Why can’t we build it some friends? April 10, 2023 Sign Up | Made in Canada IN THIS ISSUE Estimated read time: 7 min 🚜 Farm sales 🏠 Housing solutions 🤼‍♂️ Sleeper holds Snoop Dogg dropped a flying elbow on The Miz during a surprise appearance at WWE’s recent Wrestlemania 39. In a slightly less surprising move, Endeavor (which already owns the UFC), bought WWE last week. See more below. | WWE THE WEEK IN MARKETS Stuck in Neutral If it feels like we’ve been in “wait and see” mode for a long time now, it’s only because it’s true. While there have been some wild swings (the summer rally; the banking freak-out), the markets are still trading at the same levels as they were nine months ago. Last week felt like more waiting. The S&P and TSX both rose about 1% through Thursday; there was no trading Friday. As Bloomberg’s Jonathan Levin wrote in what may be the week’s sharpest analysis (fair warning: paywall) of what’s going on, “The market is going nowhere fast.” All the waiting and seeing seems to have galvanized prognosticators into two polarized camps: the perma-bulls (everything’s going to be great), as Levin calls them, and the doomsayers (we’re in for a major recession). At some point, one of those camps will win since, historically, markets don’t go sideways forever. A few more data points will come out soon — U.S. inflation numbers on Wednesday and a Bank of Canada rate decision later that day, and the start of earnings season soon after. Will it break the stalemate? We’ll … have to wait and see. SMART CHART The solution to Canada’s housing crisis is easy: just build more. But there are a lot of things standing in the way of doing that. For more, check out The Big Important Story below. WHAT HAPPENED LAST WEEK IMPORTANT Canada’s inflation fight has a new foe: OPEC. After settling into a one-year low, oil prices surged about 10% last week following the cartel’s surprise decision to cut daily output by 1.15 million barrels — and even more if prices don’t rise meaningfully. While this is a boost for anybody whose job involves the words “oil sands,” it’s bad news for the rest of us. Along with a price spike at the pump, the big concern is an even-worse new wave of inflation. It’s eerily similar to the ’70s, which … ended pretty badly. TD Bank is in short sellers’ crosshairs. Investors are betting US$3.7 billion that TD Bank’s stock is headed south. Why? There’s $12 billion in unrealized losses on its bonds, a big stake in a reeling Charles Schwab, massive exposure to a teetering Canadian housing market, and a terribly-timed deal to buy a U.S. regional bank. Is TD headed for a Silicon Valley Bank-style implosion? Unlikely: it’s a highly diversified bank under tight Canadian regulations. But for a banking sector that just wants the world to move on, it’s not great news. Jamie Dimon, optimist. In annual letter to investors, JPMorgan Chase CEO Jamie Dimon — upon whom the Patagonia-vested crowd bestows a reverence typically reserved for Beyoncé — was surprisingly upbeat. Despite “some storm clouds” over the economy, he sees “huge positives ahead.” Contrast that with VC Chamath Palihapitiya, who sent his own investor letter last week and filled it with words like “alarming” and “crisis,” and a very with-it reference to how 2022’s headwinds “hit different.” Why the difference? Dimon has a fortress of a balance sheet, enough experience to find ways to take advantage of turmoil, and a track record that makes it somewhat reasonable to think the future may not be so bad after all. INTERESTING The hottest investment vehicle of the moment is … farmland? Along with hedge funds and pensions, investors like Alberta’s Robert Andjelic have been snapping up Canadian prairie land like they just re-read The Grapes of Wrath and got inspired by the bad guys.It’s part of a continued trend of institutional investors shifting away from traditional assets because, while it might make it tough for some farmers (the influx of money puts the price of land even more out of reach), farmland is a relatively reliable asset in high-inflation and high-interest environments. If your interests are piqued, unfortunately there’s no real equivalent for regular investors. Yet. Endeavor has a chokehold on combat sports. After acquiring the WWE last Monday, Hollywood power broker Ari Emmanuel’s carnivorous entertainment firm Endeavor — which bought the UFC, the industry leader in blood-thirsty fighting, in 2016 — now also owns the industry leader in blood-thirsty pretend fighting. With a combined valuation of US$21.4 billion, Endeavor has access to a billion viewers worldwide. It makes sense, too: bloodsport is as reliably profitable as Canadian farmland. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🍁 Canadian investment industry regulatory organization will vote to call itself The Canadian Investment Regulatory Organization. Fingers crossed! Source 🚨 30 serving 30: former ingenue Charlie Javice charged with fraud for inflating her company’s customer base in JPMorgan acquisition. Source 🚀 Cue up Rush’s Countdown! NASA’s Artemis II crew will feature the first-ever Canadian to circle the moon. Source 🤖 Australian mayor says he’ll sue OpenAI over what ChatGPT’s been saying about him, but ChatGPT says it doesn’t speak Australian. Source CRASH & BURN TO THE MOON 💰 Consultants hired by Loblaw’s determined that CEO Galen Weston needs a big raise for hiring such good consultants. Source 👑 Check your spam folder: Charles and Camilla’s coronation invites went out. Source 🐺 Scientists find Canada’s first dire wolf fossil, so the dragons can’t be far behind. Source ☕ Waterloo prof develops system to beat Timmies’ Roll Up to Win. Working on system to beat 20-pack of Timbits. Source WHO CARES WHAT’S UP THIS WEEK The Bank of Canada meets (Wednesday). No pressure, Tiff, but we all kinda liked the pause. U.S. Inflation numbers for March come in (Wednesday). 🤞🤞 SHARE TLDR WITH YOUR FRIENDS 🤝 Put this link in your group chats, your Slack threads, tattoo it on your back — whatever works for you! THE BIG IMPORTANT STORY YIMBY Why Don’t We Just Build More Homes? If you’ve heard that Canadian housing is the most unaffordable it’s ever been, well, you heard right. Homeowners spend at least two-thirds of their income on mortgage payments and taxes, and those costs get passed on to renters. The vacancy rate, at 1.9%, is the lowest it’s been in two decades, and new renters now pay on average 18% more than the tenant who came before them. The big problem: way too little supply. Over the past five years, Canada has welcomed 2.8 million new residents (Hi! 👋) but built only 881,000 new housing units. So, you might wonder, why doesn’t Canada just build more houses? We posed that question to two housing experts: Thomas Davidoff, director of UBC’s Urban Economics and Real Estate Centre, and David Amborski, an urban-planning professor at TMU. They explained what’s behind Canada’s housing nightmare, and how it might be fixed. THE PROBLEM: Skilled labour You need tradespeople to build houses, and ours are getting old. Some 700,000 skilled workers are expected to retire over the next five years, and the country will need an estimated 256,000 new apprentices to meet construction demands, to say nothing of electrical, plumbing, etc. And the labour shortage could get worse, since young folks aren’t as interested in these jobs as they used to be. The pandemic didn’t help: in 2020, apprenticeship registrations dropped 43%, as workers were laid off, focused on caregiving, or went back to school. The Fix: More workers Earlier this year, Canada took a big step to address the worker shortage by fast-tracking the immigration process for skilled labourers. Beyond that, Davidoff says someone should study why teens are avoiding the trades, which pay well and require little formal education. “You’d think a lot of people would want to do that [job]!” he says. THE PROBLEM: Materials and fees Lumber prices spiked 487% during the pandemic, which drove up construction costs. And, though lumber has fallen to pre-pandemic prices, other material costs remain high, which discourages new-home construction. Adding to the problem: government permit fees have risen as much as 878% in parts of the GTA since 2004 (the trend is similar in other metros). The Fix: Slash building fees There’s little anyone can do to bring down material costs. But cities with extreme housing shortages could cut fees, or get back in the building game. In the '70s and '80s, the federal government paid for the construction of affordable non-profit or co-op housing projects, but it has shifted away from such policies in favour of making mortgages more affordable. Which, to be honest, doesn’t seem to be working great. Amborski says that, if the government wants to stick with its current housing policies, it could at least build infrastructure, like mass transit, to support higher-density development in more remote (i.e., cheaper) locations. THE PROBLEM: Zoning Canada is the second-largest country by land area. The trouble is that a lot of our country is too cold or too remote or too surrounded by bears for most people’s liking. Perhaps the biggest issue: in the places where people actually want to live — aka, cities with jobs and axe-throwing bars — zoning regulations often forbid building anything other than single-family homes, which means demand-dropping high-density housing doesn’t get built. The fix: Taller, denser housing The U.S. is kicking our you-know-what at this one. Oregon eliminated single-family-only zoning altogether. In California, if cities don’t plan to build more affordable homes, the state lets developers build apartments anyway. Davidoff says Canadian towns should follow suit and relax “silly requirements,” like prioritizing detached homes — which he calls “unspeakably stupid, regressive, and wasteful.” Nixing such policies would allow developers to build up instead of out. If the NIMBY crowd wants more space, there’s plenty with the bears. —Sarah Rieger OTHER VERY GOOD READS 🎶 “Blurred Lines,” Harbinger of Doom How the megahit predicted everything bad in the 2010s | Pitchfork 🏠 What is an FHSA and How Does it Work? Our guide to the First Home Savings Account | Wealthsimple 🍋 Lululemon Tried to Become a Tech Company It didn’t work out | The Walrus THE WISDOM OF TWITTER We’d better change our name to “How Does Money Work Newsletter.” THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Brennan Doherty (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. 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