Real Estate

Toronto rent skyrocket after new regulations reduce supply and increased demand

  • Last Updated:
  • Jan 29th, 2018 9:34 pm
Deal Addict
Jan 27, 2015
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Edmonton, AB
WinterSleep wrote:
Jul 7th, 2017 6:12 pm
Typically, for better or worse, a lot of minimum wage earners spend money on fast food restaurants, which in fact should help your uncle. And the portion of wages is probably much lower than you'd think for a business anyway.
Lots of armchair business owners are chiming in, so let me re-state facts:

The restaurant is open 7 days a week and for ~75 hours. Let's say the restaurant needs only 2 FTE employees, so that's about 150 hours per week. An extra $2/hour (let's set aside the extra cost for CPP/EI/Benefits, etc.) will cost the business roughly $300 a week more. Or over $15K a year.

This is the absolute best case scenario where by there are only 2 FTE employees and the cost increase is only $2/hour. Obviously the cost is way more as there are more than 2 employees.

Capital gets allocated to where it will yield the most money. Capital is blind, it has no feelings, and it doesn't care about who is in power.

A $15K hit in profit means that capital gets re-allocated.

And no, you're wrong: just because these employees get more per hour, doesn't mean that they spend it on restaurants. Yes, in theory it works but in real life, their hours get cut and they end up in a worse position. Again, read the link that I posted above.
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May 31, 2017
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cartfan123 wrote:
Jul 9th, 2017 9:52 am
Complete swing and a miss. It's people like you that give landlords a bad name. Complete disregard for the rules. Whether they are fair or not, they are the rules. But if I guess if your tenant is willing to be pushed around I guess you can get away with it.

http://www.sjto.gov.on.ca/documents/ltb ... 5_2015.pdf
I have parents and grown up kids who I can always let them to move in for some time so it is not a problem at all to end the lease. Why do I have to suffer loss on my rental property forever because of the stupid rent control? When the government try to impose unfair law on us, we need to find a way to get out, we are not stupid, Canada is not a communist country, we are not provide housing for free to whoever the government let in
Penalty Box
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Dec 13, 2016
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TerenceP425899 wrote:
Jul 9th, 2017 10:01 pm
I have parents and grown up kids who I can always let them to move in for some time so it is not a problem at all to end the lease. Why do I have to suffer loss on my rental property forever because of the stupid rent control? When the government try to impose unfair law on us, we need to find a way to get out, we are not stupid, Canada is not a communist country, we are not provide housing for free to whoever the government let in
Some time is 1 year.

I think you will lose a lot more with this arrangement than simply have the existing tenant stay. I am also in the same position and am probably renting 25% below market price. However, I had a steady tenant in the past 4 years and he hasn't complained once.

That's probably hard to find in Ontario and I appreciate it.
Deal Addict
Jul 3, 2011
4871 posts
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Thornhill
You're right, Canada is not a communist country. If it was you wouldn't own rental properties unless you were connected to the politicos.

Canada though is a nation of laws.
TerenceP425899 wrote:
Jul 9th, 2017 10:01 pm
I have parents and grown up kids who I can always let them to move in for some time so it is not a problem at all to end the lease. Why do I have to suffer loss on my rental property forever because of the stupid rent control? When the government try to impose unfair law on us, we need to find a way to get out, we are not stupid, Canada is not a communist country, we are not provide housing for free to whoever the government let in
Deal Addict
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Sep 16, 2012
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You can still find secondary units in various parts of the GTHA for starting at 650-1000, condos units where never supposed to be used a replacement for actual rental units, as the housing boom continued,developers realized that condo developments offer less risk and start almost exclusively building them.
Deal Guru
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Mar 31, 2008
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Toronto
licenced wrote:
Jul 7th, 2017 6:02 pm
Earlier today one of the radio talk stations was discussing the effect of this and had on someone from Seattle which witnessed a minimum wage hike that everyone thought would kill small business. The host made made the disclaimer that while Seattle isn't Ontario it's worth noting what happened since.

According to this person whose title I didn't catch, at first businesses, especially the service industry which relies on low wages, found they had to juggle staff around, in order to not increase prices, that created efficiences within the industries, including staffing changes, which saw their profits rise.

But those efficiences proved detrimental to those whose rates would have been bumped up as their income dropped by $1,500 a year or $125 a month.
It will definitely force efficiencies and cut backs, but from what I recall, there are rules limiting the scheduling. Ie. can't cancel a shift within 2 days, can't send people home, etc. must be a minium amount of hours. Ultimately, businesses will do whatever it takes to keep that cost line flat as possible so I think there will be certain people not benefiting as much. I wonder if people tipping will be less compassionate towards the servers and will then start tipping less.
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Jul 16, 2006
315 posts
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cartfan123 wrote:
Jul 7th, 2017 2:26 pm
I have a buddy in the same boat with 2 kids stuck in the same rut. Even though this summer you can pick a place up without the bidding wars and have conditions...nope...gonna hold out for a crash. I pointed a few deals out here and there but not interested. I guess in another 10 years the kids will be off to university and they won't need more space anyways.

The market has stabilized at prices lower than Mar/Apr and the buyers are slowly and cautiously coming back. By the fall and with the Home Capital situation easing...I could see a sellers market coming back in the Fall. And no a 25bps point increase will not cool things down...in fact it's already priced into mortgage rates.

If you told me rates were gonna be 6% next year then I'd say look out below! but right now I just see some sideways action.
Like my Friends with kids, they will always use their kids as an excuse not to move. But cry about not having a home. I never understood that.
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May 31, 2007
5000 posts
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Rents had gone up way before the fair housing plan came into effect. The GOV only did rent control, to try and DO something.
Speculating, flipping, foreign buyers, empty homes, abuse of leverage to blame for increasing rents buyers became amateur landlords
Lack of investment in new apartment grade complexes did help either

1. Landlord increased rent so high now, tenants are at higher risk of defaulting. (Reminds me of junk bonds). Much risker for landlord and they have almost poor legal recourse and no rights

2. Empty homes tax in Sept probably be introduced. So landlord beware: there are estimated 15-30k homes empty. 1% tax already started in Vancouver. This can flood market with rentals.

3. Increase rent means nothing if housing correction continues down: Any gains you make are being wiped now really fast. Some average detach down 200-400K in a few months now. Plus you have RE/lawyer, capital gains and or income tax to sell. Tenant can walk away anytime with almost no recourse or liability- landlord you are stuck holding the bag.

Considering the risk in market and collecting rent so high the market may not bear, the "increase" doesn't look so appealing.
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Apr 21, 2004
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^ You think the market peak hit this year won't be breached in the next few years?

Once interest rates move significantly higher (say 2.5%, doubling the current rates), my bets of reaching another high will be closer to zero. But if it's a few bps here and there, then maybe prices will slowly inch up in a more balanced fashion.
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Jun 12, 2017
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alanbrenton wrote:
Jul 10th, 2017 3:46 pm
^ You think the market peak hit this year won't be breached in the next few years?

Once interest rates move significantly higher (say 2.5%, doubling the current rates), my bets of reaching another high will be closer to zero. But if it's a few bps here and there, then maybe prices will slowly inch up in a more balanced fashion.
Even if rates go up by 250bps, on a 1M mortgage, price would have to go down by about 239k, or ~24% (2.39% vs 5% @ 25yr amort) to keep payment the same. We are more than half way there and rates are not going up to 5% tomorrow. Up until mid-2016 the market was actually not that badly balanced and I hope those are the prices we return to before flatlining. A crash would be devastating for a province that relies on RE 29%.
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May 31, 2007
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alanbrenton wrote:
Jul 10th, 2017 3:46 pm
^ You think the market peak hit this year won't be breached in the next few years?

Once interest rates move significantly higher (say 2.5%, doubling the current rates), my bets of reaching another high will be closer to zero. But if it's a few bps here and there, then maybe prices will slowly inch up in a more balanced fashion.
Hard to say exactly where it will go but the outlook is not good. As investor or homeowner, you cannot expect price appreciation now considering the change in the market and other fundamental changes that are occurring.

What this means for landlords is they need to really think about where they're at, their exposure and impact of tenant risk.
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Apr 21, 2004
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Jungle wrote:
Jul 10th, 2017 4:23 pm
Hard to say exactly where it will go but the outlook is not good. As investor or homeowner, you cannot expect price appreciation now considering the change in the market and other fundamental changes that are occurring.

What this means for landlords is they need to really think about where they're at, their exposure and impact of tenant risk.
Lots of people, with multiple properties, unloading.

Yeah, I'm sure most would rather have tenants, and discount the asking rates, than face months without one. Even if rental units become scarce (in a particular area), I doubt someone will want to rent a $3,000 unit when maybe 10 blocks away along the subway line, there a few renting below $2,000.

When they try to ask for much more than what renters will bear, they run the risk of vacancy.

I wonder how often lenders are going to re-assess the value of the properties. Maybe only upon renewal? Some highly leveraged owners may not re-qualify though.
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May 31, 2007
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alanbrenton wrote:
Jul 10th, 2017 4:29 pm
Lots of people, with multiple properties, unloading.

Yeah, I'm sure most would rather have tenants, and discount the asking rates, than face months without one. Even if rental units become scarce (in a particular area), I doubt someone will want to rent a $3,000 unit when maybe 10 blocks away along the subway line, there a few renting below $2,000.

When they try to ask for much more than what renters will bear, they run the risk of vacancy.

I wonder how often lenders are going to re-assess the value of the properties. Maybe only upon renewal? Some highly leveraged owners may not re-qualify though.
Yes a lot of rentals been seen unloaded as landlords don't want to deal with fair housing plan, and made a fortune off housing lottery.

The problem (and a loop hole IMO) with renewal is that many amateur landlords have kinda side stepped regulations that were supposed to make the financing of rentals safe. For example to buy rental property, you must have 20% down as it's perceived risker than straight ownership, due to tenant and vacancy risk. Speculators have bypassed this by:

1. Buying for personal use using 5% down, then upon closing not actually occupying unit and just renting it out to tenant.
2. Using HELOC to finance 100%, avoiding 20% down or CMHC fees, then just renting it out
3. Debt service ratios and pre-approval not being assed on 50% rental income-because it's not being disclosed its a rental

In these cases banks will not know it's a rental. Problem is, it's being used by one and the framework regulations for such are not being following. This creates risk on the mortgages and lenders. I believe this risk is much bigger and systematic to the financial system should a correction occur.

So upon renewal it will be interesting if we see this being looked at along with proper measures and debt service ratios based on actual rental income, not investor failing to disclose use of property.
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^ All good points.

Do you think they used different lenders? I had the impression mortgages reflect on our credit file but I'm not so sure anymore. Maybe lenders do see that but I sure don't when I generated my own credit scores, courtesy of Home Depot.

Does CMHC insurance cover underwater mortgages, i.e. to make the lender whole in the event of a default?
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May 31, 2007
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alanbrenton wrote:
Jul 10th, 2017 4:49 pm
^ All good points.

Do you think they used different lenders? I had the impression mortgages reflect on our credit file but I'm not so sure anymore. Maybe lenders do see that but I sure don't when I generated my own credit scores, courtesy of Home Depot.

Does CMHC insurance cover underwater mortgages, i.e. to make the lender whole in the event of a default?
At title search and lien registration it's seen. Credit beaureu will show some of this credit hit upon application. And yes there are multiple lenders doing 2, 3 mortgages, b class lenders all subprime. The OSFI just made a regulation to this effect to prohibit co-lending or mortgage bundling, to what extent that is exactly I am not clear at this point but smells like stacked mortgages, 2, 3 lenders using mortgages/loans to avoid CMHC fees.

I don't believe CMHC makes good for the bank if a payment is defaulted, I assume it's only if house foreclose. Bank also sue borrow for recourse.

http://business.financialpost.com/perso ... 9ad058f401

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