Blessed by the Potato

I’ve created a separate post here for the discussion points and scenario discussion from the Rent vs. Buy Investment Spreadsheet post [direct link to Google docs]. That spreadsheet originally came out of the discussions of this post, talking about the fact that there is some point where it becomes better to rent, even if you rent for the long term, which flies in the face of conventional wisdom.

Of course, I generally prefer to use a simpler analysis by abstracting out the principal repayment portion of a mortgage payment, and just look at the costs of owning, largely because you don’t need a spreadsheet: you can pull out a napkin and go over the numbers at dinner if you so choose. The problem though is that people would keep saying “but if you buy, you build equity” and I would keep saying “no, I’ve account for that in this analysis” and they would say “but what about paying down the mortgage?” and I would start to say that in the renting scenario you save that difference, and then just give up. So the spreadsheet explicitly includes the buildup of equity for both parties: paying off the mortgage for the owner, and saving and investing for the renter. Both start with the same amount of money, both have the same monthly budget.

Discussion Points

“This assumes the renter will save and invest. But many people won’t.”

– That may be true, but firstly I do save the difference and invest it, and I did in part do this analysis for my own sake. Secondly, not saving is a problem that needs to be fixed: paying down a mortgage is a form of forced savings, yes, but it’s a really poor one. Go back to the note about the maintenance assumptions: even as a homeowner you are going to have to put money away and save for things, even just for the medium term like repairs that come in lumpy bunches. Also, equity can be taken back out fairly easily these days via lines of credit and refinancings, so the savings aren’t all that enforced. Besides, I always thought that needing to be threatened with homelessness was a little extreme for saving motivation. Someone who can’t save doesn’t need a house, they need help.

And of course, you do have the freedom not to save. This analysis can also help those who prefer to fritter their money away on life’s indulgences like exotic travel to realize that by buying they may find themselves house poor, and that they can increase their overall enjoyment of life by renting and spending the surplus on things they truly enjoy. Or, to know that you have some cushion in your budget if you get hit with a pay cut or another of life’s large costs like medical expenses: you can cut back on your savings as a renter, but you won’t have that choice as an owner.

“There are so many subjective factors though.”

– Yes, there are a lot of subjective factors around the decision of whether to rent or buy. Perhaps you have “pride of ownership” in your house, and prefer to own, or maybe you like the freedom and lower risk associated with renting. But there are subjective and hard financial cost factors to many of life’s decisions, and if you sort out the costs you have a better foundation for weighting your subjective factors. To make an analogy, I may subjectively prefer a car with leather seats and a moonroof, but once I see the price tag for those addons is $4000, I say forget it, I’ll stick with the base model. In this case, I may prefer to own, but once I see that pride of ownership is a three hundred thousand dollar expense after 30 years, I figure that my pride isn’t worth that much.

“But if I own, I can improve the value of my house with my own hands. With stock investments, you have to take whatever the whims of the market give you.”

– This is perhaps worth a post in its own right, but I think that people vastly over-estimate how much they can add to the value of their home with do-it-yourself renovations. Plus, the housing market also has tides that you cannot fight: they are slower than those of the equity markets, but just as inexorable.

“I’m a rare breed: handy but a creative soul. I can’t rent since I need make my space my own.”

– In my opinion, many people underestimate how much freedom they have as renters to customize their own space. Yes, you can paint the walls. You can make improvements, even major ones with the landlord’s permission. You may even get paid for it (or at least have your materials covered). The main point is to either work it out with the landlord, or be sure to put it back the way you’ve found it. Some examples of customization I know of include putting down new laminate hardwood flooring (some kind of snap-together kit that went on top of the parquet), and a musician creating a recording studio in a rental by bringing in his own foam sound insulation and fixing it to the walls — and bringing it out when he moved out. On the flip side, even as an owner your creativity may be every bit as constrained in a condo as a renter.

“My friend bought X years ago and made X on her condo.”

Well, it’s not X years ago, it’s today, and I can’t go back in time and buy a house at 2004’s price. That purchase may have made sense then, or, your friend may have gotten lucky. It’s tough to say: but the best guess we have as to what the future holds indicates that with today’s prices and today’s rents, it’s not a time to buy. Your grandparents and parents and older siblings may all have made fortunes investing in real estate, but they bought back then, not now.

“The stock market can go down, but your house will always be there.”

Very few people buy houses for cash. I know I couldn’t today. That means that you can either rent your house, or rent the money from the bank to buy your house. That act of borrowing to buy is known as leverage, and it adds risk. Yes, the stock market poses its own set of risks: it can go down, often violently in the short run. But in the long run, it goes up. If you lose your job, you can use your investments to pay the rent, but it’s tough to tap your equity to pay your mortgage and taxes, especially in the early years. If you need to then move to find a new job, it’s very easy to leave a rental and find another, and your stock portfolio moves with you; whereas you may find yourself underwater on your house, either because house prices have gone down, or because transaction fees have eaten into your equity. If you can’t come up with the money to break the mortgage and pay off the bank, you may find yourself stuck there, or worse, declaring bankruptcy. So yes, your house may still be there if the economy gets worse and the stock market goes down, but you may not be living there any more; if you’re unlucky and that happens soon after buying with a small down payment, you may find that it belongs to the bank.

“Is this a realistic scenario?

I fully encourage you to take the framework I’ve given you and apply it to your own situation. Find out what the going rent is for the type of place you’d like to live in. Find out what the cost for buying that type of place would be. Run the numbers yourself. But to answer the question, yes, this is a realistic scenario (though as I’ve said, it is if anything overly favourable to the owning case). These are the numbers from a house in Toronto I actually lived in recently. I didn’t plow through listings to cherry pick it: though I have checked, and the results are fairly typical for the city.

One thing left unsaid is that this is as much as possible an apples-to-apples type comparison: the same house to rent or buy, or at least the same size, quality, and area. In reality though, those who buy may over-purchase due to the transaction costs (i.e.: buy the house they plan to need 10 years from now rather than the one they need next year), so if anything the default numbers in that sheet may be too generous to owners. But you may be the best judge of your situation, so use the tool for yourself!

Scenarios:

It’s good to look at not just the best-estimate case I used to fill in the spreadsheet, but also a few other scenarios to help you plan and identify where the major risks are going to come from. As I said above, one of the big factors is going to be house price appreciation: if you assume your house will appreciate at a rapid rate, like they have in Toronto for the past few years, then it will be very difficult to make the case for renting. The problem with that scenario is two-fold: first, unless you actually sell your house and then go rent, the higher house prices aren’t actually helping you any. As a renter in that scenario you’re “further behind”, but it already made sense to rent at 2011’s prices, why would higher prices in 2012 make you want to buy any more? Stay a renter as long as those upward moves are likely temporary. As an owner, even if you do decide to sell your house and rent because hey, you got lucky, then you have to factor in the dreaded transaction fees after all, and you may not do much better than break-even. Secondly, how realistic is that scenario? If it’s already tough to make a case for owning at these prices, how can they increase forever?

What about the scenario where house prices fall? Myself and many other analysts have been saying that Toronto is over-priced for years, so one of these days a crash may actually happen. Again, you don’t even need to bother with the spreadsheet to know that it’s going to be better to rent if prices are falling. The magnitude of the savings may astonish you if you do play it out. When considering that scenario, some people say that they will just ride out a decline: which brings us to the long-run scenario that I plotted out. If you’re looking out 30 years, it may not matter whether prices fell for a few years then flat-lined for a few, then recovered a bit if in the end that works out to something like 2%/year.

But however you get to the end of the road, it doesn’t look good for the buying case. If prices go up at a rate far above a modest 2-3%/year, it’s better to own, but difficult to actually profit from that scenario if you have to pay ~7% transaction fees within a few years to get out (and that percent is on the house price, not your equity). If prices go up steadily, well, rent is cheap enough that you’re better off renting and investing. And if prices go down, you’re better off renting: they may even go down far enough that it becomes better to buy once again, and you’ll be all set to take advantage of the lower prices with your investment portfolio to use as a down payment.

You can examine other scenarios: what if rent increases by more than it has been (mean reversion may also apply to rent not increasing at the slightly-below-normal level it has been for the last few years). What if mortgage rates do indeed stay low, or go up to 8% within a few years? The margin by which renting is better for my own case was enough that even if I was wrong on a few points, like if I only made 5.5%/year on my investments, while house prices increased at 3%, it was still close enough to break-even that I was happy renting. Plus in the most likely scenarios, renting was better; in the worst-case scenarios, owning could really bite me in the ass (not just financially, but prevent me from moving on to find a job in another city if needed).

Don’t forget the risk: the maintenance assumption is likely a good estimate, but could be way too low if the worst happens (with very few ways of ending up too high). Interest rates could return to their long-term averages rather than stay low for an extended period of time. In most cases, owning means assuming more risk due to the responsibilities for repairs (which the landlord covers for a renter), the high transaction costs if life circumstances change, and interest rates. In the short term, the stock market will be volatile (one way to measure risk), but in the long term is not that much riskier than house prices. I was trying to be fairly generous to the owning case so that someone couldn’t turn around and accuse me of creating a biased scenario, but that also means that there’s generally more room for the scenario to play out worse for owning than better: 5.5% may have been too high for mortgage rates 10 years from now, but is more likely too low; heck, 2.8% might not be here in a few months, let alone 5 years from now. There’s a risk that the current imbalance could correct itself with high rent inflation in the future, but that is unlikely in my opinion. And the big risk: what if house prices crash?

Any other discussion points you’d like to cover? Care to debate any in the comments?

[Note that I published this post slightly ahead of the one it refers to just so it would appear below that one on the main page]

One problem with trying to pick apart brewing bubbles in real estate is that there’s a real shortage of leading indicators.

A leading indicator is just what it sounds like: some measure that identifies a problem (or conversely, an upward move) before that is upon you. So for house prices, a leading indicator would be something that might signal the future direction of house prices. If there was something that reliably foreshadowed prices, you could point to that and some history, and maybe help people see what’s coming.

There are a few that might work, my favourite of course being the price-to-rent multiple. Unfortunately, while I believe that one is both reliable and particularly relevant to the down-to-earth decision of how to go about getting a roof over your head in your own life, it’s not particularly timely. You can use it to say that there may be over-valuation, but it gives no information on when that over-valuation may come to an end, or how: lower costs (like interest rates), higher rents, or lower prices could all interact to change it. Like all indicators, it’s a bit beyond imperfect.

Other indicators might be the health of the economy: if unemployment is rising, people may be unable to afford their mortgages (or may not be in a home-buying mood), so prices may fall, and vice-versa when unemployment falls. Unfortunately, sometimes that works in reverse, as happened in the US: house prices dropped first, which then sank the economy. It could be that only after prices fall does the rampant over-building slow, and after that all the construction workers and real estate agents start looking for new jobs.

Lots of people like to point at these lagging indicators — which we know don’t really tell us anything about the future of the housing market — and say that since they are fine, so too must be the housing market. Mortgage arrears and defaults, declining interest rates, GDP growth, etc.

Recently David Fleming looked at vacancy rates, saying that since they’re low in Toronto, then the housing market must be fine. Now I can totally see the logic: vacancy rates should be a leading indicator. Yet again, history doesn’t seem to bear that out: Toronto had a real estate crash in 1989, with many looking back and saying that there was over-building occurring at that time. Yet the vacancy rate stayed persistently low — less than 1% — all through the late 80’s. It wasn’t until the prices started coming down that the vacancy rate started going up in 1990. There wasn’t as much of a lag: it was a better indicator than mortgage defaults. You potentially could have looked at that data and realized the drop in prices (still modest at that point) wasn’t a temporary opportunity. We saw the same thing in the states: the vacancy rate was flat through most of the 2000’s until after the peak: about 2007 in many cities, after which it spiked up (in the comments, I used Miami’s numbers in particular, since that was the comparison DF made in his post).

This is a little lot counter-intuitive: if there’s a building boom and over-supply, then there should be vacancies. If tenants are being taken out of the rental pool and becoming owners, and speculators are taking on multiple units and adding to the supply, there should be vacancies. Yet we’re not seeing them now, and that doesn’t appear to be a contrary indicator: the vacancies weren’t leading indicators in past bubbles, either.

How can this be? I have a few speculations below, but the short answer is that I honestly don’t know. I even went out and asked Ben Rabidoux. Anyway, some speculations:

• Shadow inventory: with prices going up 10%/year in Toronto, and condos being cash-flow negative, it’s almost not worth the hassle of renting your place out and having to deal with a tenant when you’re making all your money from appreciation anyway. Some speculators may be holding vacant inventory; as soon as prices stop going up, they may become reluctant landlords, and this will increase the supply shortly after the peak, leading to rising vacancy rates after prices peak. This is a bit nutty, even for real estate speculators, but it only takes a few thousand to increase the vacancy rate by ~1% in Toronto.
• The way the stats are collected: CMHC collects data exclusively from multi-unit properties, largely professionally-run apartment buildings. These are not in the business of having vacancies, so there may be many vacancies in detached houses, basement apartments, duplexes, and condos, while the professional buildings find ways to get their spots filled. This may also be why the average rent figure always appears to be lower than you expect.
• Booms attract people too. Once the construction jobs dry up, vacancies may increase from the demand side as those workers leave the city; and for those who own, they may put their units up for rent, increasing supply. If the economy is good, then perhaps people are renting apartments on their own rather than getting roommates.
• Construction time: it takes a few years to get a condo tower completed, and if the building boom reaches a crescendo just before the end, those units won’t be completed and on the market until after the peak. For example, if construction reached the nutty stage in 1987 or 1988, it wouldn’t be until 1990 that the over-supply would be evident on the rental market.
• Household formation can diverge from population growth. When trying to say that there’s an over-supply of housing stock we may focus on how population growth compared to housing starts over some period (e.g., saying that housing construction outpaced population growth for much of the past decade). But household formation is not quite the same as population growth if household size is changing. So if easy lending is borrowing demand from the future, leading to new household formations with smaller family sizes (e.g., single people buying condos), then that can help soak up some of the over-supply. Does that translate into the rental market? I have no idea, but it could be that the rental market stays insulated from all this insanity: as renters are pulled over to owners, rental units also undergo condo conversions.

MOA: “I can’t see renting being better than owning long-term. I really can’t.”

I can understand that there is a lot of room for debate as to when exactly it’s better to rent than buy: there are a lot of factors to consider, and a lot of forecasting future rates or guesstimating costs. But it’s quite another when people don’t seem to understand that there is some point where that happens, as with MOA’s comment above. To try to explain it again I will say first remember that price matters.

If someone is willing to rent you a house for $1/mo, and that house costs $1,000,000 to buy, then it is overwhelmingly better to take the rental option: you can invest your million bucks in a savings account and make more than that in interest, and if you don’t have a million bucks, then even better: you don’t have to convince a bank to lend that to you, and incur the even higher interest costs. Conversely, if rent was $1000/mo, and the house was $36,000 to buy, then it would make sense to buy the house instead: you’d have it paid off in just a few years.

So the important concept is that there is going to be some cross-over point between those two extremes where rents and prices are such that it’s a break-even proposition for either choice. And beyond that point, there will be a set of prices so high and rents so low where it just doesn’t make sense to buy any more, long-term or not. Exactly where that cross-over point is depends on a lot of factors, like interest rates, how long you’ll stay, taxes, appreciation, maintenance, insurance, risk tolerance, etc., but there is that break-even point (and a regime where renting is better) somewhere.

For most of our history, we haven’t been on the other side of that line, so it seems hard to imagine: all our heuristics are geared towards a life where landlords make money and buying a house is a smart financial move. So yes, in most markets most of the time it’s better to be an owner if you’re in it for the long-term. But in Vancouver and Toronto, it’s not most of the time: we’ve crossed the line.

It’s tough to get people to grasp that concept sometimes when it’s just not in their everyday experience, even if it is at its core a simple concept. It’s like saying to people that somewhere above our heads, there’s no air to breathe. “That’s nuts,” they say “I can dig a hole and there’s air below here to breathe, and I can go up an elevator to the top of a building and there’s air to breathe. Now excuse me while I climb into my open-air rocket-ship.”

I just identified a major flaw with my job search strategy: I’m taking waaaay too long on my cover letters. I’ve been doing a big round-up of job postings towards the beginning of the month, then spending a few days each on my top few postings to get a submission in, only sometimes to find the competition closed before I could submit! “Drat,” said I, “what terrible luck.” Well, no, now I see that there were a bunch of postings that were only open for a few days by design, so I’ve got to retool my strategy to one of constant searching, constant applying, and to not fret so much about perfecting my cover letters.

Oh, and if you’re in the Toronto area and hiring, hey, here I am. I’m awesome at lots of stuff, not just science.

Anyway, it’s been a pretty slow couple of weeks. I’ve had a nasty cold that I just can’t seem to get over, going on almost two weeks now. The upside is that with the lack of appetite I’ve lost about 5 lbs — I just hope that wasn’t all muscle mass from lazing around.

Looks like chewing gum may help with concentration. I do like to eat snacks or chew gum while studying/writing… I should really focus more on the sugar-free gum for that.

A bunch of warnings from the Bank of Canada this week.

Even the banks are calling for mortgages to be further tightened, not that they actually expect the government to do anything. “I think the government will pause here and not do any tweaks, because they’re hoping that the housing market is slowing down on its own but not collapsing and they don’t want to push it over and make it go down rapidly,” Mr. Clark said.

Not a very in-depth report, but one of the first I’ve seen on Toronto news that was so bearish. In fact, I think the first I’ve ever seen on Toronto news where they didn’t cut from the latest bearish housing report to spend 5 minutes with a pumper. This is a naturally slow period for the housing market anyway, must be a good time to get out all the bad news.

There was some speculation around the net-o-sphere that this year would see the TFSA limit bumped with inflation; the CRA has just announced that it will remain at $5000 for 2012.

I’ve seen people get mad at really bizarre things, but here’s a weird one: an investor that didn’t buy a stock until 2009 is upset about the long-term returns, even though their returns from 2009-now have been fantastic. Also, a rather poor article for comparing returns without taking into account distributions. Consumer’s/enercare would have still under-performed the TSX, but it was at least a positive return including distributions.

Amazon makes a dick move against bricks-and-mortar stores by encouraging customers to go in, scan an item with their smartphone, then buy from Amazon (with a coupon). [HT: John Scalzi, worth reading his take too] I know that comparison shopping has long been the norm, and that many people will check out an item in a bricks & mortar store only to go home and order it online if the price is better. And I’m certainly not one to disparage being price-sensitive — it’s nice to support your local businesses, but you’ve gotta eat too [though for books in particular, I get a lot from the library]. So it was perhaps inevitable that comparison-shopping would evolve from trying to store things in memory or take notes to taking cell phone pictures and even shopping with your phone on one site while being in another business’ store. By creating a barcode reader sales app, Amazon was being three parts ingenious, business-savvy, and ahead of the curve, and just one small pinch of a dick. But then going out and encouraging people to do exactly that, with coupons? That’s evil genius territory.

Michael James looks at the volatility drag effect of owning a small subset of stocks (i.e.: a dividend portfolio) vs the whole index. Check out the comments section for a good (but long) discussion of sampling and where that volatility drag comes from. I was particularly interested in this one as I was starting to draft a post about whether you could sample the index and “make your own ETF” with even lower fees at a discount brokerage. I might still publish it, though now of course I’ll have to point out that it’s wrong…

Also check out some articles on a new fund facts disclosure for mutual funds. The big question is, how do we get everyday investors to appreciate the importance of fees? Percentages don’t seem to be doing it, and as Jonathan Chevreau pointed out in his article, converting a percentage to a cost per $1000 isn’t helping much. Michael James suggests another method with percentages, and in the comments there, I suggest using dollars, but not as “per $1000”, but per some kind of large-dollar-value standard portfolio over some reasonable life-time: e.g., “this fund will cost you $90,000 more over a standard investment period than a lower-cost equivalent.”

Happy last-minute shopping, everyone! (PS: for the person on your list who’s not much of an investor, did you know I have a book? ;)

I’ve taken a few days off here with a nasty sore throat that seems to just start to get better, only to remiss as soon as I spend a day back at work. I think I’m finally over it, but maybe I’ll say that only to be bedridden again tomorrow :( Anyway, this has given me an opportunity to so some reading, so here are a few short book reviews for you:

The Alloy of Law, Brandon Sanderson.

This is a follow-up book to his Mistborn series, and I have to say that I loved the Mistborn Trilogy. Uncharacteristically for Brandon Sanderson, the Alloy of Law is actually fairly short, which I think was good because it was just as hard to put down as his other ones, and I needed my sleep. The original Mistborn trilogy took place in a quasi-medieval setting with a particular brand of magic (allomancy) included. That world was facing some cataclysmic events, which naturally, were resolved by the end of the trilogy. The Allow of Law now brings us a few hundred years into the future of that world, now populated with guns and railroads. Part detective novel, part western, and part action-packed fantasy thriller, I was well-pleased. It’s a totally different tone, with a totally different set of characters, yet it all fit nicely into the Mistborn universe. I think he could build a lucrative career just writing allomancy books, but of course Brandon Sanderson is too damned prolific to be tied down like that. Ah, well. I await the next entry!

The God Engines, John Scalzi

This one is even shorter, I think qualifying as a novella. Part sci-fi, part fantasy, this story tells the tale of warring gods, who are made stronger by the faith their followers have. So far, the storyline of Populous. Anyway, instead of trying to flatten all the things to help organically grow their followers, these gods have wars to convert or exterminate those of their enemies. When we enter the story, one god in particular seems to have largely taken over the known universe, and has enslaved the lesser gods to use their god-like powers to run the ships (hence the title). It’s a neat take on the technobabble behind FTL travel, using tangible yet still metaphysical gods to bend space-time to their will while chained in the bowels of a ship. Anyway, I don’t want to say much more than that because it’s already such a short book it’s hard not to release spoilers. I will say that the characters are well-fleshed out, and it’s another solid piece of Scalzi writing. Though I did include a link above to Amazon with my affiliate code, I think $20 is a bit steep for a novella; you may be better-served by the $5 Kindle version.

Hull Zero Three, Greg Bear

I find myself torn on this one: on the one hand, I did not enjoy the book, on the other, of the three it was the one I spent the most time thinking about the themes and meaning. Before I get to that and have to get to spoilers though, I’ll just say that though I liked the concepts Greg Bear was writing about, I did not care for how the story played out. For a short book, it took way too long to get going, which was compounded by the fact that most of the first third of the book might be considered non-stop action scenes. There was zero character building until about the half-way point, which I think is why all the action-y stuff at the beginning fell so flat. The main character comes out of some kind of pod in a freezing cold space ship, not sure if he’s been in suspended animation or what has happened. He’s badly lacking in memory and ability to think clearly, which leads to a really broken first-person narrative. I find that kind of amnesiac story annoying at the best of times, and this one is not well-executed. From there, mysterious monsters chase him through the ship, which is in obvious peril. Sounds like Pandorum, the book. Now, on to the meat, right after a:

Spoiler warning!

The big concept here is a “generation ship” launched from a dying earth to the unknown void to carry on for humanity. The reason I threw generation ship in scare quotes there is because the ship is not your typical generation ship: though it’s moving at barely relativistic speeds on a journey that will take centuries, it is not carrying an awake human crew that will reproduce on the journey, nor is it carrying colonists frozen in suspended-animation. Instead — and this is where the concept gets cool — it’s carrying some really powerful genetic engineering technology combined with in-vitro memory implantation, so that it can grow colonists to spec, and have them emerge as fully-developed adults complete with skills and implanted memories. Then the concept gets even better because the ship’s designers tried to account for all possibilities, including in the genetic library the ability to not only make humans as we know them, but to modify them to suit other environments, and to create lesser organisms to build up a biosphere if the planet they find is lifeless. And more: a whole library of killer creatures, designed to wipe out any indigenous life if the distant target colony is inhabited. There are all kinds of ethical questions to mine in those scenarios: do you try to make peace and co-exist if you’re approaching a system with intelligent indigenous life, or do you strike first to ensure that you complete your mission to preserve Earth-based life?

Rather than directly explore these questions and possibilities, the story instead spends the vast majority of its time mucking about on a broken space ship — far too much time on the issues of dealing with the cold and changing gravity as the cylinders spin up and down. Far too much time snapping out of the amnesic brain fog of being born/thawed out. Far too much time running away from barely-glimpsed impossible monsters. Yes, we learn at the end (I warned you there would be spoilers) that the whole point was that the ship went to war with itself after selecting a destination with indigenous life: the bioreactors started getting programmed for eliminators (hence all the monsters that have been spawned on board), but a small faction was having an ethical dilemma and tried to create something closer to a set of stock humans to take over and change course. But then recreating those same few individuals hundreds of times over, only to have them die in confusion… I just didn’t like it, and I don’t think much came of that. It didn’t even really seem to shake the main character when he found the freezer full of hundreds of copies of himself.

One interesting throw-away twist was the question of what if the indigenous life was other humans? That’s another theme sometimes explored in sci-fi with generation or sleeper ships moving out under conventional drive: after centuries in space, they arrive at their colony only to find that Earth managed to recover from its near-catastrophe, develop faster-than-light travel, and beat them to it. So what if your ship is busy breeding the best killers genetic engineering can imagine, and is setting up for an unannounced first strike on your own great great grand-nephews, who leap-frogged past you after developing warp drive?

Anyway, I didn’t think it worked very well as an amnesiac-finding-himself story, nor as a romp-in-the-monster-ridden-ship-with-variable-gravity-and-heat story, and the cool concept/big idea part just got relegated to a few pages at the end. A story I might like to see is with basically this ship (or I guess more properly, the gene library and bioreactor) that Greg Bear has come up with, but from the point of view of the indigenous population, or the crew when it’s not hundreds of years into a feud that no one remembers. How would the little ship-board war have played out if a conclusion was reached within a single generation, while people still knew what they were fighting over and had their brains and weren’t taking time to marvel at words like umbrella as their memory defrosted? What would it be like if such a ship appeared in our skies?

Maybe they’d realize they could hang out in lunar orbit, and it would take us a few years to build any kind of rocket to hurt them. Then the crunch is on to explore those ethical issues: can a peace be brokered between such different species? Can they trust us, can we trust them? Do we share the Earth, or let them have Mars? What is the interaction of their own hawks and doves? What if they realize their ship isn’t big enough to totally take on a planet the size of Earth?