What Housing Crisis?
Met with a friend for lunch yesterday and we were discussing the housing market, in particular the rental market. After I explained the current market conditions, he said so why do they keep saying we have a housing crisis?
I replied that’s a great question?
What has changed the market conditions. Since 2021 when we were renting properties the majority of people who came to our viewings, were indicating the reason the were moving was due to the property they live in has been sold or is being sold. What this means is they “need” to move. In late 2022 and early 2023 we started to hear more people communicate to us that they were “just looking”? The unit they were in was not up for sale and therefore they were not in a need to move. This one simple issue changes the market conditions quickly.
When potential renters are not in need of moving they have the option to say no to the property and take their time to look for the best value. The majority of people who are attending our viewing today are “looking” to move to a better property then they are in now. Better means different things to each person. Many people who are looking for a larger place than they currently reside at may be the same size and or close to their current rent. They may be looking to improve on the quality of the property they live in at the moment. Moving to a newer building that has better amenities than where they are now. Many employers are pushing for more time in the office and some people are looking to move closer to their work. With the adjustment in prices this allows them to move closer and the same and or similar prices.
What does this mean to the current rental market?. Currently there is an over supply of product meaning there are more units for rent then there are people looking. More supply than demand. This is causing the rental prices to decrease on a monthly basis.
For landlords this means you neeed to be more diligent when selecting your tenants. Landlords don’t like their property to be vacant and in situations like this will often rush into the first person who applies for their property. We have met potential tenants on a Saturday who advised us on Sunday they looked at another place after seeing ours and have signed with the other location. We find it hard for the landlord to do the proper due diligence on the tenant in a short period of time and on the weekend and in the future this may turn into a negative tenancy due to rushing the tenant selection process. After a tenant moves into your property it can be difficult to have that person removed from your property.
Landlords need to ensure their property is clean, items are repaired and in working condition. Sometimes a slow down in the market is a good time to take the unit off the market and renovate the unit, or upgrade the appliances to make it more attractive to potential renters.
Eventually the market will shift again and there will be less product and more demand creating a more stable market. Patient is a virtue, especially as a landlord.
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
Collecting Rent and Security Deposits
BCFSA, the governing body who licenses property managers in BC recently froze a property management company’s trust accounts. The reasoning for this was the company was unable to produce required financial records for the previous year.
We recently discussed managing a property for a potential client who indicated they had not received a statement of their account from their property manager for multiple months.
When a rental property management company collects rents and security (damage) deposits it is required for these funds to be held in a Trust account on behalf of the owner of the funds. There are multiple ways a property management company can hold these funds, they can create a separate account for each client or they can use pooled trust accounts.
Cartref Properties uses pooled trust accounts to hold the rent and deposit funds we collect. What this means is we have one trust account for rent collected from all our properties and one trust account for security/damage, pet deposits. The security/pet deposit funds belong to the tenant until released by them or by an order from the RTB at the end of the tenancy. Any interest earned on these funds is owed to the tenant when vacating the property. To determine the amount owed we use the RTB interest calculator on the RTB website. The interest paid in the trust account currently is not paying the full amount owed to the tenants upon vacating. If interest rates continue to decrease the amount of interest owed may change in the near future.
The pooled rent trust account earns interest though is not paid to the owners, or tenants, instead these funds are paid to the Real Estate Foundation. This foundation is set up to help people who may feel their funds were misappropriated by the management company and can apply to have their funds refunded to them.
The benefit of the pooled trust accounts is that the financial institution doesn’t charge bank fees on these accounts. If we set up individual accounts for each client then there would be bank fees charged to the account along with the interest paid, and we find the fees are often larger than the interest earned.
Cartref Properties works with a Credit Union (Coast Capital Savings) in BC to hold our clients funds in Trust. Part of the requirement for holding the funds is to report annually the funds in trust with FDIC to have them ensured in the credit union.
For all the above reasons Cartref Properties provides a detailed account of each client’s funds received, held and disbursed from the trust accounts to ensure our clients have an accurate account of their funds. If your property management company is not providing you with a monthly statement of your account they are not meeting their obligations as a licensed professional.
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
BC NDP housing plan, is it a good plan?
The NDP plan is to offer to help people who may not be able to get into the housing market. The plan is to be the bank and offer a mortgage for 40% of the property price. This would be paid back when the property is sold and the increased value is achieved. Is the NDP suggesting they are becoming real estate speculators? The NDP suggests that the down payment and monthly payments will be lower. How will this help people buying a house?.
Lower payments for housing doesn’t lead to home ownership. It only leads to longer payments to pay off debt. If the government is lending 40% of the funds they are then becoming the bank and will only see the full payment of these funds when the house is paid off. This will happen when the homeowner pays off the mortgage, in Canada less than 50% of homeowners fully pay off their mortgage before they sell their property. The NDP says the government loan will be paid when the home is sold and the government will receive 40% of the increased value of the property.
They are speculating that the home’s value will have increased at the time the homeowner chooses to sell the property. In general housing increases in value, though there are times when people need to sell the property at a time when the market is less than or has not increased since they purchased the property. Today is a good example of that, people who bought in the peak of covid and for some reason are being required to sell now are seeing losses on their purchases. Selling of a house incurs many different costs during the process. Under this plan when the home sells, will the NDP take their 40% first, then the homeowner will lose a larger portion of the home’s equity if it is sold at a lower level. What happens if the value has decreased and the homeowner owes the government will the government share in the loss or will the owner be required to pay the full 40% back?
After the property is sold by the original purchaser, will the property then re-entered into the regular housing market. If this is the case and the homeowner is leaving this location with only 60% of the equity or less it may still be difficult for the homeowner to buy in the regular housing market. They will need to save up the additional 40% or qualify for the larger amount of a new mortgage while they are trying to pay off the other home.
The program is suggested to be for first time home owners and people who are currently renting. This leaves a large segment of the population that can’t afford housing and could benefit from a program like this excluded from participating. People like single parents who are divorced and struggling to afford housing.
Will this program bring housing prices down or stabalize the housing market long term.
For a program like this to be beneficial it will need to be an annual program for many years to affect the housing market, and as governments change programs of this type are often cancelled and will disappear. These new houses will provide homeownership for some segments of the population for a short period of time and eventually these products will all end up back in the regular housing market. Will people who buy these homes be allowed to rent them out?
A better solution would be to annually build more purpose built rental housing and co-operative housing. The federal government subsidised the building of rental housing in the sixties and many of those budildings are still operating in today’s market. When the rental housing market is stable, so is the housing market. Many markets in Canada have used only one type of housing which is homeownership to meet the needs of their population.
We have created a culture that has convinced young people that the first thing they need to do is buy property. People used to buy a home for their family to live in, now they buy a property that has the best resale value. Investing in the development of more rental homes across the country allows for people to migrate to new locations easier for work as they don’t need to make a large commitment and expenditure. With purpose built rental properties the product never leaves the rental market. During covid home sales were excessive and a number of properties that were part of the rental market left reducing the rental stock and significantly putting upward pressure on rental prices.
If the government wants to help with ownership I would be more infavour of them helping to build more cooperative type housing as well. This type of housing is non market housing which aslo creates a stable living environment for people at less cost of ownership. This plan sounds like a comparison to the co-op programs except that the homes can be sold and re-enter the housing market. Cooperative housing like rental housing doesn’t change its status.
There are many other things governments can try to keep housing costs affordable, including making it more difficult for invenstors to puchase multiple properties. Eliminate corporations from buying single family homes enmasse. Reducing the cost of living generally so people can afford to buy a home and many other things in life.
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
Where have all the tenants gone?
A recent post online asked this question. The landlord was surprised that they have a vacant property and are having trouble finding a tenant. When they rented it two years ago there were multiple applications at the first showing.
The economy is always changing and has adjusted causing a tenant favourable rental market. This means there is more product for rent than there are tenants looking for a place to rent. Over supply compared to current demand. Two years or even a year ago when your property was advertised many people were viewing it and applying almost immediately. Today tenants have time to view a property, and look at multiple other units before they choose to apply for one they like.
Why has this happened and when will it end?. There are many factors why this has occurred. The first is the high interest rates have slowed the sales market back to normal type of selling activity. With less product selling, more rental products are not leaving the rental market, and some owners are choosing to rent their property instead of selling. Combine this with developments which have recently completed and owner/investors who expected to sell their newly built condos are finding they are unable to obtain the sale price they expected. This is causing them to add their product to the rental market and seek tenants until the market returns to a price level they want to achieve. These two factors are adding significant amounts of rental products to the market.
We expect this pattern to continue for the next two to three years until development of the current product comes to completion and slows down the new product entering the market. A number of planned projects have elected to not move forward with development due to cost of building which will eventually slow the amount of product entering the rental market.
The lowering of the interest rates will spur some sales activity though we don’t expect to see covid like market conditions again anytime soon. This will not be enough to raise the sales prices to levels inventors feel comfortable with selling their property.
Another factor affecting the market is legislative changes to rental housing. The change for a new owner taking possession after purchasing a tenant property increasing the notice to vacate from two months to three months will restrict the sales of rental properties. The increase of owners occupying a unit from two to four months will also restrict when an owner can reoccupy their own property. This will lead to more properties sitting vacant when a tenant leaves making it easier for the owner to sell or occupy again.
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
What is the solution to affordable housing?
Let’s talk about three issues that affect the housing market including rental properties.
The first is CHIP Reverse Mortgages. The CHIP or reverse mortgage is a financial product that was created to help people stay in the home they have lived in for a long time and don’t want to move. I understand why people want to stay in the home they have raised their children or lived in for long periods of time. They have memories from that home and want to keep those memories. Unfortunately memories dont pay to fix the roof, the hot water tank or pay the remainder of the mortgage.
The CHIP reverse mortgage was created to help people who are not in a financial position to afford the home they want to stay in. If we eliminated the chip reverse mortgage a number of those houses would be sold due to the fact that the people are unable to afford the home.
The second item is basement suites. Basements suites are seen as a great way to add more rental housing to the market. Similar to the reverse mortgage most people rent out the basement suite in their home due to the fact they are not in a position to afford the home they want to buy or live in and don’t want to move. If you are renting a portion of your home to a non-family member it means you don’t need a house that is the size you have purchased. Basement suites mask the government’s assessment of what type of housing needs to be developed in the future. If single family homes are built and people buy them and rent out a portion of the homes then developers will keep building this type of product. If basement suites were not permitted, developers would not be able to sel the homes they are building and would push governments to change the zoning to allow smaller housing products to be built in areas where single family homes are built. Eliminate basements suits to build more right sized housing needed in the market.
The third item is the most important and is the one the government could control more than either of the previous two examples.
For many years in many parts of Canada major cities have not built purpose built rental properties annually to keep up with the need of the rental market. This means that the majority of the rental housing is in basement suites, or individually owned condos which can be removed from the rental pool when the property is sold to new owners. This situation creates a very fluctuating rental market. Federal and provincial governments should fund the development of entry level rental housing for young and lower income people. This needs to be assessed annually to the need and producer need to be built annually. Building regularly would keep the rental and sales prices in a more competitive market.
What do you think if we made these changes to the housing market?
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