Wednesday, April 11, 2018

Housing Affordability Crisis...A Complex Organic Problem, or a Politically Manufactured Crisis

Just reading the headlines for the last few weeks, you would think we had an intractable and organic housing affordability and supply problem.  Here's just a few snippets Google provided:

⦁    CBC: Ultra-low rental vacancy rates highlight "desperate" struggle to find affordable Housing

⦁    Globe & Mail:  Investors in Toronto Condos face growing risk that rent won't cover expenses

⦁    Globe & Mail:  Canadians struggle to find home rentals as prices climb, availability declines

⦁    Huffington Post:  Affordable Housing in Canada in Crisis a Rental Rates Climb, Supply Falls

⦁  Renters struggle as prices soar across Canada

⦁    BuzzBuzzNews:  Rent control was supposed to make renting in Toronto more affordable

⦁    CTV News:  Hot housing market increasing Ottawa's rental prices

⦁    CP24:  Housing prices threatening Toronto's ability to retain a world-class city

⦁    Toronto Star:  Is rent control making Toronto's vacancy squeeze worse?

In my mind, opening up 100,000 basement units for low-income tenants would be easy.  But the ideological bent of our provincial, and our municipal government in Toronto prevents this from happening. The irony in all this is that in spite of the government's recent efforts, the problem is actually getting worse.  No...not in spite of, but partly because of their efforts.  Let's look at some of the recent public policy decisions that were designed without public policy in mind, based only on pandering to voting blocks.

The most recent and arguably the most devastating were the 2017-2018 changes to the Residential Tenancies Act (the "Act") thanks to Premier Wynne.  They included changes to rent control and a number of other measures.  Condominium owners no longer have a way to recover costs of maintenance fees or assessments that outstrip the annual permitted rent guideline.  Landlords experiencing extraordinary increases in the cost of utilities can no longer file an application to the Landlord and Tenant Board (the "LTB") to raise the rent based on those increases.

There is now a new standard mandatory lease that shifts the balance towards tenants.  This lease will be mandatory for all landlords on April 30th.  The lease has some terrible shortcomings, but the government is plowing ahead. New Ministry Lease so Bad, it's Implementation should be Delayed

The Ontario Human Rights Commission has a policy guideline that makes every landlord, big and small, private and public, their brother's keepers and social workers.  At the same time, the policy guideline prevents landlords from acquiring information as part of pre-screening tenants that would allow them to make sound financial decisions.

The City of Toronto will soon be regulating AirBnbs, dreaming that this will bring housing back into the long-term rental market.  The City of Toronto created new zoning and bylaw changes last year, a quasi-licensing regime that will cost landlords (and tenants) money and increase complexity.  Many cities across the province have implemented expensive landlord licensing systems, where licensing and retrofits can cost the landlord upwards of $50,000.  Many are in the process right now of repeating this mistake.

Who does the province and city think pays for all this?  It's not landlords.  It's the tenants.  The moment that rent control was implemented on post-1991 buildings in April of 2017, many of those buildings Toronto condos, rents skyrocketed as landlords needed a hedge against their inability to cover their costs.

Change has happened incrementally.  Governments have practically nationalized private residential rentals, putting landlords front and centre while having them foot the bills to administer the government’s misguided social policy. Ontario has been the worst jurisdiction in Canada for piling impossible burdens on residential landlords.  Some examples include:

⦁    Our system of rent control.  Every economist will tell you that rent control reduces supply and creates slums.  Yet the province has strengthened rent control to the point that many landlords are now cash-flow negative.  Little wonder they are leaving the business in droves.

⦁    The government requires landlords to continue housing tenants for long periods of time even when no rent is being paid.  No interest can be charged on late payments and most rent-arrears are noncollectable after eviction.  Yet the Residential Tenancies Act permits easy lease-breaking if the tenant wants to move out before the agreed term is over.

⦁    The government refuses to allow damage deposits, and won’t allow a landlord to enforce “no pet” provisions in a lease. While eviction applications for smoking in non-smoking units are sometimes successful, it should be clarified in statute.  The new marijuana laws have been ignored by Ontario politicians, while other provinces, such as Nova Scotia, will allow landlords to evict tenants if they are growing or smoking weed.  Their refusal to address this will create an epidemic of legally stigmatized properties.

⦁    The government allows an automatic right of appeal of Landlord and Tenant Board (the 'LTB') decisions to the Superior Court, costing landlords at least 6 months and thousands in legal fees, even when no rent is being paid.

⦁    The Residential Tenancies Act is overly complex and too strictly enforced with respect to timelines; the law doesn’t permit “fixing” defective termination notices, a requirement that doesn’t extend to tenants filing and then amending their own applications to the LTB.

⦁    The RTA cannot end a tenancy after a hearing before an adjudicator, even if it’s about getting one’s own house back to move in or in the case of serious safety issues, if the landlord is found to be in serious breach of an obligation under the Act.  I’ve seen landlords forever lose the right to move back into their own homes based on a tenant’s inflated, exaggerated or entirely fictional complaints.

⦁    The RTA allows the tenant, without notice, without filing an application and without providing any disclosure, to make their own claims at a hearing that was scheduled to deal with rent arrears, delaying the matter another 6 weeks with a needed adjournment so that the landlord can prepare to defend against the often minor or imagined breach.

⦁    The RTA doesn’t allow sophisticated parties in high-rent situations to freely contract out of the prevailing statute, and won’t allow absolute fixed-term leases for a set period.  The RTA treats large, institutional landlords the same as someone renting out their basement.

⦁    The government’s own Policy Guideline on Rental Housing produced in 2009 by the Ontario Human Rights Commission doesn’t permit landlords to make sensible choices regarding income or lack of credit and tenancy history while conducting pre-tenancy application screening.

⦁    Worse, the Human Rights Code and its Policy Guideline upheld by the Courts don’t allow an eviction until the landlord, even the smallest single-unit landlord, has made efforts to accommodate a tenant’s refusal or inability to follow basic rules if that inability is caused by Code related issues.  Landlords have to accommodate the tenant’s conduct, at their risk and expense, to the point of undue hardship…practically the point of insolvency.  We all agree that those disadvantaged by disability or other Code-related factors need assistance, but shouldn't the dollars come from general tax revenues and not from small landlords...the easy targets?

⦁    The Ontario government refuses to protect landlords who risk renting to those on public assistance by not mandating that Ontario Works or ODSP pay the shelter portion of the tenant’s monthly allowance directly to the landlord.  Tenants on government benefits are among the most likely to face eviction, yet this simple change that would benefit both landlords and tenants is seen as too draconian by Queens Park.

⦁    The City of Toronto makes it almost impossible to get out of the rental housing business.  Try to get a demolition permit to knock down an old building at the end of its life, and the City will insist you replace it with more rental units.  That type of policy makes a joke of personal property rights.  You can check out any time you like, but you can never leave.

The shortage of affordable rental housing is now acute. But the Ontario government has washed its hands of it, and are practically begging landlords to rent out units despite the terrible risks they take and the unattractive environment government has created. But landlords are starting to shout NO.

The 2011 Strong Communities Through Affordable Housing Act, the 2016 Promoting Affordable Housing Act and now the recently announced Regulations at exclusionary zoning are honest efforts to create more accessory suites. But it won’t work and landlords won’t open up their homes until some of the risk is mitigated and the playing field leveled.  It is just too risky.

Some on the left are satisfied to retain tenant-centered policies that are creating this crisis.  They imagine that more social housing, built and operated by government will be the result. But the government coffers are empty.  Coincidentally, so are hundreds of thousands of potential basement apartments that could be freed up as affordable housing units.


Unknown said...

Good article. Reading back to your analysis of Airbnb rule changes, I think the significantly higher aggregate 'rents' overnight leases vs fixed term can generate is the main reason owners opt for short term. I think the onerous Landlord and Tenant protections are a big impediment to owners but ultimately they will rent to who they can for the highest price, as most do so to cover a mortgage or other expense. So I would disagree that rental supply won't increase as a result of the new Airbnb legislation


Ahkenaten Kor said...

Rental business is always more difficult when the city over-regulates. I live in NYS and my particular town eased up on landlords, making it easier for us to throw out tenants and doesn't bother us too much about code enforcement. They've come to realize that, for the most part, landlords like to do good business and that means cleaner properties and on-time tax payments, all of which helps the city.