This isn't a rant against renters, but it's really hard to see the benefits of being a landlord in Canada's largest province, where rent control and other rules continue to severely limit profitability.
The latest proposed change in Ontario, one of eight provinces with some form of rent control, would have seen tenants' fixed-term leases renewed, rather than on a month-to-month basis as is currently the case, subject to annual indicative increases for units that existed before 2018.
Ontario had planned “consultations” on this key issue, something landlords wanted for income security reasons, but Municipal Affairs and Housing Minister Rob Flack scrapped the idea.
Still on the table are changes aimed at speeding up delays at the Landlord and Tenant Board (LTB) that have caused disputes between tenants and landlords to drag on for months. The termination of a tenant is obviously a main reason for going to the LTB.
“We've had a lot of conversations about the delays,” said Tony Irwin, president and chief executive of the Federation of Rental-Housing Providers of Ontario. “I speak to a lot of landlords and some felt they had no choice but to sell their properties or get out of the business because of a lack of certainty around the housing system.”
Irwin said Ontario's Conservative government is still making changes to the process that would speed up conflict resolution. It can take six to seven months to reach a judgment, and enforcement is added to that. Waiting times have halved in the last year. Tenants see this as speeding up the eviction process.
“Keep in mind that landlords will not receive rent payments during this time,” Irwin said. “And there’s little chance they’ll get that rent back.”
You can say “tough luck” to landlords, but the reality is that such a climate deters investors. Between a third and 50 percent of condos in the Greater Toronto Area have been sold to investors, and while they came in as speculators, owning a condo also has a rental component. Or it should be.
The latest statistics from the Building Industry and Land Development Association show 15,875 unsold condos in the area, and sales are 90 percent below the 10-year average.
For the Association of Community Organizations for Reform Now (ACORN), the issue is straightforward yet understandable. The group sees rising rents and its supporters fear homelessness. How can you not have compassion for someone who is homeless?
“It doesn't have to be this way. We need stronger rent control, not less. That means rent control for every building, even new ones, and for every unit, even after tenants move out. Our current system allows people to be pushed into homelessness while corporate landlords make money. Eliminating rent control would make it worse. It's time we start putting people over profits,” said Alejandra Ruiz-Vargas, the Canadian president of ACORN, in a statement to the Financial Post.
His heart is in the right place, but it doesn't reflect the reality that the profit motive drives real estate investing. This includes owning a real estate investment fund. When you see condo REITs with a four percent yield, I'm not sure they're huge corporate profit machines.
Real estate must be competitive and outperform cash equivalents due to the risk, or why invest in an apartment? Unless you rely 100 percent on capital growth? We've been playing this game in the high-rise condo market for two decades, and as valuations decline, rental yields don't come close to justifying the investment.
If anything, the investment thesis is only getting worse as property prices fall and rents fall too. According to Rentals.ca, asking rents nationwide fell for the 13th straight month, falling 2.2 percent year-over-year to $2,105
Renters will argue that $25,000 of your income going toward rent on an average apartment in Canada is ridiculously high relative to income, and perhaps they're right. However, this does not change the thesis for the investor. This $25,000 does not include costs. Landlords get rich through rent? Not if you consider an alternative place where they could park their money with less risk.
Giacomo Ladas of Rentals.ca said the story is a little different depending on where you are in the country. In Alberta, rents are up about 20 per cent compared to three years ago, but in British Columbia and Ontario they have remained flat over the past two years.
“I think we're going to see more of that,” Ladas said of rental prices in Ontario and B.C. being hurt by a slowdown in immigration. “Demand is declining and will continue for some time.”
Sam Kolias, chief executive of Boardwalk REIT, Western Canada's largest housing investment trust, said that while rents have risen quickly in places like Calgary and Edmonton, the lack of rent control in Alberta and Saskatchewan will allow those provinces to respond quickly to market situations.
“The evidence is very clear: the highest rents in Canada, where there is rent control, are in Ontario and British Columbia,” Kolias said. “The stricter the regulations become, the more difficult investments become.”
Robert Hogue, deputy chief economist at Royal Bank, said he believes rent regulations are factoring into investors' purchasing decisions today.
“Look at the developers of new condos, they have almost no sales this year, and that's largely because there are no investors in condos, and they're not there because the equation doesn't add up from either a capital appreciation perspective or a rental perspective,” Hogue said.
It's one thing to say that rents are too high relative to income across the country, but any legislation or barrier that makes it more difficult to get a competitive return on your investment, such as rent control regulations, drives investors out of the market.
Proponents of rent control can argue, “Great, we don’t want investors owning apartments.” But where will your supplies come from in the future? Be careful what you wish for because it could lead to a worse housing crisis.
• Email: gmarr@postmedia.com