What drives the cost of housing?
Recently the news is filled with how high the cost of housing has become in Canada. Many people offer reasons why it is high, without much of a real solution to the problem, if there is a problem. We hear that rising interest rates, poor tenancy laws, immigration not enough housing and not enough rental properties. All of these concerns contribute to the issues at hand, but are they the problem to the current issue at hand.
It is hard to evaluate these concerns without looking first at what housing is? Recently I was talking to a landlord about being a landowner. We were discussing the BC tenancy laws fairness for landlords. They indicted as a younger person they were unaware they were entitled to buy land and property. Then they referred to the land barrons of old who controlled all the property and how the peasants just wanted to own land for themselves and that’s all they wanted. I pointed out that being a landlord and renting your property makes you the modern day land barron that the peasants of the past disliked. They were offended by my comments.
What did the peasants of the past complain about?. They complained that too few people owned the land and property and they would have the right to own the land they are living and working on for themselves. A system was created for the peasants to obtain ownership of the lands they worked and resided on. Fast forward to 2023 and the lower income people are complaining that too few people (corporations, or small landlords) own the land and property and they just want the right to live where they are. Over the years has the system changed since the original land barrons began giving the right to own land.
For any housing issues we need to first look at what is housing expected to be used for?
The peasants wanted to keep the land they worked so hard to make a living at and not have it taken from them at any time by the land baron. It was designed to be a place for them to live. In the past 50 to 100 years property ownership has moved away from a place of ownership for the homeowner to an investment for land barrons to make money and profit.
In today’s market there are homeowners who don’t live in the property they own and they rent it out instead to a renter using the property as an investment. Should that be the intended use of the property? Many homeowners have properties where they don’t live in the entire space and they rent a portion of the property to a tenant to live in their basement. Does that mean the home they have is too large for their needs? Other owners rent their properties on short term rental platforms where people who want to go on vacation use the owners house as a hotel. Is that the intended use of the property? Let’s look at these two issues in particular.
If people are buying properties for the purpose of an investment are they taking away a property that someone else may have bought to live in? Which is the intended use of the property when it was built. The developer advertising them as homes? Not rental properties.
When the individual rents out the property as an investment property and the rental market changes to not be a favourable market for renting the property owners find ways to take advantage of the laws and the tenants. This creates conflict between landlords and tenants and often causes goverments to change the tenancy laws to protect tenants rights.
When a homeowner is not using the entire property why are they staying in the location. Should they move to a property that is more suited to their needs allowing another party who does need that amount of space the opportunity to buy that property?. It would be hard to make this happen unless governments banned basement suites. Banning these types of rentals may cause people to sell their properties that are too large and move to smaller spaces.
With the advent of technology the growth of short term rental properties has exploded to every part of the country. Prior to online platforms short term rental properties were located in what would traditionally be vacation locations. Now we see them in every neighboorhod across the country. Many landlords have moved the basement suite out of the long term rental market and moved it to the short term market reducing the number of rentals. This had become a large market due to the cost and lack of affordable travel accommodations in the market.
All of these issues create movement in and out of the rental and sales market which has an effect on the cost of housing. What needs to be eveluated first is what is housing?
My opinion is housing should be used for people to live in. Housing can be a purchased home or rental properties. We then need to determine what a rental property should be? Should rental housing include basement suites and individuals being landlords of one, two or a small number of rental properties. Should “homes” be allowed to be used for vacation properties? This is not what the original intent of the property was when it was built. All levels of governments have zoning regulations that outlines what a property can be used for. These short term rental properties are being offered in places that are zoned as residential and normal hotels are located in commercial zoning spaces.
The difficult issue for governments is if they banned basement suites it will take large numbers of rental properties out of the rental market. If they prohibited or restricted the number of properties individuals could own and rent that would take large numbers of rental properties out of the market. These two actions would increase pressure on the rental market, though both actions may also cause more properties to be on the market for sale and that may reduce the cost of owning a home. Many developments are started by investors, being the first ones to purchase brand new properties and part of this is due to the financing requirements for these new developments. It is possible to change the financing requirements for new developments to allow them to take a longer time to sell the properties.
Prohibiting the short term rentals in non traditional vacation locations would potentially increase the number of rental units and or properties on the home ownership market.
I often hear that ther are not enough listings for sale or even to rent. There are lots of properties for sale, maybe reducing the number of agents would create a more lucrative market and less demand to seek new clients. The rental market is flooded with properties, just at a price people feel is unacceptable.
One major issue that is not talked about is the type of housing that is built. Society has changed over the past number of years, yet in many places we are continuing to build the same type of property that was built 40 years ago. More families are divorced and or blended and need smaller spaces, yet only larger houses exist in a particular area, meaning they need to rent out the basement to make ends meet. Landuse is important in all aspects of housing affordability. It’s not just the housing cost but how people access the home. Transportation options need to be improved to give people more options to move around then they did before. Many families only had one car forty years ago, kids walked to the nearest school and today they need two or three due to both parents working, kids working or kids being driven to school. By allowing kids to go to schools further from their home we create greater pressure on our transportation and housing systems.
Removing the short term rental would require governments to allow more development of hotels properties and they need to be in different locations then the traditional locations.
The other aspect that we have not mentioned or talked about is purpose built rental properties. There needs to be more. All of the above, individual owner rentals, basement suites or short term rentals can be removed from the marketplace very quickly. Without a regular influx of purpose built rental housing annually the rental market and the home ownership markets will continue to increase in cost at rates higher than inflation. Goverenments should identify, build or contract to build more purpose built rental housing each year to meet the market needs. This will slow development of sales of properties as the developers won’t make as much of a profit and will stop building.
As you can see with each cause there is an effect that is potentially negative.
What do you think should be done about the housing costs in Canada?.
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The Residential Tenancy Act?
I read online many landlords complaining about their issues and the Residential Tenancy Act. One that is occurring a lot recently is owners moving back into their property with a two month notice to vacate.
It is important for landlords to understand “The Residential Tenancy Act” is law in BC and governs tenancies. As in many cases when you are on the wrong side of the law it often is a negative situation. Complaining about the law instead of understanding it is not helping your situation.
For the two month notice to vacate for landlords use there are some very specific terms the landlord must adhere to when evicting a tenant. Two very common misunderstandings by landlords are who can move in when it is for family use, and for how long you must reside there bevore you can re-rent the property.
The Residential Tenancy Act section 49 outlines who qualifies for the family member moving into the property. People who qualify are close family members and the family members must be one of the following: The individual’s (owners) parent, spouse or child, or the parent or child of the individual’s (owner) spouse. If the person you are moving into the home is not one of these people the tenant you are evicting may have a claim against you for an eviction not in good faith.
The second common issue with the landlord’s use is when you vacate a tenant the landlord or close family member must occupy the unit for a minimum of six months. There are cases in the RTB decisions section where owners have argued extenuating circumstances which have caused them to need to re-rent the property after serving a two month notice. In most cases the RTB rules in favour of tenants when the family member doesn’t occupy the unit for six months.
Occupying the unit does not mean renovating it after the tenant moves out, it means living and using the property. It also doesn’t mean your brother, aunt or cousins can live in the property as they don’t fit the close family member definition.
When a landlord wants their rental property back it is very important they understand the law and the potential outcomes of not following the law. Many tenants are well versed in this section of the Act and won’t hesitate to challenge an owner when they feel they have been evicted in bad faith. The penalty for evicting a tenant in bad faith has a maximum of one year of the tenants current rent as a penalty. Many decisions have included a penalty where one year’s rent has been awarded to the evicted tenants.
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Intuition and Luck
At my recent Toastmaster meeting I was asked to speak about luck and intuition.
I quickly found myself talking about my work which is rental property management. I am the managing broker of Cartref Properties who manages rental investment properties for our clients.
The question was do you think luck and intuition are intertwined?.
I went on to say how I do believe that they are interconnected and explained that in my work I am using my intuition all the time and when I follow the intuition I find myself luckier.
On the day of the question I had received an application from two people about a house we have for rent. The two people supplied their financial detials. One party was self employed and supplied their bank account for their business. In reviewing the information I noticed the bank account often had less than $300 in it. I asked them to provide their personal bank account information, which they did. That information did not specify who the account belongs, and for two of the three months it was in a negative balance.
The question is am I lucky or is it intuition. All these details are telling my intuition not to rent to the person as they are not going to be able to pay the rent. I find when I follow my intuition I find myself luckier. If I had rented to this person I could see the rent being late regularly and this causing issues during the tenancy.
We should never judge a book by its cover, good or bad. This individual presented themselves in a very good manner during the screening process to view the property, and at first I liked them as an applicant. That is the cover of the book, but it is important to read all the pages to clearly understand what the story is. Don’t be fooled by the cover, do your due diligence and find the answers you need to make an informed decision.
What is that quote?
“The harder I work the more luck I have”
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Utility Payments
I have heard many landlords ask the question, if I have two units in my house do I make the upstairs tenants pay the hydro or should I keep it in my name?
Section 13.2 of the Residential Tenancy Act outlines the standard term requirements of a tenancy agreement in BC. One of those is the services or facilities provided during the tenancy. Services include the utilities provided.
When renting a property that has more than one unit in it, with two separate lease agreements the utilities are not allowed to be paid by one tenant and asking the other tenant to reimburse another tenant. The reasons this is not permitted are if the upper level tenant has the hydro account in their name and the lower level tenant fails to pay them their portion of the cost, the upper level tenant has no recourse to recoup these costs. The landlord is not permitted to make one tenant provide a service, in this case utilities, to another tenant as part of the condition of renting their property. The two tenants do not have a contract between each other stipulating who pays who. The agreement is between the tenants and the landlord.
When you have a situation that has the utilities split the best thing to do is for the landlord to pay the utilities and then send each tenant copies of the monthly invoices explaining how much their cost of the invoice is for reimbursement to the landlord. In this process the tenants are able to see the costs, and their usage of the utilities being used and the landlord is reimbursed at the earliest time for those costs. Providing the tenants the invoices reduces issues or concerns as they are provided real information about the costs.
Some landlords pay on equal billing, and then at the end of the year ask tenants to make up any differences. This can be an issue if the tenants leave before the utility squares up the equal billing costs. We find when tenants can see their usage they aslo adjust the amount of utilities they use, reducing the costs as they are paying and are able to control their cost by adjusting their usage. In the winer if they see the costs of heat going up they may trun it down when they are out of the house, or turn off lights more frequently.
The standard tenancy agreement in BC has a section where landlords indicate what utilities are included in the tenancy agreement, including hydro, heat, water, natural gas, tv and or internet. Once these items are included you are not permitted to alter these without the tenants agreement. Even though you indicate on the front of the agreement what is and isn’t included it is prudent to have an addendum which outlines how and when utilities are paid. This is important in the event you end up at the Residenital Tenancy Branch as it will describe when the utilities are expected to be paid, and that determines when they are late.
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Giving notice to vacate by tenants?
When has your tenant provided notice to vacate the property?
A tenant has a responsibility to provide proper notice when vacating the property.
Section 52 of the Resiential tenancy act describes the format a tenant must provide notice to vacte the property for it to be effective. The notice must be in writing, and include the following information:
-be signed by the tenant
-give the address of the rental unit
-state the effective date of the notice
Section 45 of the act states when the notice must be sent to be effective. In BC a full calendar month’s notice is required to vacate the property. The full month can depend on when the rent is payable. If rent is due on the first of the month the notice must provide notice on the last day of the previous month. If rent is due on the 15th of each month the notice would need to be provided on the 14th day of the prior month for it to be effective.
When a tenant provides notice and fails to meet these requirements they have not provided proper notice. The landlord then has a choice to make. They can enforce the Residential Tenancy Act laws and require the tenant to provide proper notice. Or they can accept the notice and allow the tenant to vacate the property.
For example if the tenants are on a month to month agreement and rent is due on the 1st of the month and the tenant provides notice on the 1st of August to vacate at the end of August, they have not provided proper notice. The landlord can choose to accept the notice allowing the tenants to vacate without holding them responsible for the September rent. Or they can indicate to the tenant it is insufficient notice which would make them responsible for rent for September, if the unit is not rented again on September 1st.
When the tenant moves out without proper notice and a landlord indicates it is not sufficient notice they must take steps to mitigate their loss. The first step here is to make an effort to
re-rent the property for September 1st. This must be a legitimate effort and a landlord be able to show they were attempting to rent the property.
Even after the tenant vacates the property and it has not been rented this doesn’t automatically give the landlord permission to keep the security deposit. A landlord must have either the tenants permission and or an order from the Resdential tenancy Branch to keep all or part of the security deposit. In the case when insufficient notice to vacate is provided the landlord would need to file a claim with the Residential Tenancy Branch to keep the security deposit towards the unpaid rent for September. During the hearing the Residential Tenancy Branch will determine if the landlord has tried to mitigate their loss by trying to rent the property again. If the unit is re rented for September 1st the security deposit may only be used for damage issues at the property. A landlord is not allowed to charge two parties to rent the same property.
Only after receiving the monetary order from the RTB is the landlord permitted to keep the security deposit funds for the unpaid rent.
A good pracitce is to have a clause in your addendum that clearly explains to the tenants requirements for providing notice when vacating the property. This provides additional information in the event of a hearing when the tenant may indicate they were not aware of these requirements.
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