Monday Morning Quarterback: Now THIS Is The Tipping Point!
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.
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?
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?
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?