Friday’s blog comments were very interesting to me.
Don’t get me wrong, I never write a blog expecting that 100%, or 0% of people will agree with me. In fact, the most interesting discussions are those were voices and opinions are split 50/50.
In years’ past, I would have labelled this blog post a “Friday Rant,” but with the way the market and the industry today are, just about everything I say is a rant of some sort.
Friday’s theme continued into the weekend, where I had additional delusional bully offer experiences. I continued to spend the weekend wondering why so many agents lacked the ability to properly transact in this market.
Then I sat down and read the comments for Friday’s blog, and one provided me with a stirring answer to that question.
A reader said:
Well, I suppose this reader kind of has me pinned to the mat.
Ignoring where I am in the industry, perhaps this reader is correct in asserting that if I constantly lament the lack of proper knowledge and skill among the “average agents,” while at the same time, expecting things to work differently, then I am guilty of being naive.
Naive, and a little foolish, perhaps. I’m like a child staring at the electric burner on the stove, watching it heat up, then touching it, and complaining about the pain.
Another reader asked, “Is there no mentoring system in the RE profession when new agents sign on with a broker?” I responded in kind.
Then another reader complained about agents, blamed them for high housing prices, and said that “Everybody has a duty to act honestly.” I found this interesting because while I’m inclined to agree about honestly, and I have modelled my entire career about being the honest, real-estate insider, there is going to be a massive difference in opinions about what is honest, and what is considered “negotiating.”
This reader took issue with the fact that I said if I received an offer on a property with a May 1st closing date, and my clients wanted a May 1st closing date, that I might tell the buyer agent we wanted a different date, so I could eventually faux-concede that tenet of the offer, and build leverage for myself and my seller elsewhere.
This, in its very most basic form, is called “negotiating.”
The Toronto Maple Leafs have several unrestricted free agents this summer, some of whom they may elect to re-sign, some they may not. Let’s say that defenceman Ron Hainsey is offered a contract by the Vancouver Canucks. And let’s say Ron Hainsey has zero desire to play in Toronto next season. Perhaps Ron Hainsey tells the Canucks, “My heart is in Toronto, and I really want to stay there,” in attempts to build leverage.
With respect to the commenter, her version of “negotiating” exists only in a fantasy-world with the proverbial rainbows and unicorns.
The world is a brutal place. Absolutely brutal, in its realities. Some don’t see that, and personally, I envy them.
I wish that people could agree on everything, everywhere, all the time. But that’s unreasonable. And, if I might us a word that was use to describe myself above, unrealistic.
I’ve had the topic of “Renovictions” in the blog queue for about three months now, with four articles from the major newspapers hitting my reading-list.
Renovictions are problematic, no doubt about it. On their own, or as a microcosm of our large-scale housing issues.
But as I always say, there are two sides to every coin.
Ask any layman in Toronto, and he will tell you that “Tenants have far more rights than landlords in the city.” Disagree if you wish, but those in the know wouldn’t hesitate stake the same claim. After the Liberals introduced the Fair Housing Plan in 2017, it essentially created the concept of a “lifetime tenant.”
With landlords no longer being able to legally evict a tenant unless they, or a member of their immediate family, were going to occupy the property for residential purposes for a minimum of twelve months, it meant that a tenant could essentially stay forever, if he or she chose, provided that the landlord did not want to occupy the property, or did not want to sell the property with the tenant attached, to a buyer who also wasn’t moving in him/herself.
This was an absolute game-changer in the real estate industry, and it made landlords choosier than ever. I would argue that this plan backfired in some ways, since the so-so tenants that landlords might have taken a chance on in the past, would find it far more difficult to gain approval today, with landlords knowing that they can never get the tenant out.
One of the only doors left open to landlords in the new rental frontier is a “renoviction;” a word that has a negative connotation to tenants and tenant advocacy groups, but is actually just a term used to describe a legal eviction on the grounds of plans for a large-scale renovation.
These renovictions are supported by some, and not others, and that too goes without saying. As I mentioned at the forefront of this blog, the best discussions on TRB are those for which there is no consensus of opinion.
The issue I see with renovictions is that it’s all a matter of perspective.
The opinions, and conclusions, are based on the narrative that’s being used.
For example, consider this headline:
“People Are Fleeing The City: How Renovictions Are Forcing Renters To The Edge Of Bankruptcy”
That sounds awful, right?
There’s no case to be made that bankruptcy is a good thing.
Except that, as those of you who choose the article will see, the bankruptcy is not only the result of the “evil” renoviction, but rather the choice of a person to borrow money from a predatory lender, in order to rent a subsequent property of their choosing.
The article is looking to connect several dots toward a pre-determined conclusion.
Like I said; it’s all about perspective.
Consider the photo I used as the feature for today. A refresher:
Did I choose that photo to subconsciously lead the readers to believe that all “renovictions” are for properties that are falling apart?
We know that there are all kinds of dubious renovictions, many unethical, some borderline illegal.
But that photo gives the perspective of a property that needs to be renovated, and thus might lead a casual reader to have a more favourable opinion on renovictions right from the onset.
So what if I used this photo:
This photo shows an empty room, which was where I was initially going with the theme.
An eviction leads a property to be vacant, so I searched for “vacant property” and this photo came up.
It looks like a nice picture, it’s appealing, and so I added it to the queue for consideration.
Had I used this photo, the reader would have been more likely to think about renovictions as unnecessary, in that they really just serve to “jack up” the prices of rentals, as the CBC article above noted.
So what if I used this photo:
Yikes.
Somebody with their hands out, that’s never good.
“Renovicted, now in need. Please help.”
That’s what the photo says, and if it were used at the onset of this blog, again, a reader might begin reading in a completely different mindset.
So then what does this photo say?
I think you get the idea.
But truth be told, I usually look for 3-4 photos before each blog post, often with differing themes, and then pick one for the feature photo.
Any of these could have been used.
And they all would have shone a different light on a subject merely called, “Let’s Talk About Renovictions.”
The point I’m making is that the term “renoviction” already has a negative connotation, even though it’s legal. So then when we write an article linking bankruptcy to renovictions, in a cause-and-effect manner, we’re straying even further from the existing reality.
With respect to the author of that CBC article, the idea that renovictions cause bankruptcy is ridiculous. There’s no cause-and-effect. There’s the legal renoviction, the tenant’s choice as to where to go, and how to find his or her way there, then the choice to borrow money at a predatory rate, and then the effect of, potentially, at some point, going bankrupt.
A cause-and-effect between a renoviction and bankruptcy, by the same logic, would excuse somebody for robbing a bank because he needed money.
This is all coming off as very harsh, I get that.
But my issue here isn’t so much with the renovictions, as much as how they’re being portrayed, and the message that articles like the above are sending.
Case in point, this article as well: “Not Sure Where I’ll Go;” With A Renoviction Looming, This 79-Year-Old Renter Is Urging Local Governments To Act Now
That’s absolutely heart-wrenching.
The headline is awful, but the photo of this kind old lady is tear-inducing. I can’t help but picture my mother in a decade, and wonder, “Why aren’t her kids looking after her?”
Nobody wants to see this, and yet I’m caught somewhere in between feeling sorry for this woman, and ignoring the obvious slant on the story by the author and the publication, and realizing that renovictions are legal and, in many cases, beneficial.
Yes, beneficial.
And that’s problematic for those that want to paint them all with the same, evil brush.
An adventure in the nature of trade is not evil. It’s not uncommon, it’s not unusual, and it’s something the government welcomes with an associated tax rate.
If an individual engages in commerce, purchasing a residential building, and then at some point down the line wants to renovate the building to increase the rents, this probably falls into the most basic category of “keeping up the value of an asset.”
This is basic commerce, and while there are all sorts of opportunities for this to go awry and become unethical or predatory, on its basic merits, it’s merely commerce.
If and when the individual, who took on the associated risk of the adventure in the nature of trade, decides to put, say, $300,000 into the property, to increase the asset value, and the income stream, then that $300,000 goes back into the economy.
This isn’t a bad thing, is it?
Architects, lawyers, accountants, electricians, plumbers, carpenters, general contractors, drywallers, flooring installers, window installers, sheet-metal workers, concrete mixers, roofers, landscapers, day-labourers, and dozens of other gainfully-employed individuals will be provided with paid work during the course of this renovation. And in the end, the government will make money from taxing their wages, as well as likely making more money on a higher property tax base for the newly-renovated property, not to mention the higher income stream.
Everybody wins, except for the people who were evicted.
Er, renovicted.
So how in the world are we to distinguish between those renovictions that are “okay,” and those that aren’t?
The Toronto Star article above showed no less than three photos of that poor old woman with her canes, struggling to get up stairs at one point. Should we feel bad for her, but not the professional pot-smoker living in a Queen West dump who’s landlord wants to overhaul the property?
This merely opens the door to discrimination, or selective emotion.
The truth is, I have no idea how we police this. I never said I did.
I do, however, see the economic benefit to renovating old properties, and as I would argue against the union who wants to keep assembly-line jobs in lieu of groundbreaking technological advancement, I would also argue that we can’t outlaw renovations and subsequently renovictions, just because it displaces people.
The person that worked hard to purchase a property and rent it out gets absolutely zero sympathy in today’s society. Maybe from 70% of the TRB readers, but not from the folks outside these Internet walls, no way, no how.
So what in the world do you do about this?
“Tenant Advocates Protest Evictions From Riverdale Rooming House”
If the individual who owns that century-old, carved-up, run down property wants to tear it down and build anew, should he be able to?
If it means displacing existing tenants, should he be able to do as he pleases with the property?
I think he should be. If all the tenants are on month-to-month agreements, and there is no legally-binding long-term lease, then what’s the problem?
Now what if the owner wants to “spruce up” the place.
That is where we fall into a grey area.
Don’t get me wrong, there are a whole lot of folks out there today that would argue the individual owner should NOT be permitted to evict the tenants to tear down the house and build anew, or build a ferris wheel, or put up a hot-dog stand. You will never convince those folks otherwise.
But as for the grey-area, consider that the owner of the property described in this article is actually looking to keep the property as a rooming house, but wants to do major work, and thus raise rents when the work is completed.
There is no grey area according to the law here. This renoviction is permitted.
But it’s grey because it just has that shady feel to it. That’s not exactly a scientific definition, but neither is “the smell test,” and that’s simply how this feels.
I feel as though the entire discussion about “renovictions” as an unethical practice simply masks the larger issue in our city as it pertains to our housing crisis. Call it a microcosm if you want to, but I see it as a textbook example of the laws of supply-and-demand working in full force.
Except for the cases, when it’s not.
Hmmm…see how we have a problem here?
Anthony
at 8:40 am
Yeah I read that CBC article and after the first paragraph I thought it was an advertorial for licensed insolvency trustees! Same as the radio ads we hear al day long.
Kyle
at 9:10 am
The City is really to blame for this mess, not sure why they’re protesting in front of this poor landlord’s property instead of City Hall. If only these dummies would realize, that he’s not the enemy. Quite frankly he’s already gone above and beyond. These ridiculous over-bearing protests targeting individual landlord’s have one surefire consequence, and that is to further reduce supply in an already scarce market. Any one even remotely considering being a landlord, who reads this is not going to touch rentals with a 10 foot pole.
1. There is inadequate supply of rental properties at all levels, much of this is due to zoning. It is the City that is creating this scarcity issue.
2. The City should be responsible for providing affordable housing not private landlord’s. If a venture is not profitable (i.e. providing affordable housing) why should that responsibility be foist upon a private citizen who invested his own funds at great risk, simply because the City does not want to do its part?
Chris
at 9:26 am
Ok, maybe I’m too far removed from the Toronto rental scene, because I just do not fully grasp the concept of “renovictions” and how they work in the face of our current laws.
The Residential Tenancies Act stipulates:
“If a tenant is given a notice because of extensive repairs or renovations, the tenant can choose to move back into the rental unit after the repairs or renovations are complete. The rent must be the same as the rent before the tenancy was terminated.
If the rental unit is located in a residential complex that contains at least five residential units and the tenant does not give the landlord a written notice stating that they want to move back after the repairs are completed, the landlord must give the tenant an amount equal to three months’ rent or offer another rental unit that is acceptable to the tenant.
If the tenant lives in a residential complex that contains at least five residential units and gives written notice that they will be moving back into the rental unit once the repairs are complete, the landlord must give the tenant an amount equal to the rent for the lesser of three months and the period of time that the unit is undergoing repairs or renovations.”
http://www.sjto.gov.on.ca/documents/ltb/Interpretation%20Guidelines/12%20-%20Eviction%20for%20Personal%20Use.html
So the renovicted tenant has first right of refusal for the newly renovated unit at their previous rental rate, and/or gets three months rent as compensation.
I suppose the landlord could apply for an Above Guideline Increase of rent, but the RTA also limits this:
“The maximum annual increase allowed in an application based on capital expenditures or security services or both is 3% above the guideline. Where more than 3% is justified, the rent is increased by 3% in the first year and any remaining increase may be taken in subsequent years, to a maximum of two additional years at 3% each year.”
So realistically, if you’re renovicted, could you not just move back in once the renovations are completed, at your old rent + ~4-5% (depending on that year’s guideline increase)? Am I missing something here?
I get that it’s inconvenient to have to find a new place to live while the renovations are ongoing, but I think the laws are strong enough as they are. What else are we going to do, prohibit landlords from renovating their properties?
Not Harold
at 12:47 pm
We should really increase the above guideline rate and time period.
Should be 10% and no limit until costs are recouped.
The current rules mandate slumlords unless you have tenant turnover.
Actually we should end security of tenancy and have a maximum tenure of 5 years. If people aren’t moving, buildings aren’t being maintained and we are encouraging people to stay in areas where they can’t succeed. IF you can’t afford to move, you shouldn’t be able to stay.
This would create a force strongly encouraging people to move to more affordable areas, get better jobs, get higher wages, or leave the country. The law shouldn’t encourage ghettoization and slumification.
Chris
at 8:27 am
The current rules are not perfect, and could probably use some updates. However, arbitrarily limiting tenancy to a maximum of 5 years does not seem like a reasonable step.
steve
at 9:26 pm
” … the renovicted tenant has first right of refusal for the newly renovated unit at their previous rental rate, and/or gets three months rent as compensation” ….
Consider what would the motivation be now for the landlord to perform the renovation under these new conditions?
Chris
at 8:32 am
Sorry, what do you mean by “these new conditions”? These are the current laws as they are written, not some new conditions that I have proposed.
As to a landlord’s motivation to renovate, could be to increase resale value of the property, raise rent above above guideline, or command a higher rent if/when tenants vacate. There are probably other, less common motivations (e.g. landlord intents to move into rental unit eventually, so renovation may personally benefit them) as well.
Condodweller
at 9:46 am
I thought Andrew’s comment was one of the best and most insightful comments. Some times it takes a neutral third party to recognize something.
I like a good negotiation however some tactics become a moral/ethical dilemma. Just because something is legal it doesn’t necessarily make it right. I have no issues with using a faux-closing date to better a position; it’s up to the other party to call the bluff if they are also an astute negotiator. My issue is with negotiations in bad faith such as being asked to improve my offer when my offer is the highest which could be by a good margin. Again, it’s up to me to call the bluff and walk away but I still have in issue with it.
I am a highly principled person and I’d like to think that I would not resort to such tactics if I were on the hot seat. In fact, I know I wouldn’t because I have been there. Unfortunately, it’s the old adage of nice guys finish last. If you are not willing to step on the throat of your competitor it just might make or break your practice. I happen to believe in karma as I have seen things come back to haunt people who dealt in bad faith.
There are two sides to this debate and neither position is wrong it just depends on the person. Ethical investing is a good example of this. Ethical investments typically underperform so-called unethical ones and yet many people still do it.
Regarding today’s topic, landlords have been backed into a corner and are forced to use creative ways to “evict” a tenant. It is up to the landlord to act in a morally and ethically correct manner. Or not. They are the ones who have to look themselves in the mirror at and sleep at night.
Housing Bear
at 10:15 am
Good points above.
Just wanted to clarify a point from last Friday. Not all new agents are scum, not by any stretch of the imagination. Tons of new agents are just younger honest people trying to establish a viable career path. My point was that there are the snakes out there, and the snakes jump from industry to industry chasing stupid money.
Stephen
at 11:15 am
I think you’re missing the main issue on this one David. It’s totally understandable if a property is falling apart and is in need of repairs, that a renovation is done and a tenant is “renovicted”. And in those cases the current tenant is supposed to be given the chance to come back to the unit after the renovations are done.
The main issue with renovictions that people are facing these days, is when unit is already in good repair but is renovated (usually with cosmetic upgrades) in order to specifically evict the current tenants paying a low price, so that the landlord can then charge a far higher rent to someone new.
I am absolutely a capitalist – but being a capitalist doesn’t mean we need to treat people (and our tenants/customers) as if they are worthless. Someone’s home is such an important part of their life, and if they are a good tenant who pays on time, and treats the property with respect, they should not be forced out just for the sake of higher profits.
A simple focus on profits above everything else is the reason for so many issues in our world today. It’s time for businesses (and landlords) to do better a job within our capitalist framework.
David Fleming
at 1:08 pm
@ Stephen
I agree with you 100% on the landlords that evict tenants with a pretend-renovation so they can find new tenants at massively increased rents. I am a capitalist, but I too believe in structure and even the most basic form of common decency and morality.
I do believe, however, that the rent control introduced in 2017 has resulted in a massive increase in renovictions.
It’s always the way, isn’t it? Unintended consequences of legislation that governments don’t see in advance?
Not Harold
at 1:16 pm
Everyone has a different standard of “acceptable”. You should see fights in some condo buildings about redoing lobbies and hallways.
Scuffed walls, torn carpets, 50 year old appliances, and heaved counters are all “just cosmetic” if you have a certain mindset.
IF you don’t want to ever move, buy a house. Landlords should be able to end a tenancy for any reason, but should have to give 6 months notice for evictions not due to non-payment or catastrophic damage/emergency repairs.
Verbal Kint
at 1:42 pm
You and David seem to suffer from the same problem… A desire to opine on how things ought to be and how laws ought to change (a focus for politics and philosophy blogs), rather than a focus on how things are and how they’re likely to change (THE focus for investment/finance/real estate/landlord blogs).
I understand David’s motivation. He’s here to stir up debate, drive traffic, and thus market his services. What’s your excuse?
In re landlord tenant law reform (and MUCH else), I suggest studying:
https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence
Condodweller
at 1:26 pm
“The main issue with renovictions that people are facing these days, is when unit is already in good repair but is renovated (usually with cosmetic upgrades) in order to specifically evict the current tenants paying a low price, so that the landlord can then charge a far higher rent to someone new.”
I didn’t read the linked articles but I suspect this is the reason David has brought this up. There is nothing wrong with landlords following the rules and renovating places which need renovation. The issue might be with people using questionable means to get tenants out in order to get a new higher tenant in. This is an interesting issue considering landlords might justify it by saying their hands are tied by government regulations.
Condodweller
at 1:27 pm
I meant to say higher paying tenant.
Jennifer
at 4:02 pm
Youre referencing me above. I think I know something about negotiating since i studied it in law school and not whatever school agents went to to learn about negotiation. I see it in the real world where people end up in court or negotiations break down because of lies. There is a big difference between “playing poker” (not revealing certain information) as a commentator says above and lying. One is ok, the other is not. It comes down to ethics which most agents lack.
The use of deceptive tactics in negotiation only adds to the bad reputation agents have. Youre not doing yourself (agents) any favours, especially since you could probably or should be able to get to the sale price you want in ethical ways.
Libertarian
at 5:29 pm
Perhaps this is why OREA came out today and asked the gov’t to ban bully offers. It doesn’t solve everything you mention, but it’s a start. It would solve all the problems David talked about on Friday. But I realize it would make offer night more of a shit show.
Jennifer
at 6:33 pm
True it’s a start. But OREA represents the interests of agents, not the public. Not sure why out of everything out there going wrong, bully offers are the main/only thing they focused on with the buying and selling process. Perhaps it was because of the things David said, more so to do with agents that have no idea how to handle them rather than protecting buyers/sellers, making the process better, etc.
RPG
at 7:57 pm
Clearly Jennifer being a lawyer not only makes her correct on all matters, but also gives her a moral high ground from which to look down at the rest of us. I call this “Trudeauing.”
But what if the next commenter is a rocket scientist? Jennifer, would you concede your brilliance and ethical edge?
Julia
at 10:12 pm
LOL
Mike
at 10:44 pm
She’s a lawyer!!
https://m.youtube.com/watch?v=o6USfwpV1eo
Appraiser
at 7:00 am
Jennifer lost me when she declared that she learned how to negotiate in “lawyer school”
Chris
at 8:35 am
Appraiser, what are you talking about?
What Jennifer said was:
“I think I know something about negotiating since i studied it in law school”
Nobody said “lawyer school”, so not sure who you’re quoting there.
Condodweller
at 10:16 am
It looks like the trolls are out in full force. None of them have any counter argument of any kind all they can do is poke fun at the person. It’s worth noting that she is actually correct.
@Chris his petty attempt at diminishing Jennifer’s training really does nothing to raise the value of his stock in this forum.
Katie
at 10:49 am
I’m not so sure this is trolling. Jennifer basically told us that her attendance at law school and current occupation made her opinion far more valuable than not only that of the author of this blog, but also we commenters. She opened the door to lawyer-bashing, and since lawyers are historically the most hated occupation on the planet, I sort of think she got what’s coming to her.
Let us not forget that while there are far too many real estate agents as David regularly acknowledges, there are far too many lawyers. Parent and grandparents rejoice, “My daughter is a LAWYER,” when in reality the world needs far fewer. Didn’t the previous provincial government scrap the articling program so lawyers who couldn’t get jobs (ie. as a result of lack of demand for hoards of kids coming out of law school) would still be able to practice law?
There’s trolling and then there’s just calling out nonsense. Our opinions all count the same on here. It doesn’t matter what law school you attended.
Condodweller
at 12:31 pm
Definition of trolling:
https://www.urbandictionary.com/define.php?term=Trolling
Technically it is RPG who is trolling, the rest are I don’t know, trollees?
Jennifer made some strong but fair statements which can be argued either way. Lawyers seem to touch a nerve with readers but I am not sure what a person’s profession has to do with the argument. Whether one is a lawyer or a rocket scientist I would expect them to back up their statements. She has used her training in law school in an attempt to provide validity to her statement on negotiations/ethics.
The only issue I have is with her “It comes down to ethics which most agents lack.” statement which could be true but I hope it’s not.
People are making a lot of assumptions here. There is no nonsense to call out other than the responders’.
RPG: “Clearly Jennifer being a lawyer not only makes her correct on all matters, but also gives her a moral high ground from which to look down at the rest of us.”
She never stated that she was a lawyer. People just assume that because she is going/went to law school.
There are some professions which hold their practicioners to a high ethical standard. Often there are grey areas where an argument can be made for several positions however when looked through the optics of ethics there are positions to avoid.
What David calls hard negotiation, some might call unethical. If the RE industry wanted to hold themselves to a high ethical standard, I am sure many tactics agents employ would be deemed unacceptable. But given that as David has said before, even their current rules are not enforced I would not be surprised if Jeniffer’s statement about most agents being unethical were correct.
I don’t know much about what it takes to become a lawyer and current issues and don’t really care as it has absolutely no bearing on the topic at hand.
Now shall we get back on topic?
Jennifer
at 2:26 pm
Lol. All the comments are great but they fail to see that I am responding to David’s comment telling me I live “in a fantasy-world with the proverbial rainbows and unicorns…. The world is a brutal place. Absolutely brutal, in its realities…..” I wish I lived there.
@Katie and the rest He made assumptions about me that I know nothing about the real world / negotiation and live in a world with rainbows, when I replied to give context that I live in the world opposite of that where I have training in the area, deal with these issues all the time and see the results of things going wrong. I’m not sure why you feel that because I have law training that means I think my opinion is more valuable than others or that it is correct. My reply was correcting David’s incorrect assumption about my experience. You could’ve replied with arguments both for or against what I was saying, not go nuts about lawyers and make even more assumptions about me.
Condodweller
at 3:10 pm
Ok, now it makes sense. I wasn’t sure who you were referring to with “Youre referencing me..” I actually searched for Jennifer and it didn’t hit on that comment as he referred to you as another reader and I didn’t recall the comment. Wow. He could have just called you naive and spared you the insult. He is a stand-up guy perhaps an apology will be forthcoming.
What I don’t get is according to his team page he has a marketing manager. If she doesn’t do PR he should hire someone who does to filter these things out prior to publishing. IMHO of course.
Kyle
at 9:00 am
Thanks to the one-sided tenant protection laws, the moral of this story is whenever buying a property tenanted property where rents are way below market, make sure to get a vacant possession. Get a minimum 60 day (90 days is much better) close and make sure the Sellers have served the N12. After posession, move in a suitcase and toothbrush and say you’re living there. Wait out the year while you do renovations and then you can do what you want with the place.
Sure this displaces a whole bunch of renters, but with the one-sided laws, what do you expect? And as you can see from the lanlord’s experience in Riverdale, trying to accommodate the existing tenants only works against you.
Housing Bear
at 9:56 am
The rent situation is going to take care of itself and pretty soon we will be back in an environment where landlords are happy to have a tenant who stays put for 5 years with the normal annual allowable increase.
Housing bubbles lead to rent bubbles as well. 1. People begin speculating on properties, many leaving them empty, this removes rental supply from the market. 2. As more people get priced out from buying, they remain renters which increases demand for rental. 3. When the market starts to turn, people become more reluctant to buy again increasing demand pressure on rental supply. 4. Even though we have record investor owned condo supply on its way, when the DIY landlords realize negative cap rates do not look good in a no growth/ falling price environment many of this future supply as well as some of the current supply will be removed from the market as landlords decide to sell. This will further reduce supply but will be the final push up for rents. 5. After this point, both prices and rental rates will drop. Average rental rates for available units will drop back down to what the average renter pays in the city (includes people who have been renting same unit for 5+ years)…… maybe lower if have a bad recession………. Yes renters will eventually be in a position where you can call up your landlord and tell them that you want your rent reduced to the same as the available unit down the hall or you are leaving.
Toronto is late stage 3/ early stage 4.
Vancouver rents are just starting to turn – I would say late stage 4 for them.
Australia is now well into stage 5
https://www.news.com.au/finance/real-estate/sydney-nsw/tenants-save-big-on-rent-as-rising-housing-supply-forces-landlords-to-cut-prices/news-story/e9035bbc8598c1a00c39a674d42b69a8
Stephen
at 10:25 am
I think you need to actually get out there and see things first hand instead of talking about things from a theoretical standpoint. The rental market is brutal and it’s not going to get better anytime soon. I would urge you to actually go out and check out existing rental units, or talk to people who are trying to rent – check out a Facebook group like Bunz Homezone and see how many people are struggling to find places. There aren’t a ton of empty units like you say there are – the vacancy rate is extremely low and there is so much demand for rental units right now. The fact is the city is still booming – our job market is far larger and more diversified than Vancouver and we continue to receive a large number of immigrants that the city simply cannot accomodate. As a relatively young person (27), I’m amazed at how many people I know are moving downtown and are paying crazy high rents. Most of them face bidding wars on rental units. I also still see many people my age wanting to buy places – some more successful than others.
I know that you’re a perma-bear, but like I said, I would urge you to hit the pavement and see things firsthand. Because what you’re saying does not match up with the reality of what’s going on out there.
Housing Bear
at 10:50 am
Never said the supply is available today. Was not available in Vancouver 6 months ago, was not available in Australia a year + ago.
2017, van rents surging, record low vacancy rates, immigration, no land, GOV bad etc – https://vancouversun.com/news/local-news/vancouvers-rental-housing-soars-while-vacancy-drops-cmhc-report
Syndey in 2017 – https://www.abc.net.au/news/2017-03-04/sydney-house-prices-hard-for-renters-too-says-real-esate-company/8325168
When I got my current rental unit fall of 2017, I was up against three other bidders. I won because I offered to pay the landlord up front for the year……….. had the cash on hand because I had just sold my house……. wasn’t always a bear.
Stephen
at 11:27 am
I don’t know much about the Sydney market – it’s a completely different city in a completely different part of the world with it’s own set of challenges. One thing I do know, is that their banking system was far more lax than Canada, and they had a lot of people doing “interest only” mortgages where you didn’t have to pay anything towards your principal for a period of time – not sure we can really use it as a comparable.
Vancouver is so much smaller, and has far fewer opportunities than Toronto. From an employment perspective the cities are not even close. Toronto is a top 10 global financial center, a tech hub, an entertainment hub, a medical hub, a university hub, etc… Vancouver has pretty mountains and the ocean and that’s about it.
As I’m sure you know, real estate is hyper-local and I’m not sure it makes sense to compare Toronto against other cities like this.
Housing Bear
at 11:57 am
You’re right about Australia’s mortgage standards. Worse than ours and yes the interest only mortgage will be a major issue for them. Actually can’t believe they were that stupid considering what those types of loans did to the US a decade ago. We are not perfect in this regard though, we do interest only through HELOCS…… but at least it is smaller and is contained to existing owners vs net new ones.
The real estate is hyper-local narrative has some truth, but my position is influenced by looking at macro factors vs micro ones. Micro factors – sure some areas rose faster and by more than others on the way up, and some will fall slower and by less than others on the way down…………… But what led to all of these places going up at the same time (Toronto, Vancouver, Sydney, Melbourne, some US cities, many european ones as well) ? That would be macro factors which includes primarily the impact of low global interest rates which causes global money to chase yield and quantitative easing which put way more money into the banking system to than be lent out to chase yield. Canada and Australia were a very popular destination for all of this cheap and plentiful global money. Both came out of the GFC much better than our other western peers. Both of our resource based economies got a huge boost due to China’s unprecedented debt and building spree (They pored more concrete between 2010 and 2013 than the US did in all of the 20th century). Our run up in prices were also magnified by the fact our household balance sheets were also in much better shape than our western peers after the GFC. Our people were in a much better position to take advantage of low interest rates and the plentiful cash to chase and compete with global capital in the run up of our prices.
Our household balance sheets are now in a worse position than our US counterparts were before their crash………. The macro factors are reversing. I do not think Toronto will crash as hard as Vancouver Sydney or Melbourne as we do have better micro factors than they do, our ship is built better, but the tide that lifted all ships is now on its way out.
Housing Bear
at 12:05 pm
Also, yes Australia’s housing bubble is worse than ours but this only makes it easier to observe the relationship between housing bubbles and rent bubbles.
Should also state that rents will not fall anywhere near as much as prices on a % basis. Rents are much more tied to local incomes, and the pressure on rental prices happens towards the end of the buying price run up and continues into the early stages of the correction.
Short term for Toronto I see rental prices continuing to rise. As i said above, I think we are end of what i called stage 3 going into early stage 4. We may see a further reduction in supply in the short term
Clifford
at 7:29 pm
I don’t get why people bring up Sydney either. Majority of their loans were interest only ones. Their lending standards much more lax than ours. It’s typical Bear talking point.
As for the rental market. I have been a landlord for about 10 years. Renters and then the government are to blame for this mess. The one sided renting rules along with rent control. I mean, what did people expect?
daniel b
at 5:59 pm
you know you could also look at, like, Toronto, as a reference point for rent performance in a RE crash. Rents went up through the early and mid 90s even as prices fell.
not saying a rent crash is impossible, the future’s a tricky thing, just that if your analysis is based on comps, i’d say use longitidunal as well as cross sectional.
Condodweller
at 3:48 pm
@HB In #4 If a landlord sells that means either a new purchaser or an existing renter will occupy it. Given we have a shortage of supply to purchase, the price is not likely to drop. Also, for a renter to purchase a unit from a landlord the price would have to go down assuming the person is renting because he/she couldn’t afford to buy in the first place, correct? This wouldn’t lead to lower rents.
Given that developers have to presell most of their units we are not going to have an 89 style meltdown with a huge surge of supply. Back then, there was a huge rental supply as owners could/would not sell which just about halved rents. That’s not likely to happen in our current environment. The only risk of oversupply is the gap of unsold units preconstruction which immigration will probably continue to soak up. I still believe that with reasonable unemployment rising interest rates are the most likely suspect for a correction and even that isn’t looking very likely anymore.
Considering a significant crash is unlikely and unaffordability is keeping a lid on prices, it looks like we’re headed sideways for the foreseeable future.
Housing Bear
at 6:13 pm
Sorry for not making it clearer. Point 4 is mainly talking about the record construction we have under way for already presold units. Over 50% of the units on their way are “Investor” owned. Investor owned meaning that they already have at least one other property. Of these investors, I am not sure what % of them were planning on being landlords vs flipping for a profit but based on units that were completed in 2017 (presold in 2012-2015) 44% of the investor segment were cash flow negative based on 2017 rent prices. The stuff presold in 2015-2017 which is now on its way, will be in a more negative cash flow position, so not sure how may investors were planning on being landlords in the first place, think very few of them will decide to be upon completion. These presales were also mostly done before the first rate hikes and all were done before b-20. My point is that while this potential supply would greatly relieve the rental supply shortage, most of these investor units will not initially hit the market as rental supply. These investors who would be losing money month over month, or may even have trouble closing, will chose to sell the property instead. As 3-4 years worth of investor demand starts to unload into a market of only end user demand, the resale market will be flooded with supply which will then start to push sale prices down. New investors will not be willing to jump into a falling price environment until cash flow and cap rates makes sense, current renters with the cash may be reluctant to pull the trigger in a falling price environment. The impact on sale prices will cause existing cash flow negative investors to reconsider their investment. This may involve selling the unit with a tenant (has to be at a price that makes sense to next investor) or trying to get rid of the tenant to be able to sell to an end user (reduction in supply). Some people like me might even sell and chose to rent for a while to see what happens. Everything said so far should actually have the impact of reducing rental supply and increasing rental demand……. however rental demand is much more tied to income. If all of your income is going to rent, whats the point? At some point people will start to seek opportunity elsewhere, we may see immigration numbers drop as well (decrease in demand)
So what finally gets rents to drop? Few scenarios – a) Sales will never drop to zero, and many will continue to bet that the rebound is right around the corner. Some current renters will decide to buy (lower rental demand). Some investors might even decide to take a chance (increase rental supply). b)Prices have dropped to the point where well enough capitalized investors decide its not worth the capital loss and decide to eat the monthly loss = putting the unit back on the rental market for whatever it can get (increase supply) c) some of those investors/end users go bankrupt, a trustee fire sales the property for what ever they can get and this is either sold to an end user (reducing rental demand) or a new investor who thinks the cap rates makes sense (Increasing rental supply).
Also, something I use to argue about on here is that even a slowdown (flat prices falling sales and construction) in our RE market would most likely lead us to a recession, due to how much of our economy is employed and come from RE related industries (about 20% of GDP) and the fact that 2/3rds of our economy is tied to consumer spending. Rental rates always drop in a recession.
To your last point, about the fact that unlike the late 80s/early 90s, that builders are now required to “pre sell” 70-80% of their units. First, all this really does is shift risk from the builder to the presale buyer. Also, I would call it “reserved” instead of “presold”. Most buyers/investors are only putting down 15-20% and are dependent on financing conditions when the building is complete. As mentioned above, for the record supply on its way, the buyers/investors reserved most of this before first rate hikes and before b20.
Condodweller
at 9:21 pm
That’s a lot to digest, let me start at the end. You have an interesting point about presold units being reserved. I think we agree that reduced rents i.e. higher supply depend on much lower house/condo prices. The question becomes what will trigger this.
I think it’s safe to assume that most investors are buying small units (studio, 1bed, now micro). As prices are increasing the affordability threshold is lowered to the same small units. I think that any forced investor sales will still be soaked up by owner-occupiers. I read that all the pre-construction units in the pipeline are still not enough to satisfy rental demand and as I said purchase prices would have to drop significantly to trigger renter migration to owners or new investors to free up demand.
I would also tend to agree regarding your thoughts on a recession all though I would question your numbers as your two values add up to 86% which I highly doubt is the case, assuming the two are mutually exclusive which they appear to be.
Housing Bear
at 9:44 am
Lots of overlap, if anything you would say 46% of our economy is consumption based excluding RE related industries. Consumption based/ consumer spending economy is basically everything but government spending, private sector spending and investment, and the net between imports and exports. The fee you pay your RE agent, RE lawyer, staging company, contractor etc would be included in this.
Point there – 20% of our economy would be directly impacted by a RE slowdown or contraction. Another 46ish% would be indirectly impacted by a slowdown in consumer spending as a result of increased debt servicing costs, job loss, negative wealth effect, reduced access to credit etc.
daniel b
at 6:02 pm
the trick is to pin up pictures on a cork board and then tie pieces of string between them, it becomes very clear at that point…
daniel b
at 6:04 pm
you should get into the percentage of GDP that is “imputed rent” and do some figuring on how that does or doesn’t fluctuate in a downturn, or more accurately, on how fluctuations in imputed rent do and don’t impact the economy.
Jennifer
at 4:01 pm
@condodweller your replies were the only ones that focused on the issue. So that’s positive. But I dont really feel that I need an apology – it’s a blog post and then forum for discussion. He made a point, I replied and we move on. In fairness, I know about him and he knows nothing about me. But hence why assumptions should not be made, generally.
mcb
at 4:55 pm
I know people who got reno evicted, they were given 5 minutes to vacate the property.