The transition path — what happens to prices, wealth, and mortgages
2026-07-18 · wave 10 · the reflexivity model (Definition-of-done item; feeds academic-path Q4 and the transition-instrument decision queued for Floyd).
Basis note (w18): wealth-conversion figures below use the gross-stock claim (≈$190k/person). On the w17 net basis the capitalized claim is ≈$164k/person (family of four ≈$655k); conclusions unchanged. Canonical:
NUMBERS.md.
Setup
Rent-basis settlement (adopted w4): each year a share s of assessed land rental value R settles through the schedule. Land's private price is the present value of the rent the holder keeps: P = (1−s)·R / i. Discount i = 5.5% (matching the cap rate used throughout). "Land price → low" is therefore not a malfunction to model around; it is the mechanism. What needs modeling is the path and who bears it.
Announcement-day land prices under each instrument
Computed exactly (PV of the declining retained-rent stream at i = 5.5%):
| Instrument | Land price on announcement, as % of today |
|---|---|
| Immediate full settlement (s = 1) | ≈ 0% |
| Linear phase-in, 10 years | 20% |
| Linear phase-in, 20 years | 37% |
| Linear phase-in, 30 years | 49% |
| Grandfather-until-sale | Buyer-side ≈ 0% immediately; incumbents keep flows until sale |
Property-level translation (price of house = structures + land; only land falls):
| Property | Land share | Property price change, 20-yr phase-in |
|---|---|---|
| Vancouver single-family (measured, w9) | 85% | ≈ −53% |
| Canada-average residential (NBSA/DHEA join) | 53% | ≈ −33% |
| Low-land-share markets (Atlantic, Prairies) | ~35% | ≈ −22% |
These are the honest numbers. No presentation should soften them; the defense is the next section, not a smaller font.
The wealth-conversion identity (the answer to "trillions destroyed")
The settlement does not destroy the wealth; it converts its form. Each citizen's allowance is itself an asset — a perpetuity claim on s·R̄, capitalized at ≈ $190,000 per person at full settlement (≈$758k for a family of four). In aggregate, the claims created equal the rent redirected: title wealth becomes citizen-claim wealth, plus the transfer of entity-held land value ($1.45T corporate + government) from shareholders to citizens at large.
Net household wealth change ≈ (household allowance capitalized) − (land-price loss on holdings):
| Household | Land held | Wealth effect at full settlement |
|---|---|---|
| Renter family of four | $0 | ≈ +$758k |
| Average owner household (2.41 persons, $271k land) | $271k | ≈ +$187k |
| Crossover household | ≈$456k | ≈ 0 |
| Median Vancouver detached (avg size) | ≈$1.45M | ≈ −$0.99M |
The scheme's balance-sheet story in one line: most households get wealthier the day it's announced — because the claim they gain exceeds the land value they lose. The loud cases are real and concentrated exactly where wave 9 measured them.
The binding constraint: the mortgage channel
Residential mortgages outstanding: $2.411T (NBSA households, Q1 2026) against household real estate of $8.86T (aggregate LTV ≈ 27%) and household land of $4.67T. Under a 20-year phase-in the average property falls ≈ 33% → aggregate LTV rises to ≈ 41% — the system survives easily. The problem is the tail: recent buyers at 80%+ LTV in high-land-share metros go deeply underwater (a Vancouver detached bought last year at 20% down is negative equity many times over). Two facts make this the true design constraint:
- Recent full-price buyers are the most morally sympathetic losers — they paid the old capitalized value in cash and savings; and
- Mortgage collateral is written against titles, not citizen claims — the allowance asset can't be pledged to the bank (yet).
Instrument assessment
- Immediate: clean, maximal, indefensible — a self-inflicted banking event. Rejected.
- Grandfather-until-sale: protects every incumbent fully, but imports the documented pathology of California's Proposition 13 — the lock-in effect (Wasi & White 2005, NBER w11108: Prop 13 measurably reduced mobility and froze allocation). It also splits the market into incumbent and buyer price tiers for a generation. Weak recommendation against, stated openly.
- Phase-in (~20 years): prices reprice once, everyone faces the same schedule, the dividend ramps as the charge does (political sustenance), and the banking channel gets two decades of amortization. Cost: full moral claim deferred.
- Phase-in + recent-buyer basis credit + deferral: the composite — 20-year ramp; a credit for buyers of the last ~5 years scaled to price paid (protecting the sympathetic tail without Prop 13's permanence); BC-style deferral for asset-rich/cash-poor households (objections.md §2). Working recommendation.
Decision for Floyd (now fully priced): adopt the composite, or trade its complexity against a plain 20-year phase-in. Numbers above; moral case unchanged by either.
What this hands the academic lane
Q4's skeleton is now explicit: the PV model above, calibrated against event studies (Denmark's 2021 housing-tax reform for capitalization speed; Prop 13 literature for lock-in; Pennsylvania split-rate adoptions for small-dose evidence). The one genuinely open modeling question: how much of today's price is already speculative premium above PV-of-rent (if prices exceed R/i today, part of the "loss" was air), which is measurable from rent-yield spreads — added to Q4.
Sources
- Statistics Canada, Table 36-10-0580-01: household residential mortgages $2.411T, household land $4.669T, real estate ≈$8.86T context (Q1 2026).
- Wasi, N. & M. J. White (2005), "Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13," NBER Working Paper 11108. https://www.nber.org/papers/w11108
- Vancouver land shares:
analysis/vancouver-land-share.md(this repo). - Allowance capitalization and incidence:
analysis/household-incidence.md. - PV computations: linear phase-in schedules discounted at 5.5%, computed this wave (script in wave log commit).