Allowances - Post Living Differential (PLD) [MERGED]

[armyvern]

I once heard somewhere that renting is the better financial option IF, at the end you are saving the difference and interest etc etc that you would have as opposed to buying.  But most people live in the moment.

This is me currently. So, I pay my rent instead of paying interest to the bank. I put the difference between my rent and a mortgage into an account. Eventually, I'll just buy the house - cash. And, it won't be taking 20 or 25 years either.

(Edited to add: I already own a house in Oromocto; not where I am posted to nor where I live)

 

[jollyjacktar]

To be clear, PSAC gave it up.  They're the largest - 95,000 of its 172,000 members were affected by the severance pay deal.  There are actually 17 other federal public service unions.

IIRC they were given something in line of pay level increases in exchange for the surrender.  The apprentices in FMF came out a little better somewhat.  My memory is a little fuzzy as I honestly did not pay too close attention to it as it was a public service matter and did not apply to me.

 

[Pusser]

I once heard somewhere that renting is the better financial option IF, at the end you are saving the difference and interest etc etc that you would have as opposed to buying. 

This CAN be true, but it mostly depends on the personal discipline of the individual to actually save the money.  It is often very difficult to avoid toy accumulation vice saving for a future home.  Years ago in Halifax, the biggest request coming out the PMQ complexes was not for more bedrooms, but for more parking spaces (for 2nd car, RV, boat, ATV, etc).  Another thing to consider is how much of a difference there actually is to be saved between rent and a mortgage.  Can you rent a three bedroom house for sufficiently less than a mortgage for buying one?  In my experience, the answer is no.  Before we had kids, my wife and I bought an older two bedroom house.  Over time, as the family has grown, we've bought successively larger houses - building equity the whole way

 

[ballz]

By the time I sold, 7 years later, not only was the asset worth mroe than equivalent savings would have been worth, but property values had doubled - so I was far, far ahead by ownign vs renting.

Too many people forget that a home is an asset as well as a residence - including some financial planners.

And thus we have the Canadian housing bubble, where people are purchasing houses not based on their value as an asset but adding in their "future value" to the purchase price (sounds like a share-price formula right?). When you start selling/buying houses like they're on the stock market, the real estate market eventually becomes volatile like stock market. Enjoy the bubble before it bursts everyone.

One of the things that doesn't get enough credit for causing the Great Recession is the people that didn't lose their homes. No, instead, they lost $200,000 and more of their equity, so they had to abruptly stop spending  and starting saving as much as they could since they were about to retire.

A house is an asset which historically didn't decline in value, largely because people bought a home, paid it off, retired, and maybe downsized as they got older. Now that people have started treating it like an investment, the real estate market is going to do the same thing.

 

[dapaterson]

And thus we have the Canadian housing bubble, where people are purchasing houses not based on their value as an asset but adding in their "future value" to the purchase price (sounds like a share-price formula right?). When you start selling/buying houses like they're on the stock market, the real estate market eventually becomes volatile like stock market. Enjoy the bubble before it bursts everyone.

One of the things that doesn't get enough credit for causing the Great Recession is the people that didn't lose their homes. No, instead, they lost $200,000 and more of their equity, so they had to abruptly stop spending  and starting saving as much as they could since they were about to retire.

A house is an asset which historically didn't decline in value, largely because people bought a home, paid it off, retired, and maybe downsized as they got older. Now that people have started treating it like an investment, the real estate market is going to do the same thing.

To be fair, through dumb luck I managed to buy in near the bottom of the market in Ottawa at the time (when 1 Bdr condos were selling for under $40K).  But I bought it first and foremost as a place to live; equity was a side effect.

 

[ballz]

To be fair, through dumb luck I managed to buy in near the bottom of the market in Ottawa at the time (when 1 Bdr condos were selling for under $40K).  But I bought it first and foremost as a place to live; equity was a side effect.

Yes, and that's fine, my family was pretty fortunate to have bought a 20' wide trailer upon arriving to Fort Mac in 2002, and then it tripled in value in 3 years and honestly that's been the driver for most of my dad's wealth, through mostly dumb luck. And there's been a lot of wealth that's been created in Canada in the last 10-15 years.

The problem is it's creating a scary precedent that everyone should purchase a house ASAP, and a lot of people are confidently giving advice to buy buy buy based on this anomaly (which is basically what you were doing from what I can tell). People are factoring in "future value" into their purchase price, and that should be done with shares and bonds, not houses. It's causing caused a housing bubble in Canada.

 

[dapaterson]

That was not my intended message:  I bought because it made sense vs renting and saving the difference - it put me further ahead.

Frankly, if you don't do the math before making a major purchase like that, you deserve what you get.

 

[Pat in Halifax]

Yes, and that's fine, my family was pretty fortunate to have bought a 20' wide trailer upon arriving to Fort Mac in 2002, and then it tripled in value in 3 years and honestly that's been the driver for most of my dad's wealth, through mostly dumb luck. And there's been a lot of wealth that's been created in Canada in the last 10-15 years.

The problem is it's creating a scary precedent that everyone should purchase a house ASAP, and a lot of people are confidently giving advice to buy buy buy based on this anomaly (which is basically what you were doing from what I can tell). People are factoring in "future value" into their purchase price, and that should be done with shares and bonds, not houses. It's causing caused a housing bubble in Canada.

You have to remember something - You are going to have to pay to live somewhere. My thinking when I bought my first house in 1987:
I can pay a landlord $800/month or I can pay a mortgage. After paying a landlord for a year, I have nothing to show. If things get bad in a year as a homeowner, I can sell (this assumes no or negligible loss-more oft than not though, a gain) and have 'something'. Investments are another kettle of fish. You can still buy RRSPs with a mortgage. Let me tell you too; my wife and I just made our last mortgage payment a little over a year ago and the mental load lifted off our shoulders is great. It is a sum of $$$ to fall back on if needed but more importantly, we 'live for free' so to speak and now can dump MUCH more into investments/RRSP...and even maybe real estate????

 

[ballz]

You have to remember something - You are going to have to pay to live somewhere.

This is actually part of the argument for renting. You wouldn't say this

After paying a landlord for a year, I have nothing to show.

about the food you ate over the last year would you? You needed it to live. Same goes for a house.

I want to be clear, I am not advocating for renting or for buying. It's a personal decision and the important thing is doing the math, as DAP said. Personally, I am planning on buying, but that's a lifestyle choice, it's not an investment. It's an investment if you plan on renting it out, etc, which is a whole different ball game because then it's generating revenue.

If things get bad in a year as a homeowner, I can sell (this assumes no or negligible loss-more oft than not though, a gain) and have 'something'.

This isn't entirely accurate. Just a hypothetical, but if you buy a $300,000 house with $30,000 down and a $270,000 mortgage, and "things get bad" and you have to sell within 3 years, chances are it didn't just get bad for you, chances are the housing market has dropped. In the first three years of payments you have paid almost nothing on the actual principal (despite paying more per month than if you were renting), and perhaps the market dropped 10-15%, and now the house is worth less/about the same as your mortgage. Not a great spot to be in, and that $30,000 + (mortgage payment minus rent paypents, multiplied by 36 months) is gone too, completely wasted (unlike the cost of rent, which isn't "wasted" because like we agreed on, you need a place to live).

 

[Pat in Halifax]

True but for the food thing? Where ever you live, PMQs, apartment, house ... your car, you will still have to eat.
As for the rest, you need to do your homework, watch the trends, talk to a real estate lawyer and agent. Don't buy where a dump is going in-that kind of thing. My parents were real estate agents and I wont lie - Their advice helped me immensely. They had two main rules I recall:
1. Don't expect your first house (or even second or third) to be your dream house, and
2. What you want to do to your newly purchased home, do over time and accept that you WILL NOT get it all done.
A way to help pay down principal is to pay an extra $100 a month (or whatever you can afford) -this drops your amortization dramatically.  Some bank's online mortgage calculators will allow you do do this and it is amazing how much you can save in the end.
It is like anything else, DO YOUR HOMEWORK.

And yes, right now, real estate is not as predictable as it was even 6-7 years ago but on average, if you get sound advice, do it right and accept that you are not going to get EXACTLY what you want, you should not be in the hole if you need to resell within a couple years of buying.

PS. I am a stoker and not a real estate guru and the above is based on personel experience, knowledge and understanding only.

 

[ballz]

True but for the food thing? Where ever you live, PMQs, apartment, house ... your car, you will still have to eat.

I don't understand what your rebuttal is? You seem to be indicating that you have "choices" on where you live. I can only respond by saying you have choices on what you eat as well, oats or Lobster, etc. Lobster is a lifestyle choice, oats is a necessity.

1. Don't expect your first house (or even second or third) to be your dream house, and
2. What you want to do to your newly purchased home, do over time and accept that you WILL NOT get it all done.

Sound advice, something that the post-materialist generations have increasingly lost perspective on, and it could have saved them a lot of grief if they had some prior to 2008.

EDIT to add: I, also, am just an armchair economist/financial analyst basing my opinions on my own knowledge and understanding.

 

[Harris]

Along with this issue is the trend I've seen lately where friends of mine will purchase a house way out of their price range but justify it by saying that they can afford the mortgage amount and re-sell the house later to make a profit.  They wind up being house poor as every $ goes into paying for it every month.

I on the other hand bought a house about 1/2 the price the banks said I could afford and make double payments.  As a result I've beat a 25 yr mortgage down to 9 in just over 8 years.  There was no way I'd ever consider renting.  Other friends of mine rent and pay more than I do a month for 1/2 the living space.  But they wanted to be close to downtown.  I live 1/2 hour away.  Huge price difference.

 

[Jungle]

Seriously, if you could make money with the food you eat, would you ?

Now you can manage the exception and say "some people lose" in ownership, but the majority will make money.

 

[exabedtech]

Renting and buying both have their merits and depend heavily on luck and circumstance.  I once made over 140K on a home I owned for less than 2 years and once lost 45K on a home I owned for 5 years, so unless if you have a gift for seeing into the future, you have to make the best call you can based on the information and finances available to you.
Military housing should always be available for those who need it.  Yes, there are WOs out there who have lived in them for 20 years that are dirt poor, but we all make our own choices in life and you cannot mandate financial savy.

We have military installations in every region and every market.  Not all careers are the same, but mine led me to be posted to 6 or 7 locations at least a time zone apart.  For a young soldier, young family, single parent or someone who knows they will only be there a short time, PMQs may be the best option.

The military needs to make these units available for as long as they choose to post people IMHO.  I don't think its much to ask that if you tell me to move my family, you at least make it possible for me to secure housing. 

PLD is a senseless benefit on most cases.  Sure, it is a godsend if you are posted to Toronto where a house may cost $500k but sell overnight, but its useless in Wainwright where a house may cost $300k and not sell for months.
As with any benefit, those in receipt will be in favour, those not in receipt will tend to be against.  Highest PLD I ever received was the $20 a month they gave me in North Bay.  No, that wasn't quite enough to help save for a down payment or get my kids into Harvard and yet while housing may have been less than Toronto absolutely everything else would have cost much more and no way was there a $1400 a month difference in housing costs.

They've had sufficient time to figure out a formula for PLD if one were possible and yet it still makes no sense.  It should be dropped entirely.  If military pay rates are low, PLD is the wrong way to address it.  If PLD exists to balance housing costs, then offer affordable and available housing.  Those who choose not to use that housing and make a purchase have done just that - made a choice. 

 

[Pat in Halifax]

PLD is a little more than that. As someone on IR from Halifax, I still get PLD as my 'home' is in Halifax. Last year (I was bored), I did up my income tax and did a provincial return for NS and ON (just to see the differences) and I pay a little under $3000 more in NS tax than ON-about what PLD works out to be in a year. I actually find groceries cheaper in Halifax than here to be honest with you but car/apt insurance is ridiculously expensive here.
Agreed, the PLD system needs an overhaul.

 

[Eye In The Sky]

PLD is a little more than that. As someone on IR from Halifax, I still get PLD as my 'home' is in Halifax. Last year (I was bored), I did up my income tax and did a provincial return for NS and ON (just to see the differences) and I pay a little under $3000 more in NS tax than ON-about what PLD works out to be in a year. I actually find groceries cheaper in Halifax than here to be honest with you but car/apt insurance is ridiculously expensive here.

WRT to the yellow text in the quote, this is why I said in a different thread last month words to the effect of "PLD looks better than it really is" or words to that effect.

:2c:

 

[GAP]

Is that not the whole purpose of PLD.....a overall levelling...?

 

[Eye In The Sky]

I suppose the concept is overall leveling, but is it actually working?  I don't have nearly enough knowledge on COL across the board at different bases/Wings, but I know as a resident of NS, my income tax is considerably higher than say, Alberta, based on the info found at this link.

Based on the info there (haven't verified it for accuracy), using $60k as income amount, in Ont I would have paid $12,194;  Alberta $13,015 and NS is $15,128. 

PLD, although $631 before taxes, actually turns into $365ish after taxes.  I don't know about other provinces, but COL seems high here in NS.  I pay just under $1.40/L for diesel.  I nearly blew a gasket at the price of stuff like chicken at the grocery store.  Metro Transit rates are likely going up, Halifax Bridge Commission is raising toll costs Apr 1st, etc.  COL is on the rise, but I make the same $ I did 2 years ago.

I am sure it is similar across the board for everyone.

Again, not complaining about PLD, it really helps me for sure.  I guess the point is its not like I am rolling on $ here because of PLD, it just helps make ends meet. 

If PLD is cut here in Halifax, or anywhere, there are going to be some families who really feel it. 

:2c:, again I don't know or pretend to understand the formula/rules/rationale for PLD and the like.

 

[ballz]

We should probably move a lot of this stuff to the PLD superthread. Anyway...

I've never understood the argument about taxes... I don't think PLD should be factoring that in. Those extra taxes are going to the provincial government and municipalities you live in, and *in theory* provide you whether better social programs, better roads, etc. Of course, in practice, every province has specific challenges to meet so sometimes it may not feel as such, but this is why we use a decentralized system, and why you get to vote for your provincial government as well. IIRC, when using a "consumer basket of goods" to calculate the standard of living and whatnot, taxes aren't included for this exact reason, and I'd be a little stumped if they did factor in taxes to the PLD equation.

When it comes to a high COL because of high taxes due to wasteful government spending, Newfoundland has got to be up there with the worst of them, and I've always used the example of St. John's vs Halifax to demonstrate how out of whack the PLD formula is (which is all, of course, in the PLD superthread somewhere).

 

[dapaterson]

There's the larger question of why CF members declare a primary residence, vote in the elections there, yet pay taxes where they are currently posted. 

Shouldn't CF members pay taxes in the province where they have declared their residence (the US military does this)?

And the logical follow on - shouldn't IPR moves only be permitted to the place where you've declared your residence?