Some reasons for Ontario Rental Housing Shortage
Annual rent hike cap – Is it a concern for landlord investors or not?
Ontario annual rent hike cap has received some criticism since the new rental rules were announced by the Ontario Government. There is speculation that rental hike caps will be responsible for Ontario rental housing shortage. This fear is based on the notion that investors may not see buying an investment property as lucrative as it has been for many landlords thus far. Typically, rental income from an investment property can carry mortgage and other expenses (in 70% to 75% loan to value scenarios) on that property. In some cases, the landlord even manages to get a positive cash flow from the rental property.
Ontario Rental Housing Shortage & Government Position
As per the Ontario Housing Minister Peter Milczyn, “The status quo of the previous rental control program wasn’t generating very many rental units either.” “So I’m listening to the industry. We’re monitoring what’s going on, but the reality is, over a number of decades, about six per cent of the housing built was purpose-built rentals.”
The provincial government is not keen on changing the rent hike caps. “I am listening to the industry, monitoring the situation, but we’re taking our action, which was to ensure there’s fair rental policies for tenants and releasing surplus provincial lands to build more rental supply”.
Ontario Rental Housing Shortage – Demand & Supply Gap
According to the Canadian press, there were 28,000 rental units in planning stage last year. About 1,000 of those units have either been shelved or converted to condos since then, according to a study by the Federation of Rental Housing Providers of Ontario.
If rental construction does not immediately double, further declines in vacancy and intense competition for available units is in the forecast. The annual supply gap could reach over 10,000 units within a decade and a cumulative deficit of 62,500 rental units is expected in the coming decade as per the report.
Renting is a big business in Ontario
In my opinion, this situation can create a bigger market for landlords looking for rental properties in Mississauga, Toronto and the rest of the GTA. The new rental rules have certainly reduced landlords’ ROI but at the same time, they have increased the supply of tenants. More supply will certainly help landlords when it comes to prudent tenant selection. New rent increase rules can also make tenants opt to stay at their units for longer. Note: A landlord is still allowed to set their rent to match the market rent after a tenant moves out.
In my experience, seasoned landlords seldom increased their rents on lease renewals as per the going market rate, even when the old rules allowed them to do so. Most landlords ask for a good tenant, someone who can take care of their investment, one who can continue to rent their property year after year and someone who can manage their properties at a negligible cost. So the new rules should not affect investment in rental condos. In fact, a shortage of rental units is already creating rental bidding wars in Toronto.
Airbnb to potentially help increase rental supply
In other news, the head of the Canada Mortgage and Housing Corporation (CMHC) has stated that short-term rental companies like Airbnb and Vacation Rental By Owner (VRBO) could help increase rental supply and possibly help in reducing rents.
As per CMHC research, the supply of purpose-built rental units across the country has been on a decline for many years as developers build more condominiums than apartments. As a result, the rental vacancy rate in 2016 was 3.7% Canada wide. In Vancouver, Victoria and Kelowna, it was under 1%. This means that there are limited options for renters and as demand outweighs supply, rents are pushed higher.
Airbnb says that their hosts share their homes on an average of up to 60 nights per year, earning about $4,000. The company says that these numbers are not that big to support the notion that Airbnb is taking rental units out of the long-term rental market. However, a McGill University research team has estimated that Airbnb hosts have removed about 13,700 units from rental markets in Montreal, Toronto and Vancouver, or about 2% of the total housing stock.
Although it is too early to say anything concrete, but CMHC chief executive Evan Siddall has said his agency recently approached Airbnb, to see if there are ways to turn some short-term rentals into apartments available for rent for longer terms for local renters. And as per Lindsey Scully, a spokeswoman for Airbnb, “We take the issue of affordable housing seriously and that is why we are collaborating with communities and organizations across Canada, sharing comprehensive data and detailed information about our community.”
So now whether Airbnb will feed long-term rental market too remains to be seen, but on the whole, it may not such a bad idea!