Trust me folks, I did not want to write about this. I mean it.
But I knew I had to. I just kept putting it off, like at 10:15pm on Wednesday night when you know you have to take the garbage out, but you’re too tired to get off the couch, and the longer you wait, the more likely you are to forget, or convince yourself you can do it in the morning. But then what? The next morning, the truck comes earlier than usual, and you miss your chance completely…
Well, we can’t have that here.
This topic is just too important.
Last week, no fewer than seven blog readers emailed me the following article:
“Landlords Shouldn’t Be Allowed To Raise Rents Between Tenants, Says Toronto’s Top Housing Official”
For what it’s worth, I saw the article on my own too. It appeared in multiple news feeds, was emailed in two industry newsletters, and I also had an agent come to the door of my office with a physical paper copy of the Toronto Star (who has a newspaper anymore??) and remark, “Did you read this shit?”
The headline says it all, folks. You almost don’t need to read the actual article itself, but that would be falling in line with the 99% of people who actually do fail to read the article, having simply perused the headlines, and even in 2022, I think it’s still cool to be different.
When I read articles like this, I get frustrated. And not as a real estate agent, so please don’t go down that road. Not as an investor, or a capitalist, or a home-owner. I get frustrated because “ideas” like this are thrown out by people who have no knowledge of, or don’t care about, any of the consequences, ramifications, or the fallout from such an idea.
What are we talking about?
We’re talking about price-fixing by the government. Call it “regulation” if you want, but that’s not what it is. It’s the government, once again, punishing those individuals who choose to seek gains in the free market, while asking those individuals to bear the responsibility and cost of affordable housing.
I understand how expensive Toronto is, but I’ve long maintained that it’s not a right to live here affordably – according to one’s own level of what’s “affordable.” It’s a privilege, it’s not for everybody, and there’s certainly some luck and happenstance involved. If I announced tomorrow that I planned to move my family to Paris, you’d laugh if I complained that I lacked the funds to buy that 4-bed, 5-bath flat being offered for an “unfair” $30 Million.
It’s expensive to buy in Toronto. It’s expensive to rent in Toronto. This is a problem, but that problem has many roots, one of which is this notion that we “should” make it affordable for everybody, regardless of what the free market bears.
A cynic will suggest that a “free market” isn’t always completely free.
Any market has external influences and is affected by external factors, the most impactful of which is almost always the government.
But to suggest that the government step into the rental market and take the “free” component out of this “free market” is so incredibly naive, but more importantly, short-sighted.
From the article:
Toronto’s top housing official wants to see the end of an Ontario rule that allows landlords to raise rents by any amount between tenants — arguing the change could help curb the financial incentive for landlords to eject long-term renters.
The rule, known as vacancy decontrol, means that while current tenants in rent-controlled homes are guaranteed an annual cap on rent increases, there is no restriction on the price asked of new tenants when a unit turns over.
It’s a rule tenant advocates have long said increases instability for tenants, who fear it gives their landlords an incentive to push them out if they’re paying lower rents. Some officials, however, argue it’s necessary to encourage investment in the rental housing sphere.
In a report going to council at its next meeting on Tuesday, housing secretariat executive director Abi Bond says the city should ask the province to tie rent control rules to residential units, rather than the tenants who inhabit them.
The proposals are all broadly aimed at curbing “renovictions.” In Ontario, landlords are allowed to evict their tenants if vacant possession is required for renovations or repairs, with the tenants allowed to return after the renovations at a similar rent. A “renoviction,” however, refers to cases in which that system is abused by a landlord to elicit turnover and bring in higher-paying tenants, or for other improper motives.
This is where things get even more insane.
“Renovictions” exist but in a very small capacity. When they happen, their stories are told over and over, to the point where one renoviction is going to feel like twenty.
I have been in the business for almost two decades, and I have personally never experienced a renoviction. Not one. Not on behalf of a tenant-client or on behalf of a landlord.
So here we are, trying to “curb” renovictions, by making a sweeping, across-the-board change to the free market for rentals.
This is insane. Absolutely insane.
This is like saying, “I once stepped in gum, so we shouldn’t allow the production of gum anymore.”
If you want to curb renovictions, then curb renovictions. But to suggest that removing the ability for a law-abiding, tax-paying, property-owning individual to set their own rent, in a free market, is going to “curb renovictions” is ludicrous.
But maybe “Toronto’s top housing official” per the article, already knows this?
Maybe this is just an end-around toward removing the free component of the free market?
There’s nothing wrong with a free market here, folks. Let me work through an example…
John owns a condo. He bought it with his after-tax dollars. He paid land transfer tax to two levels of government. He will pay tax on any profits he makes upon the sale of this condo, and tax on any rent he obtains. He has decided to take on the risk associated with being a landlord in the province of Ontario, and rent the property out.
He figures the market rent, set by the interaction of buyers and sellers in a free market, is about $2,000 per month.
John rents to Laura and Mike for $2,000 per month.
After one year, the market for rentals has increased, and the condo could rent for over $2,100. But Laura and Mike are not leaving, so John can only raise the rent according to the rent increase guideline, which this year is 1.2%. John then increases the rent to $2,024 per month.
The following year, market rent is about $2,250/month, but Laura and Mike are still in the condo. The rent increase guideline this year is 2.4%, so John increases the rent to $2,072.58.
Inflation is a bitch, let me tell you! Running at 3.5% in the first year, and 4.4% in the second year, John’s rent increases are netting him less! Oh, economics are so fun!
One year later, rents have skyrocketed and John could get $2,450 per month for his unit, but Laura and Mike are still present, so he increases the rent by the allowable rate of 2.2%, which brings him to $2,118.18.
The next year, Mike and Laura decide to leave.
John puts the unit up for lease for $2,500/month, but six people make offers! Two people offer $2,600 per month, one of them provides six months of rent up front, and John has found himself a new tenant.
Meanwhile, on a bizarro planet…
…housing secretariat executive director, Abi Bond, believes that this is a bad thing.
BOOOO COMMERCE!
DOWN WITH THE FREE MARKET!
John should not be permitted to offer his condo for lease at a price of his choosing, but rather the government should tell him what to do, in this case, tying rent-control to the unit, not the tenant, and thus he should only be allowed to lease the condo for $2,146.28, or some such amount.
For the love of doG, folks.
This is truly the tipping point for our society.
I understand that life is expensive and to most people, it’s unfair. But where in the world is the logic here? And where does this lead us?
And if we did this here, then where else?
Gas is expensive.
How about when prices fluctuate, in this free market, we simply cap them when we so choose?
From today forward, gas is only to be sold at $1.80 per litre. And we’ll increase the amount at, well, say, one cent per year! Amazing!
And now what? Ummm, nobody wants to sell gas in Canada…
Milk is expensive. It sucks, right? Having paid $3.99 for a carton of milk, pre-pandemic, and now looking at $4.99? That’s a 25% increase for something as important and a part of our daily routines as milk! So we should not allow Loblaws, Sobeys, Metro, et al to increase the price of milk, regardless of the cost of producing the milk. The price of land, farming, machinery, gas and transport, packaging, marketing, refrigeration, warehousing, and store-shelf-stocking, be damned!
We want cheaper milk, dammit!
Just like rent!
Can you imagine if the “free market” worked like that?
Imagine if a government had the power, ability, and inclination to step into a free market and regulate prices, anywhere, any time, for any reason?
Wait, what is it called when private and profit-based societies are replaced with government control and public ownership of natural resources, lands, means of production, and regulation of pricing of goods and services?
Hmmm…
So let’s cap rents. Sure, why not?
But will the government then cap interest rates, guarantee a rate of low inflation, provide subsidies for vacancy, and unwind punitive landlord-tenant laws and regulations?
Of course not.
But does “Toronto’s top housing official” care in the slightest? Unlikely. Just another naive, willfully-ignorant idealist trying to live in a utopia within a fantasy.
And what would be the fallout from all of this? What would be the long-term effects?
Well, for starters, people would stop investing in real estate.
“Yay! Amazing! We did it,” rejoice the legions of equally uninformed dreamers who fail to understand how this city was, is, and will continue to be built.
If nobody is investing in real estate, and individuals cease to purchase properties to rent out, then nothing gets built.
Ever. Again. Period.
An overwhelming majority of all pre-construction condos are sold to non-users. Call them investors, flippers, speculators, or money launderers; I don’t care which, but they are the reason that condos sell out, and thus they are the reason that condos are built.
We all know that Toronto has a supply problem in the real estate market. I’ve been saying this for ten years, and now when I read other agents’ opinions on social media, politicians being quoted in newspapers, and columnists offering the same – all parroting what I’ve been saying, I know I can pat myself on the back until I develop a bruise.
Not only does Toronto lack adequate supply today, but they will continue to lack adequate supply tomorrow.
Stop building new supply, and we’re really screwed.
Stop building new supply and allow 400,000 people to immigrate to the country every year, and we’re totally “effed,” as the kids say.
With every passing day, the government is trying to make it more punitive and less attractive to be a landlord in Toronto and Ontario, and this is so short-sighted, and has awful long-term ramifications.
In June, I wrote the following:
“The Friday Rant: Punishing Good Deeds”
I talked about a landlord-client who has a problem tenant, since the tenant seems to think the condo is his.
The feedback from the readers was mixed, with some readers suggesting that the landlord should have prepared for the worst and strategized accordingly.
But is that really where we are right now? People need to prepare for the worst?
A colleague came by my office on Friday and told me about one of her problem listings. The property was sold and the tenant refused to accept the N11, even though the buyer of the condo was going to move in himself.
This dragged on for months, well past the scheduled closing date, and the tenant filed a complaint with the LTB.
Eventually, the seller had to let the buyer out of the purchase. It had been four months since the scheduled closing date, over six months since the sale, and the LTB still had not provided a date for a hearing.
Then guess what happened?
The tenant just up-and-left.
Zero notice given. He just packed up and moved out in the proverbial “middle of the night.”
Forget about paying the next two months’ rent or anything CRAZY like that!
How about the shit-storm he caused over the last half-year?
Since the sale in February, the market value of this condo has tanked. The sale price was absurd at the time, especially for an older building by the waterfront. But if a property like this sold for, say, $1,730,000 in February, it would probably only sell for $1,500,000 today.
The original buyer is long gone. And even if he wasn’t, would he agree to pay $1,730,000 for that condo today? A mutual release had been signed last month, so there’s no obligation here.
That tenant cost his landlord $230,000, and there’s nothing the landlord can do about it.
So what’s the landlord going to do now?
Nothing.
He’s going to leave the condo empty.
He has no interest in putting another tenant in there, and vacancy-tax be damned, he just doesn’t care.
This is what can happen when legislation is over-reaching. The rules in place right now favour tenants and are so over-the-top, that some landlords are just saying, “screw it.”
So here’s one more rental unit that’s not going to be available to the rental pool.
The irony of this situation isn’t lost on me.
Legislation allows for the landlord to be screwed by the tenant, since the landlord can’t get the tenant out, and the landlord loses a bundle of money in the process. But legislation doesn’t allow the landlord to keep the property vacant, without a cost.
Damned if you do, damned if you don’t.
So what should landlords do? Just drop off the keys at Queen’s Park?
If we continue to see new legislation take effect that punishes landlords, then we won’t have any more landlords.
If we don’t have any landlords, then what are people going to rent?
Because the city and the province certainly aren’t building rental housing. They’re leaving it up to the private sector do to so. But if the private sector, whether that’s a billion-dollar REIT or a mom-and-pop investor, lose interest in building, maintaining, and/or owning rental properties, then there’s absolutely zero plan moving forward.
Politicians and civil servants at both the Toronto and Ontario levels are so short-sighted and I honestly don’t know if it’s deliberate or not.
I understand that rents are expensive, but to simply say, “Let’s make sure they’re not expensive anymore” is a childish response that lacks any concern for the ramifications.
Another day, another bad idea.
Anybody have any good ones?
Lindsay Smith
at 8:46 am
One of the best quotes I have read along these lines with regards to our government… “take the money from those who have earned it, give it to those who have not in exchange for their votes, and call it “social justice.”
Mxyzptlk
at 9:58 am
“…take the money from those who have earned it [and] give it to those who have not.”
But who has the right to declare that person A “earned” his or her money while person B did not? Many of us are far to quick to declare “poor” people lazy rather than looking at the myriad factors that contribute to their situation.
Alex
at 11:15 am
Very easy. One doesn’t need a right to declare who’s earned it or not. It’s mostly a fact.
Example 1, Sana and Moe have worked many years, made good investments, saved money and decided to buy real estate as in investment and now makes money off that investment. It doesn’t take a rocket scientist to know that he has earned that money.
Example 2, Susan and Mike also work but instead of saving they prefer top live in the moment and go on two vacations every year, have a new car every 4 years and have no interest in being investors. Again, doesn’t take a rocket scientist to figure out they haven’t “earned” it.
Common, let’s be real here…
Mxyzptlk
at 9:53 am
I was obviously referring to people who have to get by on minimum or near-minimum wages, not those who take “two vacations every year, [and buy] a new car every 4 years,” who can hardly be described as “poor.”
Condodweller
at 12:57 pm
There are increasing calls for universal income as a significant number of jobs are expected to disappear in the near future due to AI and robotics. That will essentially mean they will have to use taxes to pay the universal income to those with no prospects for a job. That’s essentially taking money from the haves and giving it to the have-nots. I can see this unfold quicker than many would expect. Robotics has solved the problem of human movement for the most part, and there is talk of AI becoming sentient. Put two and two together and you have replaced human workers with robots. Unless you are a billionaire, you may not want to fight too hard against taking money from those who have it and giving it to those who don’t.
I want to make a distinction between those who earned their money vs those with unearned income. Clearly, I would not want them to take it from those who are working hard just to keep their head above water. Our current tax system where once you make over 220k you are taxed at over 50%.
The taking needs to be from the super-rich. Based on reports I’m seeing this should be no problem to the point where they probably wouldn’t even notice it, yet it would make a world of difference to the rest. According to one report, the top two wealthiest people in the US (Musk/Bezos) have an equivalent wealth as the bottom 50% of the US population. Process that for a second. Another report says the top 10 wealthiest people in the world have doubled their wealth during COVD. This, after a recent report showed how the rich are getting richer at the expense of the middle class. I.e. the middle class is disappearing. It used to be that the top 10% owned 90% of the wealth. Even then, it was highly skewed towards the top 1%, but now things have really shifted where the top 1% own pretty much everything.
Vancouver Keith
at 6:19 pm
Forty percent of Canadians earn so little money, they don’t pay net federal income tax. That’s why tax cuts only appeal to a minority of people, and you can get elected by promising people free money. Welcome to the consequences of a low wage, low salary country with a relatively high cost of living and super expensive housing.
Alexander
at 10:51 am
Just another “great” idea from a new “progressive” agenda pushing landlords to the brink. Really makes me think twice to be or not to be a landlord in Ontario again. After listening to those horror stories and having quite a few of my own I will try a stock market instead. There is no point making ( or losing ) money if you cannot legally protect your investments. Maybe one day when all levels of government realize that new 400K immigrants have to live somewhere.
cyber
at 11:02 am
Outside of whether this particular policy proposal is a great idea, unless one is the staunchest of libertarians then the literal role of government, even in the most capitalist system, is to address market failures, i.e. situations in which leaving things up to the “free market” results in a broadly economically and/or socially inefficient outcome.
Providing public goods like police services, fire protection, education or healthcare is one example where government intervention addresses failures of the free market. Just look at the US healthcare situation as a counter-example – they spend more per capita on healthcare with worst health outcomes among developed countries.
Price controls are certainly some of the tools that are very legitimately used to address market failure in still very much a capitalist context. Just look at anything that resembles a “utility”, i.e. capital intensive businesses that, left to their own devices, tend to evolve towards natural monopolies in certain regions and then price gouge the consumers in a way that stifles rest of economic activity and output. If Toronto Hydro was allowed to charge “what the market can bear” without restraint, would you support that too? I’d argue the Canadian government is not doing enough in certain segments, like telco (as we recently experienced during the Rogers outage), where we as consumers and businesses – and as a result, economy as a whole – are less efficient and competitive on the global scene because we pay the most in the world for these services without even getting “top tier” of service either. If effectively both liberal and conservative politicians seem to have agreed for some reason to maintain Canadian-controlled oligopolies, then they should at least have the decency to fully and properly manage these like utilities and put a cap on profits/prices and legislate minimum service requirements (e.g. fast internet everywhere).
Housing is interesting for many reasons including (1) access to affordable enough housing can be argued to be a “public good” similar to the way access to healthcare is (2) impacts of lack of affordable-enough housing is likely to result in negative externalities like higher crime that are bad for both society and economy as a whole (3) even without the “equity” lens, with housing costs as an ever-increasing and exploding % of disposable income, and the sector at 10% of Canada’s GDP – higher than any other OECD nation and exceeding the amount of business investment into Canada – is becoming a liability because the economy is way less productive than “full potential” as a result of both housing being seen as a better investment target than anything else we make or sell, and consumers’ decreasing ability to support other sectors of the economy through their personal spend. So making this investment less attractive would benefit the economy and society as a whole… same way making utilities a less attractive investment does.
There’s certainly many better ways to address housing prices than getting rid of “vacancy decontrol” – such as up-zoning Toronto’s “yellow belt” (i.e. the massive chunk of residential area that’s SFH-only) into 4 units as of right, a better version of CMHC insurance for new rental buildings, enabling faster tenant removal for lack of rent payment so landlords are not pricing in this risk, and bringing anti-money-laundering to developed nation standard to prevent “snow washing” of shady global capital via Canada’s residential real estate especially in major cities that are the economic engine of the country. But there are also others that would be very effective but also more controversial, e.g. only allowing foreign capital into commercial rental properties, or net new residential units (directionally to what New Zealand has done), or not allowing corporations to buy single family homes. (This last one is what a lot of REITs have done in the US, buy enough detached homes in a market so that they’re effectively able to accelerate price increases way beyond what would be “market” in a more distributed ownership context.)
But what is difficult to argue is that Canada’s housing prices do not represent some form of market failure, which it’s not government’s “job” to address even in a capitalist context. I do broadly agree that they should focus on measures that are more likely to work, and to work fast, than the ones that “sound good” to the average Joe.
Appraiser
at 12:04 pm
Not gonna happen.
Condodweller
at 12:20 pm
Interestingly enough, when they introduced rent control again I assumed that the cap would stay in place once a tenant moved out. I mean logically, if the intent is to limit rent increases getting out of hand, it makes sense to do this. The real question should be why didn’t they do this in the first place? We can argue about free markets, landlord rights, fairness to tenants, or stifling rental builds but perhaps there is an alternate solution one that comes to mind is to let corporations do the rental building and incentivize them. Maybe then we would have sufficient rental units and condos can be left for principal residences which might incentivize builders to build more family friendly units instead of ones geared to investors speculating on price increases.
I distinctly recall seeing a “maximum rent” on the rental agreement of one of the first units I rented back in the early 90s in a rental building. This being shortly after the 89 crash I guess rents had also declined as the rate I paid was about half of the maximum listed on the lease agreement. Why would that have been? I imagine people flocked to buying properties once they suddenly became affordable which meant the tanking of the rental market. I recall seeing for rent signs everywhere which probably meant that people who overpaid for houses were putting them up for rent in an attempt to hold on to them. I assume that this led to the crashing of the rental markets as well. I say I assume as I have no idea what the rental market looked like prior to this other than the indicators of that high maximum amount and the tons of for-rent signs.
BTW I saw a documentary that showed how in Berlin they froze rent increases during COVID but it was overturned in court as being unconstitutional. They looked at RE and rental costs all over the world, including Canada, and the only country that has sufficient housing is Japan. Apparently, they use houses as planters as people abandoned them as they are not worth the upkeep. If you’re looking for affordable housing and you find yourself priced out of other Canadian markets, you might want to take a look at moving to Tokyo.
Geoff
at 5:30 pm
This will never happen — but I did say in my comment on this article that I’d never be a landlord. And it’s funny, you’d think the government would want people like me who could be a landlord to become one.. but I have no interest in being a landlord in a situation where renters could walk all over me.
Vancouver Keith
at 6:17 pm
We could invest billions into public housing, like we spend billions on bridges and tunnels and world fairs and Olympic games. It could be paid for, by repurposing government buildings made obsolete by work from home, and leveraging government owned land.
A co op model could build the housing, lease the land for a dollar a year, use government borrowing power to get cheap money, and finance all of it with affordable means based rental income. You would have a modest return to the old middle class because people would have money above shelter cost to spend in the local economy.
It’s a subsidy of course, and we have far too many that don’t work. But in a society which provides welfare of all kinds, to all income levels, every kind of business in terms of tax breaks and free money, it seems to me that providing affordable housing is the most personally leverageable assistance a society can provide. It would be the biggest socially stabilizing program possible in this crazy day and age.
The problem we have is increasing income and wealth inequality is eroding the stability of society. It will end in revolution. We no longer have safe streets, B.C. just had a resort shooting followed by a suburban shooting – of homeless people. One in five British Columbians doesn’t have a family doctor. We are growing an underclass of people with nothing – and nothing to lose.
Anwar
at 7:23 pm
The Canadian government is spending $24 million to have the Pope come and aplologize. Can’t he do that on Zoom and save us $24m, or force the church to pay? This country spends too much money on dumb shit. Too many humanitarian handouts across the world when we could be housing, feeding, and providing better healthcare to our own. I’m convinced there’s enough money to build affordable housing but it’s always being spent on other garbage.
Condodweller
at 8:29 am
It’s an absolute disgrace how politicians waste our money. They waste billions, never mind millions. Yet they can’t find funds to provide dignified housing for the homeless.
W can start with the billion dollar gas plant scandal. Then as a bonus, the privatisation of hydro. And we thought the Russians had the monopoly on oligarchy by transferring public assets to private ownership.
https://nationalpost.com/news/email-destruction-case-highlights-ontario-liberal-moves-that-have-added-billions-to-electricity-costs
I bet Ontario housing might have been able to maintain their units with some of that money to stop the roof from falling in. I’m sure some food banks would have been happy with some of that money. But no, let’s spend close to $100,000 for food service on a political flight for a few people.
cyber
at 12:59 pm
You think billion dollars is a lot of money? Try $35B earmarked for the Canada Infrastructure Bank, whose specific mandate has been to attract private capital at a 4:1 ratio to public investment into revenue-generating projects… and which has had trouble both deploying its own capital allocation and getting private capital to follow. What would be a great potential use case for this, perhaps revenue-generating but still below-market priced housing?
https://www.theglobeandmail.com/opinion/article-the-canada-infrastructure-bank-good-idea-in-principle-bad-idea-in/
Daniel
at 6:13 am
Aren’t we going to address last week’s ice cream conundrum?
David Fleming
at 4:37 pm
@ Daniel
I think this deserves its own blog post, at this point…
Libertarian
at 10:28 am
This post and a lot of the comments can be summed up by….What should be the role of government?
We have three levels of government, three mainstay parties plus other fringe parties, the impact of COVID, and how does the future look rather than looking at the past and what has been done over the years.
We as a society have to decide on what we want Toronto, Ontario, and Canada to look like. Can’t pay for everything, so we have to prioritize. Then we have to find politicians who will implement that.
J G
at 10:39 am
If the rules are made up to be so in favour of the Tenants, maybe that’s the point! They don’t want too many LLs. Reduced demand -> better affordability.
If people still choose to be LLs, then stop complaining about the rules! I personally think stock market does better from an investment perspective, it’s a lot less hassle. Everything I do on my computer, I can trade a bit more when I have time, or go passive when I’m busy.
I’m a LL myself for many years, so I know the work required. But relatively my stock portfolio is larger.
Realtors will always fight for LLs since LLs are their clients, not renters. Everyone has their own interests.