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No matter the politics, Trump’s wall could provide jobs, stimulus if recession strikes: Don Pittis

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If a U.S. recession is around the corner, the construction of President’s Donald Trump’s wall on the Mexican border could be an economic godsend.

Last week, the world’s most powerful central banker, U.S. Fed Chair Jerome Powell, assured us that economic growth would continue in 2019. Bank of Canada governor Stephen Poloz has been similarly optimistic.

But the forecasts after that are more cloudy.

The International Monetary Fund has already warned that the world is unprepared for the next slowdown, and the Organization for Economic Co-operation and Development (OECD) has recommended countries dust off plans for fiscal spending when recession hits.

Self-inflicted illness?

It may be that for Trump, if such a slowdown comes, it will be an example of economic Munchausen syndrome — a self-inflicted condition caused by his “easy to win” trade war with China and others.

But whatever the cause, fighting recession with big infrastructure spending projects has a long tradition around the world. 

The creation of the Promenade des Anglais, in the French Mediterranean city of Nice in the 1800s, was an early example, when wealthy English residents contributed to build a shoreline walkway to provide jobs for the unemployed and to get beggars off the street.

In the Dirty ’30s, governments organized similar make-work projects, including the deepening of Regina’s Wascana Lake, using shovels, wheelbarrows and more than 2,000 labourers.

An early plan by English architect Thomas Mawson for a giant park in the centre of Regina at Wascana Lake. In the 1930s, the lake was deepened and reshaped using shovels as a make-work project. (Saskatchewan Council for Archives and Archivists)

More recent projects have been much bigger. Before the handover of Hong Kong to China in 1997, the Hong Kong government launched a multibillion-dollar infrastructure project to build a new airport, port and road connections, to boost the economy despite uncertainty during the transfer of power.

And according to Canadian research, such spending really works. In the construction phase alone, infrastructure projects multiply the value of the taxpayer money — ​or government borrowing — that’s spent.

“Spent money on infrastructure generates, in addition to economic benefits like short-term employment and things of that kind in construction, … positive net flow to the government,” said Michael Fenn, a visiting fellow at Western University’s Ivey School of Business and former head of Ontario transport agency Metrolinx, who has been described as an “infrastructure guru.”

“The fiscal dividend for infrastructure is something like $1.60 for every dollar spent,” said Fenn.

That doesn’t include such advantages as preventing the dispersion of workers or keeping their skills fresh during a recession. And it doesn’t include the future stream of benefits to society from the project after it’s completed.

Fiscal dividend of the wall

Even at $1.60 to $1, it’s still not clear how much stimulus constructing a wall would add to the U.S. economy — partly because the amount to be spent remains confusingly disputed.

Trump’s request of $5.7 billion means it wouldn’t make much of a difference to the gigantic U.S. economy during a recession. But then neither would it make much of a wall.

Research by the Brookings Institute puts the figure as high as $70 billion, which really would create plenty of make-work jobs.

Hong Kong’s Tsing Ma suspension bridge is shown under construction before the 1997 handover of the Crown colony to China. It’s an example of stimulus with a large, long-term return. (Reuters)

There are at least two problems with the wall as a make-work project. One is that if the project really did start soon, before recession hit, there might not be enough workers to build it. (The irony of importing labourers from South and Central America to do the job would be too much.)

With U.S. unemployment at the lowest it has been in nearly 50 years, building a wall now could very well drive up inflation, giving the Fed one more reason to raise interest rates.

The other issue to be considered is long-term value creation, which studies consistently show can be the biggest payback for infrastructure spending. On well-chosen projects, it dwarfs the immediate $1.60 to $1 ratio of the original stimulus.

Money well-spent?

Sometimes the stimulus itself is well worth the money spent. The long-term benefit — as in the esthetic advantage of the Promenade des Anglais or Wascana Lake — may be hard to measure. 

Jackie Schmidt, president of Heritage Regina, says the beautification of the enormous artificial lake in that Prairie city was worth the money. “I think the product was worth it, no matter how you paid for it.”

But it’s not clear if anyone would spend the money the same way now.

The economic payback of Hong Kong’s giant construction project was easier to measure, maintaining the former British colony’s place as a transport hub, even while mainland infrastructure grew up in competition.

The long term value of a wall?

Trump’s belief that it would be a barrier to drugs or terrorism has been widely discredited. There might be a certain economic advantage in making Trump supporters feel more secure — though that is hard to measure.

And should the existence of a wall prove to be a deterrent to would-be border crossers, the humanitarian benefit of reducing the number people who die in the desert would certainly have value.

Building a wall along the U.S.-Mexico border would create jobs, but it might not add as much value as other would-be infrastructure projects. (Kevin Lamarque/Reuters)

But even in a recession, the value of a make-work project must be assessed in many ways.

“The first question you would ask is, ‘Is this the best way to address the issue?'” said Fenn. The second critical question, he says, is among all possible projects, does this one provide best value for money?

“In Canada, a project like the wall would compete with a whole lot of other things in health care, education, transportation and telecommunications to see where the money was best spent.”

Andy Manahan, executive director of the Residential and Civil Construction Alliance of Ontario, says his members profit from construction spending — whether it is wise or not.

For the best projects, the value of doing such things as removing transportation bottlenecks or preventing costly flooding can be easily shown to pay their costs back many times over in increased business activity or reduced future expenses.

“On the other side of the coin, if you do short-term political thinking,” he said, “then you may be spending on projects that have a negative return, which you don’t want.” 

Based on his long experience in the industry, Manahan said he suspects that Trump’s wall is of the second variety.

“My personal opinion is that it’s a waste of money and time.”


Follow Don on Twitter @don_pittis

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7 Tips For First-Time Home Buyers In Calgary

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Buying a house for the first time can be overwhelming to say the least. If you’re wondering what neighbourhood to go with, what you can afford, or even how to just get started on the process, let us take some stress off your hands! We’ve teamed up with Hopewell Residential to give you 7 tips to ensure the home you end up with is everything you dreamed of.

Hopewell Residential is a five-time Developer of the Year award winner, so their expertise is second-to-none in Calgary and beyond. Who better to learn home-buying tips from than the homebuilders themselves?

Create a checklist of needs & wants

This is a biggie. When you’re buying your very first home, you’ll want to weigh your needs vs. your wants. Ensuring you have what you love in your first home is a big, big deal.

What should you do? Easy. Set up a list of needs and a list of wants, but be pretty strict with yourself, and make sure you take your lifestyle into consideration. With the increase in remote work over the past year, it’s important to keep in mind that a home office or flex room might just be the key to maximizing at home happiness. Especially if you’re thinking you might be expanding your family later on, spare rooms and extra space is key (but more on that later!).

Or for instance, you might need a home in an area with a high walkability score, but you want to be close to certain amenities. Set yourself up with the right level of compromise and the number of homes that actually fit your ‘perfect’ idea will skyrocket.

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‘Don’t give up’: Ottawa Valley realtors share statistics, tips for homebuyers in ‘extreme’ sellers market

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The real estate market in the Ottawa Valley can be summed up this way: people from far and wide are in a buying frenzy, but there’s hardly anything to buy at the “store,” and the limited inventory is overpriced.

This “stampede” — as one realtor described it — will affect rural towns as residents grapple with finding affordable housing and agonize over their inability to purchase homes in their price range.

“We are seeing a lack of inventory in all price ranges,” said Laura Keller, a real estate agent from Carleton Place.

Helen Vincent, a Renfrew realtor, said she’s never seen a market like this in her 36 years of practice. “We postpone offers for four to five days in order to get all the buyers,” she said.

Multiple offers — between seven and 10 — became the norm, with cash offers and no conditions, as buyers faced bidding wars. “In Ottawa, they have up to 50 (offers),” she added.

“It’s very stressful. You’re going to get nine (people) ticked off, and one happy. So many people are disappointed,” Vincent said.

Terry Stavenow, an Arnprior realtor for 40 years, said that “the pent-up need took over with inventory going low. It made a stampede on everything that was available.“

“Brand new housing — it’s very much gone. Several building developers are rushing to get inventory. They usually don’t do construction in the winter months,” said Stavenow.

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10 Tips For First-Time Home Buyers

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Buying a home for the first time is exciting and a commitment to the future. It’s often challenging, too, and the process requires a lot of steps, many of which can be tricky to navigate as a first-time home buyer.

What are some things you should keep in mind as a first-time home buyer?

First-Time Home Buyer Tips

Here are 10 tips to keep in mind as you begin your journey toward homeownership.

1. Have Your Finances in Order

It’s wise to begin saving as early as possible once you’ve made the decision to purchase a house. You’ll need to consider the down payment, closing costs (which often range from 2% to 5% of the down payment), as well as move-in expenses.

You also need to understand the other costs of homeownership, such as mortgage insurance. property taxes, utilities, homeowner’s insurance, and more.

2. How Much Can You Afford?

Knowing how much you can realistically afford in a home is another important financial consideration. Look for the home of your dreams that fits your budget.

One way to avoid future financial stress is to set a price range for your home that fits your budget, and then staying within that range. Going through the preapproval process will help you understand what price range is realistic for your budget.

3. Make Sure Your Credit is Good

Another thing to keep in mind as a first-time home buyer is your credit score because it determines whether you qualify for a mortgage and affects the interest rate that lenders offer. 

You can check your credit score from the three credit bureaus – Experian, Equifax, and TransUnion.

This is another good reason for getting preapproved before you start your search. Learn more about the preapproval process and your credit score.

4. Choose The Right Real Estate Agent

A good real estate agent guides you through the process every step of the way. He or she will help you find a home that fits your needs, help you through the financial processes, and help ease any first-time buyer anxiety you may have.

Interview several agents and request references.

5. Research Mortgage Options

A variety of mortgages are available, including conventional mortgages – which are guaranteed by the government – FHA loans, USDA loans, and VA loans (for veterans).

You’ll also have options regarding the mortgage term. A 30-year fixed-rate mortgage is popular among many homebuyers and has an interest rate that doesn’t change over the course of the loan. A 15-year loan usually has a lower interest rate but monthly payments are larger.

6. Talk to Multiple Lenders

It’s worth your time to talk to several lenders and banks before you accept a mortgage offer. The more you shop around, the better deal you’re liable to get – and it may save you thousands of dollars.

7. Get Preapproved First

Getting a mortgage preapproval (in the form of a letter) before you begin hunting for homes is something else to put on your checklist. A lender’s preapproval letter states exactly how much loan money you can get.

Learn more about the preapproval process and how preapproval provides you with a significant competitive advantage in our article How Preapproval Gives You Home Buying Power.

8. Pick the Right House and Neighborhood

Make sure to weigh the pros and cons of the different types of homes based on your budget, lifestyle, etc. Would a condominium or townhome fit your needs better than a house? What type of neighborhood appeals to you?

9. List Your Needs and Must-Haves

The home you purchase should have as many of the features you prefer as possible. List your needs in order of priority; some things may be non-negotiable to you personally.

10. Hire an Inspector

Hiring an inspector is another crucial step in the home buying process. An inspector will tell you about existing or potential problems with the home, and also what’s in good order. You can learn more about home inspections and how to find a home inspector through the American Society of Home Inspectors website.

Buying a home for the first time is a challenge, but it’s one you can handle with the right planning and preparation.

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