
        societies on the decline are permissive and suffer from moral relativism

        by the 3rd century, the population of Rome was less than 15% actual descendants of Romans.

        mexico is, like it or not, recapturing the southwest. population, not nukes, is the ultimate weapon.

        it’s up to human beings to realize that we are all the same monkey, and that these are just lines on a map, and that we need a vigorous fourth estate and far more education in the humanities for young people.

  21. I know of several families that worked hard and scimped and saved to accumulated many properties in Vancouver. But all of the assets were purchased two generations ago. One of these families in particular had several apartment blocks in Kits as well as houses. Unfortunately, the grandparents who worked so hard for all of these assets assumed that leaving wealth to their children and grandchildren would garantee their success in life. The only thing this wealth managed to accomplish was to allow the following generations to live without worrying where the money would come from to support themselves. When they needed money they would sell a property…no need to earn money. They were left with enough assets that they should never have had to work. Three months ago, they sold the last piece of the inheritted property. Now, in thier late forties, the grandchildren will have to find a way to earn money. They never had to concider working so they didn’t. Their parents who are the original “kids” don’t have any means on which to “retire”.
    I have seen this happen to so many families. The people three generations ago, that lived through the hard times of the depression and learned to value a dollar have chosen to leave wealth to theor children as a means of ensuring the security of future generations. But wealth easily found is easily squandered. Be very carefull what you leave your children. The best thing you can ever give them is an education. Second only to an appreciation for the value of a hard earned dollar.

  22. A very Asian way of thinking for sure and not very practical in Vancouver unless you don’t have to work for a living. However, the conclusion is clear for most – time to leave with your family to build wealth (and enjoy life) elsewhere. Thank god, Vancouver is not the only place in the world.

  23. I’ve noticed Asians like to invest in real estate and coupled that with the Asian mentality of leaving wealth to the kids, it makes sense what Rusty has said. Is Rusty Asian?

  24. The problem with Vancouver is most neighborhhods are not middle class anymore. In the last 10-15 years, you have had to inherit wealth , property etc or have a top level job in order to afford a decent single family home. Home prices have gone up way too much compared to other cities, and salaries have not kept pace. Parents should invest in education (post secondary) as that has also risen dramatically. Students can no longer work for the summer to afford tuition like 10 years ago.

    • I’ll go even one step further, kids in vancouver should really aspire to leave to start their careers. As great as SFU and UBC are as world class universities (I am not being a jerk, I would hire an SFU or UBC engineer, no questions asked) vancouver kids have no future here. At least if they intend to make something of their lives, there are far better places to do that than vancouver. I came home only after the tech bubble burst and my consulting job in Paris evaporated and I am still bitter about that. I wasted years of my life working in vancouver when I should have left earlier.

  25. not sure why my user tag isn’t coming up, usually it’s pink not yellow.. but this IS me..

    http://www.bclocalnews.com/news/124723273.html

    anyone who still wants mercy for the rioters at this point is as deluded as a vancouver real estate agent. if we settle for nothing now, we’re settling for nothing later – grow balls, vancouver.

    • Well unfortunately I think we all know how the court system is going to go even if these people are caught. Even jail time and all the money spend on rehab doesn’t seem to help reduce the recividism rate. Personally I think 3 years in the NWT/Nauvaut without a lot of the modern luxury would probably be more effective.

      Though honestly I think the police definite shares a lot of blame in this incident as well.

      Hope she and her friend will recover soon.

      • i have a demented buddy trying to tell me that she’s making the story up and must have been rioting.

        i think he just hasn’t gotten laid in 35 years, and goes off the rails with misogyny.

        regardless, there is the internet hate machine, and that’s more terrifying to these shits than the law – it’s all they know. can’t wait to see some of them in the news for their FUTURE crimes.. won’t be long now until we have our very own prison industrial complex.

  26. midnite toker

    The thing is … for most under 30s like myself owning real estate around is simply NOT realistic if you have any sort of financial knowledge at all. I think I make pretty decent money for my age and education level, sure some people make more but they probably have student loans. Unless you’ve got a rich family its just not even on the radar.

    And yes I do have a kid. We put a decent amount in her RESP every year. No worries here!

  27. To suggest that parents should be working to acquire wealth in real estate to pass on to their children is really disconnected from reality and just irresponsible. As parents we all want the best for our kids – a good education, a happy home life (which doesn’t need to be an overmortgaged dump) and exposure to positive influences be it travel, a museum or a sports activity or two. However, to just hand everything over on a silver platter is teaching them nothing but encourages a sense of “I’m entitled”. If Rusty’s attitude (and he just can’t be for real) is how the general population raises their kids, then as a society is there any wonder why today’s kids take no responsibility for their actions, have no control over instant gratification and the general attitude of “Its all about MEEE”. Is there any wonder why these middle class kids from supposedly “good homes” were rioting in Vancouver? Noone, starting with their parents ever said no. Whatever happened to teaching your kids to be independent, work hard, save money and put a decent downpayment down on a decent house in a decent neighbourhood? Unfortunately in Vancouver that is pretty much impossible even on a high salary. If Rusty’s attitude is in fact the norm, and it is part of what is driving this speculative mania then it seems to me that anyone honest, hardworking and well educated is going to leave the city. And what does that leave? Sad, a city full of yahoos, losers and spoilt brats.

    • The home ownership rate in Canada is about 70%, yet only a few percent can be described as wealthy.
      Rusty is hallucinating.

      • i’ve told you, he dips into his supply of cheaply made chinese Ketamine

      • Exactly, you are only wealthy if you had equity in your property, did not pillage that equity, sold it and banked the money. People seem to think owning an overinflated asset such as a $1M dump with 5% equity makes them wealthy……bizarre and not very smart.

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