Ep. 45 - Vancouver is Descending

As I prepare to leave Vancouver for an indefinite amount of time, I have started to receive more and more questions. These questions are largely - why? "Why are you leaving the most beautiful city in the world?"

Up to this point, I’ve provided a very standard answer - ‘I want sunshine everyday, warm weather, and a lower-cost of living’. These are all true. However, there is also another aspect to this move that I don’t share often. It’s an uncomfortable fact that Vancouver [and Canada] are descending. What do I mean by ‘descending’ communities and nations? Basically, the ascending world has upside and the descending world has downside. On another note, wealthy regions whose leaders are poor capital allocators will become poor. For example, Trudeau & Biden are horrendous capital allocators - zero skin in the game, employees not founders, and charlatans. Thus, eventually [if not already] we will become poor. Case in point, the US national debt just reached $30T and inflation is the highest in four decades at 7.5% - is that good?

Whereas places like Latin America, India, and parts of Asia are ascending. There is excitement about the future and now that Silicon Valley can be reached globally, talented individuals can remain in these ascending communities and avoid the war zone of San Francisco and other descending cities [Vancouver].

In this article I'll articulate the current path Vancouver, and largely the West, is on and hopefully shed some light on part of the reason for our move. Hopefully this will ignite some curiosity and cause more people to vote with their feet.

The article will be broken down as follows and will be released in a few segments.

Economic - Cost of living, wages, entrepreneurship.
Social & cultural - Wokism, leftist mentalities, and ‘weak’ culture.
Political - Naive interventionism, political acrobates, and lack of leadership.
Ascending vs Descending.

Economic Indicators - Vancouver’s Fall

It’s no secret that Vancouver is expensive. But to put it in more academic terms, it’s really fucking expensive.

In order for someone to live in any major city they need three things: high income, food, and shelter. Albeit all three of these don’t seem to be needed for large portions of the Downtown Eastside [we'll get there].

But first, let’s look at income. The average wage in 2000 was $870/weekly, compared with $1,346/weekly in 2020.

This is a 54% increase in wages. Which, on the surface, looks outstanding. And this is what is typically fed to us via the mainstream media. However, if we look at real wages, which is where we divide the wage increase by the Consumer Price Index [CPI] inflation we end up with an average annual wage increases of 1.2%. Fairly insignificant given our economic 'boom' we’ve been bearing witness to for the last two decades. And if you received a raise less than 7.5% [current CPI Print] in 2021/2022 then you are actually losing money. To simplify, goods and services are increasing in price by 7.5% annually but you're still getting your 1.5% 'inflationary wage increase'.

But it gets much, much worse. As of writing this, the average cost of a detached home in greater Vancouver is $1.91m. In the year 2000, the average home cost $400k. This is a 378% increase. I don't do public math but those wage increases are not keeping pace with housing costs...

This graph shows the absurdity of the issue. As you can see, an economy that is truly a free-market economy would function as follows - disposable income correlating with housing prices. But the graph below shows a different story. There has been a major decoupling over the prior two decades. And this has been exacerbated even more during the pandemic when the Liberals became trigger happy with stimulus.

Let’s break this down further to determine what it would take for a self-made individual to buy a shithouse on Cambie Street:

Need 20% down on any home > $1m. So we’d need $382k for just the down payment on our $1.91m home. Factor in closing costs, lawyer fees, potentially GST, and we’re closer to $420,000.
Mortgaged amount: $1.528m
Interest rate: 3.00%
Amortization: 25 years
Monthly payment: $7,230
Income required to qualify for said mortgage: $290k annually

There is so much wrong with this picture. First, allocating over 100% of your portfolio to any asset is a terrible idea. However, most young people are in a situation where they have to liquidate all investments in order to afford just the down payment. Then, with leverage at play, their entire net worth is wrapped up in one single asset. And if you think Tech stocks, or Bitcoin is in a bubble, then you've seen nothing. Vancouver's Real Estate is a bubble of bubbles.

This turns an entire generation into fragalista's who cannot [and will not] withstand the next economic recession. As our government continues to kick the can down the road and avoid an economic collapse through continued quantitative easing, the potential shock continues to strengthen. An appropriate comparison is forest fires - you want small fires to burn on a consistent basis, which ultimately avoids a large, catastrophic fire in the future. To put it into economic terms, we want small, consistent recessions in order to avoid a catastrophic depression. However, our economy has not had any ‘small’ economic recessions since 2008 as we continue to print more money to avoid the situation. We've witnessed a secular bull market since 2009.

To put it in perspective, after the 2008 financial crisis the Federal Reserve in the US printed $800bn dollars and everyone lost their mind. Now, the Fed has printed $3.3T to combat the impact of COVID-19...

Real Estate vs GDP

One of my favourite indicators is real estate investment as a percentage of GDP. Here are a couple statistics below:

The value of Canada's homes is 3x the output of its economy... Let's say it another way: Canada's homes are valued at more than 300% of the country's gross domestic product [GDP]. Compare this against the US, which is at 170%. Plus, simple question, how is our real estate worth more than what we actually produce as a country? Laughable, and scary.
Further, residential real estate investment has surged to 10% of GDP in Canada.

If you look closely at this chart, the US percentage in 2008 before the collapse was 6.8%, and we're currently at 10.1%... Laughable, and scary.

We have created an unnecessary drag on our economy. As the rest of the world invests heavily into tech, we continually put all our money into real estate.

And lastly, if you aren't convinced it's an overpriced bubble yet then I'll leave you with one last note - there are 24,000 realtors in BC, and realtor commissions equated to 1% of Canada's GDP [$16bn] for basically zero value-add. This is just laughable.

What’s the result?

We’re starting to see the result poke it’s head out. More divisive politics, constant interventionism from the government [of which usually results in the opposite intended effect], and a frustrated millennial base.

You’ll still have those who have not worked for their wealth say “it’s not too bad!”. But it’s different utilizing that narrative when you received $1m for a down payment and still use your parents credit card. Plus, it's the East Coast institutionalism that desperately wants this to continue, and has the political clout to do so. Why would someone in West Vancouver, who also has homes in Tofino and Whistler want real estate prices to decrease? They don’t. The prevailing system favours them, and sets youth at an extreme disadvantage.

But there is one major issue with this, which will eventually catch-up to everyone - talent. Talent is needed in every community. You need talent to push technology forward, to improve waste management, to improve social infrastructure, and to have a city that people actually enjoy. And the reality is that many talented individuals are not from the east coast establishments. They are hardworking individuals looking to flip the script and/or scrappy immigrants. Therefore, this talent will just leave. Don't believe me? Look what's happening in San Francisco right now [click that link]. The city is witnessing a mass exodus and the government is painfully incompetent [it took 20 years to build a bathroom and then they had a ribbon cutting ceremony for it...]

As work continues to shift online, and crypto/DeFI/Web3 are allowing founders to build companies anywhere in the world, Silicon Valley is no longer the be all and end all, and young, talented individuals have ultimately left. The same will be true for Vancouver.

This leaves us with three options, of which were stolen from the brilliant, Balaji:

1) Communist Capital [CCP]: You must submit [China]

2) Woke Capital [NYT]: You must sympathize [Vancouver/Canada]

3) Crypto Capital [BTC]: You must be sovereign [Borderless]

Vancouver and Canada are currently teetering between #1 and #2.

BTC > NYT > CCP.

Next week I'll discuss the social and cultural implications of both Woke Capital and Communist Capital, and how these two create a perfect storm for a socialist economy, and therefore a dismantled economic engine and an absent entrepreneurial community.