Getting to the Bottom of Ontario’s Rental Problem

Airbnb is blamed for the low affordability and availability of GTA rental units, but the real issue lies with Ontario’s Landlord and Tenant Board and the Residential Tenancies Act – and of course the fact that we just aren’t building enough.

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Now that I’ve retired and am often home during the daytime, I’m seeing things I never noticed before. One of them is how many of my neighbours in Little Italy, Toronto are renting out their lower units on Airbnb instead of as apartments, even though 750 sq. ft. lower level units like ours can fetch as much as $2,500/month.

I’m wondering if Airbnb isn’t entirely to blame, but instead, if our Landlord and Tenant Board’s Residential Tenancies Act is also at fault.

The Landlord and Tenant Board (LTB) has been around since 2006, and the Residential Tenancies Act came into effect on January 31, 2007. It was created to help establish and enforce the rights and responsibilities of both tenants and landlords. Its aim is to resolve landlord-tenant disputes and eviction cases.

As any renter or landlord in Ontario can tell you, it hasn’t gone very well.

The LTB’s budget received cutbacks (2012 to 2014 budget vs. 2017 to 2019 budget) which resulted in a shortage of adjudicators, and the result was delays – a lot of delays. The LTB is unable to effectively and efficiently address issues. For example, bad tenants can notoriously go for 6 to 12 months without paying rent, leaving landlords in a bad spot. The system is broken.

This is why I’m hearing from my neighbours (and wife) that they don’t want to rent out their lower level units. They don’t want the risk of a bad tenant.

The LTB is now acknowledging the extreme service delays that have plagued it and is working to address this issue and to improve its services. But the damage has been done. Landlords can’t count on this system to protect them, and so they’re pulling out of the rental market and turning to avenues such as Airbnb, which offer protections that the LTB doesn’t.

Airbnb offers liability insurance, property damage protection and guaranteed payment collection. Airbnb 1, LTB 0.

Having potential landlords turn away from the local rental market and to Airbnb instead hurts everyone. Rentals in Toronto are scarce, and highly-priced. If we want to increase the supply of rental housing, one way to do so is to better utilize what already exists, and that’s not happening because many landlords find the risks of renting too high.

The main issue is that we just aren’t building enough new rental units, but Airbnb has been getting a lot of blame in the media lately. It’s easy to blame Airbnb, but it’s also our own (broken) LTB and its Act that are pushing landlords to choose alternative, more secure options for renting out the existing available spaces.

If we want more housing options and especially more affordable options available, Ontario’s LTB needs to do things differently.

Here are some of my thoughts:

  1. The LTB needs to enforce its own rules if it is to have legitimacy and efficacy. It was created to enforce (and protect) the rights and responsibilities of both tenants and landlords, but right now that’s not happening.
  2. Bad tenants should have repercussions, and the LTB needs a way to enforce these repercussions. If a tenant damages a place, there should be a quick mechanism to address it. If they don’t pay and they skip on the rent, it should be easier to go after the tenant.
  3. Good tenants should be rewarded. Landlords should be able to access tenants’ records (rental history), just like lenders and sellers on credit (cars on lease, etc.) can check credit ratings. Landlords need more security and stability – more protection. If the costs of being a landlord could be lowered (for example, by not having to budget for tenants who won’t pay rent), then that would lower rental costs for all. And if a good tenant were allowed to better differentiate themselves from a bad tenant, it could help them secure better places. I’m all for this.

As it stands, landlords are encouraged to lie to other potential landlords when their tenants want a reference… just to get them out of their place!

What we need instead is a more effective system, where good tenants are rewarded, bad tenants have repercussions that are actually enforced, and landlords are better protected.

Further, due to the tight rental supply we currently have in the GTA and many other parts of Ontario, we should be not only protecting landlords but also providing incentives for them. We need more people to put their available spaces on the market (like my neighbours with their 750 sq. ft. lower level units), and to build more rental units, like laneway suites or finishing a basement to turn it into a suite. We also need to encourage and provide incentives for more construction.

What are your thoughts on this topic? Comment below or find me on Facebook or LinkedIn to join the conversation!

EnerQuality’s Exciting New ENERGY STAR Multifamily High-Rise Initiative

Improving the energy efficiency of housing is a critical strategy in the fight against climate change. I’m proud to be working with an organization – EnerQuality – that knows how to do it. And now we’re tackling the biggest growth area of Canadian homeownership – multifamily and high-rise buildings.

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EnerQuality is the #1 certifier of energy efficient housing in Canada and the market leader in residential green building programs. Founded in 1998 by the Ontario Home Builders’ Association (OHBA) and the Canadian Energy Efficiency Alliance, they’ve been part of the growing residential energy-efficiency industry for over 20 years now. EnerQuality creates voluntary, market-based programs that support builders and accelerate innovation in construction. They partner with governments, manufacturers, utilities, energy advisors, architects and engineers to bring their programs to market. To date, 110,000+ homes have been certified.

EnerQuality was the driving force behind the construction of thousands of ENERGY STAR homes in Canada. In 2005, the organization joined forces with Natural Resources Canada (NRCan) to develop ENERGY STAR® for New Homes. This turned out to be the most successful energy-efficiency program in Canadian housing.

Across Canada, builders look to ENERGY STAR to improve the quality of their buildings while lowering their occupants’ energy bills and carbon footprint. With a name that 90% of consumers recognize, ENERGY STAR has become the trusted symbol for builders who value sustainability and quality.

ENERGY STAR’s New Multifamily High-Rise Program

In 2018, thanks to funding from the IESO and Enbridge, EnerQuality and NRCan teamed up again and developed ENERGY STAR® Multifamily. Now in market, it’s changing how we build mid/high-rise housing. The same simple and affordable ENERGY STAR program we all know and love is now available for builders to certify their mid/high-rise multifamily buildings.

As a Chair (Audit & Risk Committee) of EnerQuality’s Board of Directors, I’m proud and excited to be part of this latest initiative.

With Canada’s rapidly-growing population, the housing shortage in places like the GTA and the accompanying rising cost of housing, more and more Canadians are living in multifamily residences and high-rise buildings. Recent data shows that 1 in 8 Canadian households are living in condominium dwellings, and 44% of Torontonians are living in some form of apartment. Multifamily properties include “mid-to-high rise buildings, condos, student housing, senior apartments and mixed-use buildings” and it’s a segment of the housing market that’s flourishing.

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Image via the CBC

ENERGY STAR Multifamily is helping Canadian builders produce better built multifamily and high-rise homes for this growing segment of people. It’s about time that we extended this program beyond low-rise homes and into the fastest-growing sector of Canadian residences.

The program requirements include:

  • Exceeding the energy target (15% better than the 2017 Ontario Building Code)
  • Conducting air tightness testing and mechanical commissioning
  • Installing ENERGY STAR appliances
  • Registering in ENERGY STAR Portfolio Manager

This amazing new program is working to reduce consumers’ energy costs, contribute to Canada’s 2030 greenhouse gas emissions reduction targets and create healthy communities. I couldn’t be more proud to be helping to move the needle on these essential issues.

What are your thoughts? Comment below or find me on Facebook or LinkedIn to join the conversation!

Mattamy Limits Over-Eager New Home Buyers

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Wow! We’ve never seen this before in the new home industry. A marketing email from Mattamy Homes that recently landed in my inbox caught my attention. The email was about a new release of homes for sale at Mattamy’s Hawthorne South Village community at Sixteen Mile Creek in Milton. In the list of rules and information about the new release and registration for it, this item was included:

“Previous Buyers With Pending Agreements Of Purchase & Sale With Mattamy Homes Are Not Eligible To Purchase. We Thank You For Your Interest.”

Mattamy Homes is not allowing existing buyers of unclosed Mattamy homes to buy any more new homes.

Mattamy has historically been a price leader. They have attracted more than their share of investors. Their main concern now is that buyers of multiple homes may not be able to close – the buyers may be able to come up with a deposit, but they need/want price to be up at closing. Mattamy sees that prices are not going up these days, so the likelihood of the homes they sold appreciating before closing is small. Therefore, buyers of multiple homes may be biting off more than they can chew, which will ultimately affect Mattamy.

This is a statement by Mattamy that they see market staying flat and/or their buyers not being financially able to close on multiple homes.

(Read my recent blog post, 2019 Toronto Housing Market: A Year of Opportunity?, for more info on the current state of the market.)

What are your thoughts? Comment below or find me on Facebook or LinkedIn to join the conversation!

Mortgage Stress Test Overreaction

I mentioned in a recent blog post of mine how rising interest rates are scaring prospective buyers and reducing affordability. However, interest rates have only gone up a tiny bit, and we recently saw a big stock market correction – and now economists are forecasting a recession at the end of 2019 or in 2020. Now that it’s clear that we are not facing inflationary pressures which necessitate rate increases to moderate, the federal government should reevaluate its mortgage stress test parameters.

I’m a big advocate of less government intervention. With the new mortgage rules, the government got involved in Canadians’ finances and made a mess. The mortgage stress test was initially introduced by the federal government in October 2016 and was revised in October 2017, requiring potential homebuyers to qualify for a mortgage using the higher of their contracted mortgage rate plus 2% or the 5-year benchmark fixed rate published by the Bank of Canada. Last year, in January 2018, the rules were changed again and got even tougher – the stress test began applying even to uninsured mortgages, i.e. to people paying 20%+ of their home’s price in their down payment. The banks were in favour of the stress test as they wanted to protect themselves, and the rules were introduced with the expectation that interest rates would rise and with an aim of limiting the amount of debt that Canadians and financial institutions would take on.

But we’ve now seeing that the interest rates aren’t going up that much, certainly not by a considerable 2%. The Bank of Canada announced last week that it was maintaining its rate at 1.75%.

If the rates aren’t increasing as high as expected, why do people need to continue qualifying at 2% higher? We don’t need this 2% buffer. Although the rules are supposed to be protecting the Canadian housing industry and buyers (ensuring that they’re spending within their means), the rules are in fact hurting potential buyers. They effectively lower the amount that banks can lend potential home buyers, and many people are qualifying for 15-20% less than before – forcing many completely out of the market. These rules are disproportionately hurting first-time buyers, making it harder for young people and new immigrants to buy homes. Why is the government punishing millennials and newcomers who are trying to get into the market, and putting the Canadian dream farther out of reach? I’m calling for the government to roll back the mortgage stress test. A 2% rate increase for qualification purposes is completely unnecessary given today’s market. I suggest lowering it to 1% (or 0.75%, as Mortgage Professionals Canada is calling for) or eliminating it completely.

The stress test is hampering affordability, which is the main barrier to home ownership. It is greatly contributing to the real estate decline we’re having now, and it is artificially suppressing the demand for housing and preventing first-time homebuyers from getting into the market. This is only going to hurt our market and economy in the long run.

This is a federal election year. Perhaps a change to the rules could help the Liberals?

What are your thoughts? Comment below or find me on Facebook or LinkedIn to join the conversation!

2019 Toronto Housing Market: A Year of Opportunity?

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GTA real estate has entered a new era. Gone is easy money. Gone are many investors, including foreign ones, with the new 15% non-resident speculation tax imposed by Ontario’s Fair Housing Plan. Tighter lending conditions and new mortgage rules including a new mortgage stress test are producing fewer prospective buyers, while rising interest rates are scaring prospective buyers and reducing affordability.

The resulting benefits to prospective buyers haven’t been seen in over a decade!

  • Better choice
  • Better value
  • More time to evaluate and analyze
  • Better terms

Even last spring, most of the residential and investment properties I looked at were not interested in conditional offers. But that’s already changing.

On the other hand, supply of new low-rise housing remains constrained. Immigration levels are high and Canada plans to increase them even further in the next few years, with up to 350,000 new foreign nationals expected to arrive each year in 2019, 2020 and 2021. Rental demand far exceeds supply. Fewer people can afford to buy, which means there’s an increased demand for rentals. Furthermore, Ontario’s Fair Housing Plan expanded rent controls to all private rental units across the province, which will likely result in fewer rental properties on the market as developers move away from purpose-built rental projects for more profitable returns (despite the plan also including a five-year, $125-million program that’s aimed at encouraging the construction of new rental apartment buildings by rebating a portion of development charges).

With the number of units available for rent expected to decrease and immigration rates set to increase, we can expect that in the long-term, the fundamentals underlying the real estate market’s strength and growth will still be very good. Demand will increase and prices will rise again, especially since we’re not significantly increasing the supply of low-rise homes and are not building enough high-rise units to keep up.

To me, this means opportunity! 2019 will be a good time to buy property in the GTA, as the market goes through this micro-adjustment. The long years of the GTA real estate boom are over and there are way more opportunities available for buyers now. But as we saw above, this opportunity may not be around forever – long-term, I expect the market to stabilize and grow again.

Personally, I’m looking around for opportunities, but taking my time. I’ll post my findings in the future.

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