Why I disagree with rent being added to tenants’ credit ratings.

Cartref Properties rents to people from many walks of life. In today’s market we often rent to newcomers to Canada and many young people. These demographics are often what the rental market consists of. 

One of the common phrases we hear from both of these groups is they have good credit and they have bought a car to develop their credit rating. I often apologise to them and say we are deceiving them in this manner. Let’s look at why we don’t think adding the rent to credit ratings will help tenants improve their ability to rent a property. 

Today’s society has been convinced that we need a good credit score to obtain what we want in the world. A credit score is obtained by borrowing money and paying it back in a timely manner. What seems to be missed by many is the part they must “borrow money” to develop a credit rating. Borrowed money always includes interest which is an additional cost to the consumer. The perons who benefits the most from a person borrowing money is the lender. 

How will adding the tenant rent to the credit rating system help tenants be approved to rent properties. If their previous rent payments are reported on their credit rating it will give landlords the opportunity to view their rent payments. This would be a benefit, only if the tenants pay their rent on time. 

Currently the credit reports provide a number of other items on a report that provide insight to the person’s ability to pay their bills, including credit cards, car and personal loans, phone bills and many more.

How could it not help a tenant. If the applicant is not making payments on these items but is paying their rent on time, it may not be a benefit to their ability to be approved for renting. 

I understand the argument is that some people don’t have loans, credit cards or cell phones for their credit rating. If they don’t qualify for these items they may not be a quality tenant. This leads to the issue with why rent on their credit report would not help. If they are not able to qualify for a loan or a credit card it means the financial institutions are not prepared to lend them money. This is what the credit report is all about, borrowed money. 

Let’s look at why rent on the credit report is not needed. First we need to look at the purpose of a credit report in the process of renting. A credit report often is looked at by landlords with too much weight of how good a tenant is when trying to rent. A credit report offers insight into the person's ability to manage their money, or does it.   

Let’s look at two potential applicants scenraions and decisde who would be a better fit. 

Two couples both working, earning good incomes with rent equalling 30% of their income. 

Couple A has a car loan each, two credit cards each, with balances owing on all of the cards. Each card has a 10K limit, two are maxed out and the other 2 have 3k balances on them. They supply a bank statement showing their account and their rent payment each month though the account each month goes into a short negative balance each month to make these payments. The credit report shows all the payments are being made each month on time and they have 100K in credit and 85% of it is being used. They have a good credit score.

Couple B has the same income level and ratio of rent to income. This couple has no car loans, one credit card each with limits of 10K each and no balances on them. They supply a bank statement that shows the rent being paid each month and the account has a balance of 80K at the end of the month. The credit report shows they have the same credit available of 100K and only 5% is being used. The credit report shows they have no payments but when payments are made they are paid on time. They have a good credit rating.   

If you are a landlord, which one of the above would you prefer as a tenant? 

Everyday we would choose couple B as the above information shows us they are better at managing their money, and they are prepared when something goes sideways. For couple A when one loses employment or can’t work for other reasons, they will struggle to make their payments and rent, may be one of those payments they stop paying regularly. For couple B if one loses their job or they can’t work they have money in the bank to pay their bills during negative situations.     

If couple A had the same scenario above and one of the payments on their credit report was their rent payment, it would not change the situation of their ability to pay the rent. Even if a potential applicant didn’t have the car loans and credit cards but have no money in the bank it shows a low ability to manage their money. 

The tenant selection process involves many things and the credit report is only a part of the process. 

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com

The real cost of housing?

Our last few blogs have talked about the decrease in rental prices. What we did not discuss is why are the rental rates so high. Prior to covid rents were considered high, then covid hit. At a time when many people around the world were being asked to stay home, learning to work from home and then being laid off from their jobs, the housing sales market in Canada took off. 

Housing sales and prices rapidly increased. How did this increase the rental market?. 

In Canada and especially the Vancouver area a majority of rental properties are individual units owed by investors. What we saw were many owners electing to sell their rented properties to new buyers who were moving into the units.This created a large number of renters seeking a new place to live.  Now that we are seeing a decline due to over supply will this trend solve the cost of renting and housing. The answer is no. 

Why are rental properties so expensive?. It is our opinion it is the type of product being built.

Here are a few items we feel have increased the cost of rentals in BC. 

One of the biggest factors increasing costs of properties in Vancouver are the amenities in the buildings. Many condos build various amenities including fitness rooms, pools, common rooms and guest suites. In recent years we have seen newer strata buildings adding more and more amenities to entice the owners to purchase the condos. Many buildings have added larger fitness rooms, common areas with BBQ’s, shared working spaces, basketball and or sport courts. The increasing quality of ammentines increases strata fees to maintain the building's amenities. With higher strata fees individual landlords need to have a higher rental price to make the renting of their property manageable.          

Over the past few years we have also noticed purpose built rental buildings adding more higher end amenities similar to those found in strata buildings. The difference with rental buildings that have amenities and the strata building is that the income from the rent is the only source to pay for these amenities. In a condo building the strata can demand levies from the owners to pay for short falls. This creates a situation where the rental building needs to keep their rental prices higher to cover the costs of maintenance to these. 

Another increased costs for rentals are the amenities within the units. Many units have high end appliances including laundry and kitchen appliances. With the increased demand for electric cars by governments, new buildings are being required to install electric charging stations in the parking garages including at each parking stall. This creates increased costs for developers when building new projects.

There was a time when rental buildings were built with shared laundry facilities, and many young people today have grown up with all the modern amenities and the same conveniences they had at home. Anytime we add more amenities to the unit and or building it increases the cost of building and maintaining the property.      

This is not likely to change as long as developers have the decision to build what they want instead of what the market needs. The downturn we are in now is going to hurt many small investors over the next few years as prices decline to levels they are nto able to sustain for long periods of time.  Municipalities should demand more affordable properties be built by developers, or not approve the development. 

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com 

Limiting Immigrants

The last issue we will talk about on why rental prices are declining is immigration. 

In 2024 the federal government due to political pressure changed the number of immigrants they were allowing to enter the country annually moving forward. In recent years the federal government has increased targets with most of these new immigrants being students. 

When new people are entering the country they also need basic needs including housing. This is another factor that assisted in the increase in housing costs due to the increase in population. With the reduction in immigration numbers this decreased the number of people looking for places to rent particularly in the fully furnished market. The new immigrants coming from other locations, especially students, often look for furnished properties until they can secure employment and status in their new country. Combined with the restrictions on short term rentals the lesser number of students entering the market has had an effect on the furnished rental properties. 

When the furnished properties are not able to rent to the short term or student market they move their products to the regular rental market increasing supply of product being offered for rent or they elect to sell their properties. Both of these factors create greater supply in the rental and sales markets compared to the current demand.    

Many schools across the country have seen reductions in new foreign students which means areas near schools now have increased properties for rent creating downward pressure on rental prices in those markets. The lack of immigration and foreign students is just another factor pushing down the rental prices in BC.  

Canada has always and will in the future have immigration in the country, it is just reducing the numbers back to amounts that allow the economy to absorb them effectively into society and is going back to a need based immigration system that was used effectively for many years.  The reduction in the immigration will have an impact on the economy in many ways, not just in the rental housing market. 

When will the reduction in rental prices slow or stop? This is a question no one can answer clearly. In the lower mainland of BC there are lots of developments still under construction and nearing completion. With each of these buildings completing they are adding more rental properties to the market. We are hearing many developers who were planning other projects have elected to delay future developments due to the current economic future. Developers are laying people off due to slow downs in developments. We anticipate the current developments will take two to three years to be completed. After the majority of these developments are completed we will see low numbers of new housing starts which at that time will have an effect on increasing the housing sales and rental market prices. When the sales market begins to increase in sales again then the rental rate decline will begin to settle. We anticipate we are going to see declining rental rates for another two or three years.   

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com  

Short Term Rental Ban

Another factor slowing down the rental market is short term rentals. In May 2024 the BC Government introduced restrictions on short term rental properties. It effectively eliminated short term rentals in specific types of properties, those that are not part of a primary residence. How has this affected the rental market?.

Many of these short term rental properties that are now considered illegal have re-entered the regular rental market or they have entered the sales market. This has created a greater supply of product in both of these markets. When supply increases over the demand there is pressure on the prices to be reduced. We have not seen a significant decrease in sales prices yet which is still keeping some buyers away from the market, and forcing many of these products to the rental market. 

The short term market is made up of furnished products and these are often geared towards the tourist and student markets. Both of these markets have also been affected as the economy has slowed, the trade issues with the US and the Federal Government’s change to immigration especially students, has affected this market greatly. With less foreign students allowed into the country the areas near schools are being affected dramatically. In tourist areas the ban has had an effect of increased hotel prices reducing the tourism in those areas which has an effect on other businesses in those regions as well.   

The owners of the short term rental products are not happy as they had purchased and planned on renting out their properties in that market which is often more lucrative than the regular rental market. Any investment has risk and one needs to assess the risk of that investment. One key factor that can affect any investment is the change in laws that can happen at any time. Prior to the BC Government making this change cities around the world were making the same decision due to rising housing costs and therefore was not an unexpected change.  

This is an example of when the government’s change in laws significantly changed the investment of short term rental properties.         

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com  

Foreign Buyers

We have talked over the past two weeks about reasons why rental rates are decreasing. Another factor is the restriction on foreign buyers. 

In January 2023 the Federal government elected to put their feet in the water of how they can help reduce or control the fast rising housing prices. The federal government doesn’t control many factors related to housing so they looked at one area they can control and that is who is legally allowed to buy housing in Canada. The federal government chose to implement restrictions on the foreign buyers buying housing in Canada to prevent anyone who is not living in Canada and people who are living here but are not citizens or permanent residents you are prohibited from buying a property in Canada.  

This was the beginning of the slow down in the new development sales construction. New developments are often sold to foreign buyers especially the Vancouver market to help with the building of the large towers. The slow down quickly transitioned to the pre-sales that were completing slowing as the previously built market started to slow down. 

When the sales market starts to slow the rental market also slows. We first started to see an increase in rental inquiries from people who were in Canada and not permanent residents who were now prohibited from buying housing in Canada. That trend slowed down as the housing market started to slow even more and we found the potential tenants who were now looking for a place were just upgrading from where they currently lived. Maybe larger spaces and or closer to work. This was the first sign we were heading back to a “traditional” rental market. 

A traditional rental market is when people are currently renting a place and then find a new place to live before they give notice to vacate where they live. Since January of 2023 the people we have been renting tow are not new to the country, have to give notice and are not in a hurry to move. All of these indicators show a market that has an over supply compared to the demand. When the market has less demand then supply the rental rates decrease. 

The ban on foreign buyers helped contribute to the supply as it removed a segment of buyers the developers or the pre-sale buyers would sell to, the investor. 

A ban on foreign buyers across the country may not be the best policy decision as it affects each region differently. In some areas there are no foreign buyers and it will not affect the market, in larger markets like Vancouver and Toronto where investor demand is higher it has a very negative effect on the housing and rental prices. In fact any federal policy will have different effects in each market place and maybe the housing policies should be more regionalized.  Inthe end the Federal Government wanted to be seen doing something to help reduce the rising housing costs for sles and rental and the foreign buyers ban contributed to this effect in the markets.           

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com