Remember what a mess the housing market was a year ago?
Renting’s like that now, but arguably worse because there is no immediate hope for a turnaround. With housing, we had an idea that a correction was coming because interest rates were rising. Renting is an open-ended, multifaceted disaster that includes an aspect we’re not talking about enough. It’s greedy landlords.
Apologies to all the good landlords out there who help keep the rental market stocked with places for people to live. These are the landlords who understand that the ability of their tenants to absorb rent increases isn’t infinite, and who maintain standards of order and cleanliness in their properties. It’s a subset of landlords that are problematic – the ones making a bad rental market worse by exploiting their tenants.
Housing issues are usually, and appropriately, framed in terms of supply and demand. When demand to buy or rent exceeds the supply of housing for sale or rent, costs for buyers and tenants go up. But there’s a human element to renting that sets it apart from home ownership.
Renters are often people who can’t afford to own. They’re young adults starting their careers, newcomers to Canada who are just settling in and singles who can’t exploit the economies of having a partner to share costs. In today’s rental market, these groups are getting crushed.
Average rents in November jumped by about 16 per cent on average across the country for one- and two-bedroom units compared with a year earlier, with 10 or so cities across the country near 20 per cent or more. Toronto and Vancouver, yes, but also Calgary, Burnaby, B.C. and the Southern Ontario cities of St. Catharines and Kitchener.
It’s not just the rising cost. The hot market for rentals means some pretty sad places are being rented out. Toronto Life recently looked at five “affordable” rentals, including one with a mattress on the floor in a hallway and another with no kitchen and a doorless wreck of a bathroom.
A lot goes into building a rental market like this. Start with an inadequate supply of rental units that are affordable for middle-class people, as opposed to footloose boomers who sell the family home for a pile of money.
Ontario is one of a few provinces with rent control, but it doesn’t cover newer dwellings. Rent control does protect tenants against outsize rent increases, but developers argue that these rules are a disincentive to build new rental buildings that don’t cater to a luxury niche.
Getting more rentals built is a five-alarm priority right now. Every municipal politician should be graded on the measures taken to upgrade the stock not only of houses, but also rental units that are middle-class affordable.
Rising mortgage rates also contribute to the rental problem. Investors who own rental properties face much higher financing costs, which they pass along where possible to their tenants. High mortgage rates also make home ownership unaffordable, which in turn means more people must rent while they wait to buy.
Demand for rental units is fed as well by the housing needs of the 1.45 million immigrants we’re bringing into Canada over the next three years to build up our aging work force. A recent RBC Economics report on growth in the rental market noted that immigrants typically rent for the first five to 10 years in Canada.
We’ve seen landlords do the right thing before. Early in the pandemic, they lowered rents and offered discounts to existing tenants to entice them to stay. In part, the recent surge in rental costs is an overcompensation for that earlier generosity.
But there’s also landlord greed that seeks to camouflage itself in a hot market resembling what homebuyers experienced at the peak. Yes, there are bidding wars for rental units and properties that go on the market and get snapped up in minutes.
There’s an exasperating level of political ineffectuality on improving things for renters, so blame politicians for the rental mess. Blame the inflation surge that required higher interest rates. And, blame the landlords who are squeezing harder than they have to in order to profit in a market starving for affordable accommodations.
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