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!

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!

Home Buying Practices In The Technological Age

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Is retail dying? It’s a fair question to ask amidst lowered sales projections by large players like Wal-Mart. There’s no denying that the general public is more comfortable than ever with the concept of making both small and large purchases online. In fact, within five years online purchases will account for 8% of the total retail nationwide. Close to 50% off all transactions involve the Internet in some capacity if you factor the research that consumers often do before making an online or physical purchase. This brings up the question, could this comfort level with online spending transcend into the real estate industry?

Well, with increased transparency displayed to homebuyers – and builders giving floor plans, finishes and detailed information on the minutest details of a home’s development online – it seems inevitable that engaged buyers would be able to take the next steps. This type of thinking is already being applied overseas. In India, for example, Tata Housing works with banks to facilitate the entire home buying experience online – and has had lots of success thus far. Meanwhile in China, E-House China Holdings Ltd is leading the peer-to-peer lenders phenomenon, which finances (and manages) down payments for new buyers 100% online in minutes. Could this type of concept apply to a North American housing market?

A recent Harvard report has shown that brick and mortar retailers still control between 94% and 97% of total retail sales. A vast majority of consumers who appear to be liberally shopping online are doing so from trusted retailers. Metrics are also a bit skewed when you consider that most consumers who purchase online visit physical locations to check out the products beforehand. So this raises the question, is it reasonable to believe that buyers would purchase a property without physically experiencing it? Perhaps, in the case of condos or new builds without models; however, there are also security issues in play – and one would have to take a great amount of due diligence around the genuineness of the transaction. Is retail dead? Not yet – and neither are traditional home buying practices (for the time being).

Adapt or Die: My article for Ontario Home Builder’s magazine

In an article I wrote for the latest issue of Ontario Home Builder magazine, I took a look at the changing landscape of technology in real estate marketing. The article explores basic marketing principles like knowing your audience, but discusses how technology can vastly improve marketing homes to certain demographics and coming up with new and innovative ways to solve the hurdles of traditional marketing. The new marketing 101.

Read the entire article:

 

John's OHB Magazine article Winter 2014 - scan of published copy

Real Estate Pessimists Proven Wrong

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The success of communities like TEN 88 is hardly a surprise when you look at how quickly consumers are buying this summer.

Much has been written in the press lately about the real estate market’s poor performance.

But according to recent Market Watch report released by the Toronto Real Estate Board, July’s sales represent the best July since 2009.

In fact, it’s the third best July on record.

This despite tighter mortgage insurance rules that were implemented last year, such as the one cutting the maximum length of an insured mortgage to 25 years from 30.

Of course, it’s also quite possible that many potential buyers who put their decision on hold then are now back in the market.

And although semis in the 416 area saw the biggest year-over-year boost in sales, increasing by 28.8 per cent, semi-detached homes in the 905 followed closely behind with a 26.4 per cent jump in transactions.

That’s good news for our clients, many of who sell in the 905 area. After all, though these are resale stats, the findings should spill over into the new homes market when resale prices go up and/or supply decreases.

Read the report here (PDF). 

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