How Rent Control Effects The Housing Market

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio.

[00:00:10] Welcome back to the show and thank you for making us Canada's number one real estate park as my name is Nick Hill. And I'm Daniel Foch and boy do we have a spicy topic today. How spicy we talk and we talk in like, Saratia, Frank's Red Hot.

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[00:01:39] Because this is like a mug in the most controversial topics you can get. Yeah, it's a good one. Something that we've talked about on the show kind of in passing but have never done a full length deep dive episode on it. The topic today is rent control.

[00:01:54] So here's a tweet from Daniel Smith who is Alberta's 19th premiere in this critical moment. Alberta cannot afford to pursue failed policies that make the housing challenges worse. Neer jerk policies like rent control would have a devastating impact on housing construction and our entire economy.

[00:02:16] These policies would stall construction and increase the gap between housing, supply and demand, and ultimately slow the economy down. And Chettys and Jason Nixon who is Alberta's Minister of Seniors Community and Social Services and linked to an article that was like an op-ed by him.

[00:02:35] Which we're gonna get into and then we're gonna talk a little bit more about probably about rent control. Yeah, interesting that Chettys the guy who is the Minister of Seniors because they will have a part to play in this rent control battle.

[00:02:49] And then the housing battle? Well I think it in anyways. You know, it's funny because we talk a lot about boomers. What's gonna happen with their assets, etc. and again the context of real estate and Canada. And boomers have a similar effect in rentals, right?

[00:03:05] Like a lot of them imagine in rent control areas have had rents units for like 90s. And if they're consuming a three bedroom that is an empty nest now as an example because their kids have all moved out.

[00:03:19] And they're getting at a discount is rent control really doing a good job, right? And so that's one of the arguments that gets used a lot. So Dan walk us through this article by Jason Nixon then. Yeah, some context.

[00:03:30] Yeah, so the article by Jason Nixon Alberta's Minister of Seniors Community and Social Services discusses the challenges of affordability of housing affordability in Alberta. Nixon argues against rent control, suggesting it would negatively impact housing construction and the economy.

[00:03:43] He highlights their current initiatives such as increasing rent supplements and investing in affordable housing units. The government's approach includes enhancing rental assistance, building new affordable homes and reducing regulations to expedite housing construction.

[00:03:57] Nixon emphasizes Alberta's commitment to maintaining affordable housing and supporting renters and home buyers through long-term investments and policy reforms. Hmm interesting now. It's not hard to find articles arguing the alternative, the other side of the puzzle here right?

[00:04:17] So this comes from an opinion piece in a publication called The Hill. Is that your publication The Hill? No, this is my publication the Community Reel Senior Minister of Public Health. Great publication.

[00:04:30] Great publication one of the best out there. The Hill I can't comment probably a great relative another genius in the family I'm assuming. I think it's like the hell the parliament.

[00:04:40] No, because it's like from this is from the US so I guess there's a hell that US politics is on to specific hill. They just build all these buildings on hill has to be monumental right? Yeah.

[00:04:51] And I quote from the Hill publication by curbing excessive rent hikes and preventing regulatory or unjust eviction. Rent control mitigates the power imbalances between tenants in landlords. It advances advances overall neighborhoods, stability and prevents an eviction crisis as our cities become more expensive places to live.

[00:05:15] Despite decades of false quote unquote sky is falling alarmism by well funded landlord lobbies. The rent control has done more to keep housing affordable and keep people in affordable housing than any other program in New York's history.

[00:05:32] So this is out of New York again where rent has been a topic of contention over the last several decades. Nearly one million rent regulated apartment house over two million renters with meeting income of just thirty five thousand dollars.

[00:05:49] Renters would either be homeless or faced with crippling rent burdens without the protection of the New York rent laws that those rent laws offer.

[00:06:01] Yeah, so that's sort of the counter argument and I think it's funny because you know there's from the economic side and we're going to kind of look at it from both sides. It would be usually what we do.

[00:06:12] Yeah, we should try and it's funny because and a lot of landlords that we speak with talk about how they want to invest in more landlord friendly states.

[00:06:22] But if you look at the earth, so I just state some areas but if you look at the states and you see people investing in land or if you look at where rents are the highest.

[00:06:32] It's typically in rent control there is which is like you know it's very counterintuitive, but it's because you get a supply construction relative to to the rent that you can get and because people aren't super incentivized to build more.

[00:06:45] And there there's like a blended I guess on tarry it would be like a blended version where anything after 2018 so anything that you build today isn't rent control.

[00:06:53] So that's an incentive you almost get an advantage against the remainder of the market but anyway this guy, Nobel Laureate Paul Krugman mentioned that rent control is one area where economists largely agree that it reduces housing quality and quantity.

[00:07:09] I mean that is a strong opinion and strong consent is among those economists so I guess damn what would the long term affects be.

[00:07:19] So really it's all about investment the strict rent control makes or what would be argued by Krugman and the economists that have reached this consensus is that strict rent control makes rental properties less attractive to developers.

[00:07:34] It caps future cash flows and so I mentioned in Ontario properties built after 2018 are non rent controlled so they've sort of built a middle ground where you know anything that has existed prior to that.

[00:07:46] Any unit that is existed prior to that is subject to rent control any unit that you build today onward is not and so you get a bit of an advantage as a builder today versus buying something existing housing stock.

[00:07:59] And you know that actually kind of makes it more attractive to build than buy an existing building from a future rent growth perspective alone. Yeah for sure especially since we've seen all the stuff with PBRs and the like the the governments drive to incentivize that kind of construction.

[00:08:15] And and I mean what you're saying it impacts investors as well right reduction in income can change the way.

[00:08:21] A deal works and whether or not you can afford things like maintenance or any other expenses if you don't have enough cash flow coming into to to make that deal work.

[00:08:34] Yeah and this is exactly an enthrano significant portion of renters are in the private market and restrictions on rent increases can devalue these investment properties leading some owners to.

[00:08:43] And so that article that I mentioned before from the hill quoted a study from Washington DC and this kind of argues against it. So so economists would argue that.

[00:08:54] Lendler to aren't making a lot of money are not likely to spend a lot of money on increasing the value of their properties which is like that logic checks makes nice.

[00:09:04] Yeah and not even that they aren't willing to but they probably can't afford to and so that's the argument that it decreases the value of housing or sorry decreases the maintenance of housing and we're going to get to the evidence behind that.

[00:09:15] But the this article from the hill that you mentioned your publication or somebody in your family's publication it says a Washington DC base study.

[00:09:23] Of tenant protections and living conditions found that 61% of tenants who are more likely to seek repairs after receiving the benefit of rent regulations with low income renters especially reporting that regulations made them more willing to insist upon repairs that logic checks out to me as well.

[00:09:37] It's like if you're getting more rights or more likely to exercise more rights or ask for more right right so saying oh hey I don't have to worry about my landlord being like screw you for asking me to fix x thing.

[00:09:48] I'm just going to kick you out now which never happened yeah but we i mean this is the thing there's so much abuse like there was that article that came up recently we got to do a thing on it that this lady who have you seen this article it's like she's been abusing the landlord tenant system in in Ontario for we will do an our whole episode on it but it's a article about the and they.

[00:10:08] It's like this expo's out on this lady who's basically been abusing the landlord tenant board and so in Ontario where landlord tenant board is is mostly inefficient as a result of being over subscribed they're being too many cases and not enough educators that's where you really see like there are people on but on their bad people on both sides so I like just to compound on the joke you were making it.

[00:10:29] The survey revealed that protected units turned out to have better conditions than market rates and this is these are surveys so this one's a little bit less empirical let's call it.

[00:10:38] That economic evidence 20% of rent stabilized unit having poor conditions compared to 25% market rate units having poor conditions now my only challenge with this is that you're kind of using like a like her scale for like what would call it like poor conditions and it makes it a bit subjective but I guess i'm just trying to tell the whole story here by giving that that example that was in the article from the hill.

[00:10:57] Yeah let's jump over to another article here this one by mortazahater back in 2017 which came out just before the win government back then here in Ontario decided to remove rent control on buildings 2018 or newer which Dan you would just mentioned they suffer and when profits are squeezed that landlords are less likely to maintain properties affecting both private.

[00:11:24] And public landlords kind of just reiterating what what that other article just said right if there's less money for the landlords they are likely to spend less money on whatever it may be but primarily upkeep of those units. Yeah exactly and I think it is.

[00:11:42] The next question becomes like do you know a lot of people you hear the statement high prices cure high prices right so increased rents incentivized landlords to build more rental which we're seeing a ton of people building rental right now because rents are climbing as a result I would say population growth.

[00:11:56] But I recently had an economist rip apart on twitter for saying that you can't make assumptions like that would just prove like you know I mean but there are those two things exist side by side let's just say that way causation not caught our causation versus causality what is it that I don't know that sounds about no it's a different thing i'll remember it.

[00:12:16] I got to holiday brain where what is it it's December 29 you'll be hearing this episode next year.

[00:12:23] Okay so do high prices cure high prices like the you know how high prices got to high and then buyer stop buying them and then they came back down right the cure for high prices was high prices.

[00:12:34] So Marta has also did an article in 2021 called C. and H.C. says rent controls work but is it true and then there's a chart in that article that shows that units not under rent control actually and this is maintenance aside the maintenance piece I think we've covered pretty well.

[00:12:47] This is just whether or not rent control is working and says they grew by 2.3% while rent control units grew by 2.4 3%. So it's having the opposite effect well I mean that is a huge delta there as well 2.37% versus 2.43% lot of margin in there.

[00:13:07] Yeah yeah I think it is funny though because both of those are still below the rent control amount and so it's like rent people who are not subject to rent control are just increasing less than that amount whereas people who are subject to rent control are increasing at that amount.

[00:13:23] But they're just going to hit them out and be like oh it's the government's fault. Yeah I think we have to do that.

[00:13:28] So that kind of does kind of fascinating he also talks about vacancy like how what what they're doing soon rent control and vacancy control which I think we're going to get into that a little bit as well but anyway if you want to read that report and it's going to be nice.

[00:13:40] Yeah so this this is a report that says C. and H.C. says rent controls work but is that so so this this new report by or not new but this report by Canadian mortgage housing corp.

[00:13:52] Explores the impact of rent controls on rental prices in the Toronto region and concludes that rent control accounts for 36.3% of the difference between uncontrolled and controlled rents.

[00:14:08] And we'll see this as evidence of the effectiveness of rent controls for improving housing affordability however the findings of the report are more nuanced and deserve a deeper dive especially since housing economists argue that rent controls hurt.

[00:14:23] The housing market outcomes for renters so a deeper dive it shall have. Dan walk us through the next piece here.

[00:14:32] And it goes back to the repair part that we were mentioning and it says a vast body of literature shows that restrictions on rent increases dissuade landlords from keeping dwellings in a good state of or in a state of good repair.

[00:14:44] More importantly rent controls restrict landlords future cash flows which we all understand hence their profitability. Resulting in a decline of purpose built rental housing supply which I think very much took place.

[00:14:56] I mean the future cash flows and stuff and just you know with rent control it's a tricky thing is when you have everything else going up right it's just the same thing is it's not getting a raise at your job or raise at work where inflation is let's say you know at five or six percent.

[00:15:15] Everything else is costing you more money but you're still making 70 grand it's the same thing with rent right like a cost me more to hire the plumber cost me more to get the grass cut a cost me more to replace the light bulbs of the furnace filter everything everything costs more but I'm only.

[00:15:29] Pigeon hold into raising it let's say here in Ontario to 1.5 percent mean while inflation and everything else is double that you know that that's that's where I think the landlords are having a bit of a hard time with that so yeah I think we discussed that in the inflation hedge episode out too where.

[00:15:47] My perspective it's almost like a hidden tax like where the government can solve a lot of economic problems and this is probably a little bit in the weeds but whatever we'll go there.

[00:15:57] The government can solve a lot of economic problems especially for how like a super indebted country like Canada by inflation like there's really only a couple of different ways there's three ways that you can do it one is reduce rates to is.

[00:16:09] reduce leverage so for a city country to deliverage in some way which you can't really do and then number three is inflate the value inflate the economy and decrease the buying power of a dollar which inflates the relative.

[00:16:23] That of people it hurts the lower class a lot more because it increases or certain inflates the cost of everything that they need to buy and then reduces the buying power of their dollars but for people who have.

[00:16:37] Decreases the relative burden of their debt right and so that's where it's in a banish as a landlord if you have a debt on an unapproved and inflation comes through.

[00:16:48] But the part where and this is where like assuming that we have household and debt in this of 118% debt to disposable income which we do in Canada which is top five in the world.

[00:16:58] You need that to take place you need to inflate away the debt and I can see it being a policy outcome that they're object that they're comfortable with over the next little bit what.

[00:17:11] What the challenge is is your cost inflate as well as a landlord so if you're if you're all of the maintenance etc goes up and you can only increase your rent at 2.5% but you're everything else is going up at 4% 5% 6% whatever I mean if it's you know gas heat if you're pay if you know like your gas heat just want to almost 100% as a result of the carbon tax alone.

[00:17:36] You don't get to net that in.

[00:17:38] That's very cool right unless you're 10 in total and so so what the government I don't know it's a government necessarily but what the economy does is it kind of takes it takes that margin out of you as like almost like a form of attacks because it's getting something out of you more out of you than you're able to get out of it through the tenant who you can only increase that at a cap so it's it's a really tough thing from a pricing power perspective for landlords right now.

[00:18:05] We need an inflation environment and this isn't something we talk a ton about an non inflation environment it really matters in an inflation environment so anyway jumping back out of the weeds here.

[00:18:15] What's the the CMAC report labels rent control is effectively vacancy decontroll is what mertazahater argues in this article landlords can only raise rents per the governments prescribed guidelines for tenants renewing or continuing with the lease.

[00:18:31] But for vacant units landlords are free to charge market rents to renew new tenants so it's basically set he's basically saying that it's you can't it's like not it's also just not kicking people out.

[00:18:42] which I think is probably like that's a far better policy objective because the reality is if it goes vacant like in New York a lot of these right controlled units they stay there.

[00:18:53] Even if they turn over right and so so the systems are a little bit tougher and and these have been proposed like I think Toronto proposed making it so that you get they would cap rents on on turnover which would be. It's a whole different ball game.

[00:19:07] It'll be a full episode about that but I mean from just from that standpoint I mean I know some of my.

[00:19:13] I don't know say older but let's say middle-aged friends that have been living in Toronto for I don't know 10 15 20 years in the same unit some of them in midtown.

[00:19:23] One guy I'm thinking about specifically right now is got a beautiful two bedroom you know the older units with the parka floors and the bigger windows and I accept.

[00:19:32] He pays $850 a month and he paid that and I think it's I don't even know if it's gone up to percent every year to one five percent I think they've done that occasionally but. You know just just a landlord from way back in the day and.

[00:19:45] It's it's just crazy to see because you know I think the average for a one bedroom now is like almost 23 hundred and this guy's got.

[00:19:53] You know he's drastically below market rent for something like this. I mean the two bedroom in his building with it wasn't a rent control would probably go for I don't know close to 3000 if not more anyways back out of leads back into the study here the study.

[00:20:08] He uses changes in rental regulations and Ontario to distinguish between. Ranking controlled and market rent dwellings market rent being whatever the market demands at that time so market rent as you're listening to this for one bedroom is in around that twenty three hundred dollars nationally.

[00:20:28] The rental buildings constructed in Ontario after November 1991 were exempt from vacancy. De-control here after known as rent control and are referred to as market rent units. The controlled rental dwellings are in buildings constructed earlier than 1992.

[00:20:49] So the C.M.H.C. report analyzed between residential rents in private sector, purpose built rental dwellings in the trunk and the trunk region between 1992 and 2016 serving more than 5.4 million rental transactions defined the average rent of market units was 37.7% higher than that of rent controlled dwellings this led to the conclusion that rent control reduces rental price.

[00:21:12] I mean 40% is a. That's meaningful. That's meaningful. I mean over that period that like period of time is at 1992 to 20.

[00:21:24] Yeah, so I mean like all just guess what the like so what it that's all that's 30 years so yeah you're like you're growing at one and a half percent more per year one two five percent more per year which compounded over that.

[00:21:38] And that's a very good decade period equals you know almost 40% yeah. Okay so the report goes on to find that less than 1 percent of those 5.4 million rental transactions that were

[00:21:52] in Toronto were recorded in newer building constructed after 1991 successive rent control restrictions coupled with changes to the capital gains tax in the early 1970s were followed by sustained under supply of rental buildings for decades.

[00:22:11] Tenant advocates have argued that the absence of rent restrictions given landlords cart blanche to impose exorbit hikes and rent which we've seen a lot recently. Again, the CMHC report finds evidence to the contrary.

[00:22:29] The average growth rent for a garbage growth rate for rents during 1992 and 2016 was 2.37 percent in market rent units which is lower than the 2.3 percent in rent control units so again interesting stuff there 2.4 3% so that was that stat that I was mentioned before there.

[00:22:54] So landlord despite the opportunity to jack up rent simply cannot do so and the way that is vacancy de-control is like if you, you know in like in a province it doesn't have more to go through what provinces do and don't but like it alperit as an example.

[00:23:06] I mean you could basically just go to the tenant be like hey I'm an increase here rent by ten thousand dollars a month and then they'd be like oh I actually leave.

[00:23:12] And we've seen that we've literally seen that in both we've seen it newer buildings in Toronto we've seen it in buildings in in Alberta as well to make the news where hey my landlord showed up and they want like an extra two three thousand dollars a month.

[00:23:23] I think in one case it was literally yeah my landlord raised my rent ten thousand dollars a month but that's just an eviction like I and that's why they call that's why he's saying it's a vacancy de-control like it's designed and I think that from a policy objective perspective like that's fair to say like okay because like there are limited reasons why somebody can't and cannot evict someone and if somebody's paying for it.

[00:23:41] Someone and if somebody's paying the rent and all these things and you know that's that's fine. They shouldn't they should be able to it be able to you know be entitled to reasonable enjoyment of the property which is like the legal term.

[00:23:52] The question is like I love that term we have the individual and I'm a joy.

[00:23:55] Yeah, reasonably so reasonably enjoy and please let me stay but so you know like you can't just like you can't run a big somebody and not do the renovation or you can't friends and family of ex- somebody and not have your friends and family move in you shouldn't like the argument is that it's a vacancy de-control because.

[00:24:10] Like you shouldn't be able to just be like hey here you're going up a thousand percent yeah yeah exactly and it's funny because like you know when the banks use that that I that term like customer desalction on renewal. I had said I was like they're already doing.

[00:24:23] Yeah, it's the same thing like it's like oh hey do you want to pay 7% no okay cool you're not a customer anymore yeah like so yes sorry. So just as usual the banks can do it but us civilians we don't get the same rights.

[00:24:35] Yeah so so put another way market rent units respond to market conditions so that rents decline when the economy slows. Rank-controlled units offer stability and rent which implies that even when the economy is faltering rents remain the same or even increase.

[00:24:49] And I guess we're going to see whether or not because I would anticipate like it seems like rent growth has kind of tapped out.

[00:24:54] It has been coming down a little bit for the past couple of months so I'm interested to see you know if we see a downturn next year when how that materializes in rents.

[00:25:04] The average of rent control buildings was 50 years by compared the average age of rent control buildings was 50 years by comparison market rent buildings were much younger at 12.73 years old on average. You couldn't have just said 13. Yes.

[00:25:19] The age difference also implies differences in amenities such as modern heating ventilation and air conditioning HVAC systems which is that's actually a good point because they're probably cheaper to run to right.

[00:25:29] Infrastructure for high speed faster elevators exercise rooms and swimming pools older buildings are unlikely to have such luxuries.

[00:25:36] Yeah you it's one of those double-edged swords right because you've got the new buildings that have all that sexy stuff right like the all the amenities the rooftop pool the steam room that works 30% of the time.

[00:25:49] Now that's all new you think it would be it would be less capex or opx to run that but the older buildings have more capex in some cases right like.

[00:25:58] You know this roof is 30 years old and we need a new roof and construction has changed a little bit from from you know the average age of 49.5 years old for rent control buildings to the market rent buildings that let's just call 13 years old very different types of construction.

[00:26:15] And and I think both would have their their challenges so at the same time one cannot assume that all new buildings would have these amenities and hence using a building's age is approximately four all those amenities could lead to leaving out one or more relevant variables and that's the thing there's so many variables when we look at stuff like this.

[00:26:34] So to conclude that rent control reduces rents requires observing the change in rents in market rent buildings after they have been converted to rent control buildings otherwise we are essentially concluding that rents in newer buildings are higher than those in older buildings.

[00:26:54] So what will also help policy makers is to determine whether rents would be even lower of vacancy de-controller other tax measures enacted in the early 1970s had not conveniently constrained the supply of how of purpose for rental housing in Canada.

[00:27:11] So that concludes the CMAC report and what I guess mertaises perspective on it in that article and so and I think that like that one is nice because it bounces back and forth between like the what's right and or you know what what the CMAC report says i'm like he believes obviously as a as a critic of rent control.

[00:27:30] But rent control control can also lead to mismatch between tenants at rents in it so once a tenant has secured a rental rent control department he may not choose to.

[00:27:39] move in the future and give up his rent control even if his housing needs change and this is where i was talking about like boomers having stuff.

[00:27:46] And there's a couple of different academic documents on that glazer and latmer sims and below and clamp clemper i pulled this from somewhere i'm going to have to find the original source who who's quoting all of these articles.

[00:27:59] And so the allocation can lead to like empty empty nesters living in family size apartments and young families crammed into small studios which is clearly an inefficient.

[00:28:08] Allocation of housing obviously right and and why does that sound right on point for right now right here yeah you've got literally family young families whether your family or not or whether your person maybe dream of starting a family and crammed into a small studio apartment just thinking.

[00:28:24] There's no way i can have a family here i've you know i got me and my chihuahua in here and it's and it's tight versus how many people listening right now have a grandma or grandpa or a mom or a dad or you know whatever kind of elderly family members that are still in the picture.

[00:28:42] That are living in that that big house that you either grew up in or grew up visiting and have not vacated and we've done a ton of content on this both on on the podcast here and in both on our social media is where.

[00:28:55] You know not only here's a couple stats right there's five million empty bedrooms in the GTA alone and probably a few million more across the country.

[00:29:03] You know you can have the third biggest per capita square footage for housing in the world after the United States and Australia so.

[00:29:12] The empty nest or household living in a family says a part of the young families crammed into small studios which is clearly inefficient allocation yeah i mean that is that is right on point and i feel like that as kind of the.

[00:29:27] Graphics of Canada start to shift over the next decade or two along with the shifting in housing will see i think that those that that allocation of space is is going to drastically change so.

[00:29:41] Kind of goes to help people are saying that boomers are hogging all the housing and boomers are over housed and that's not just the houses they own is the houses they rent as well.

[00:29:51] And i wonder if people who support rent control feel like it's a good thing to have all these empty nest or boomers that are renting three bedrooms with rent stuck in the 1990s i mean honestly like that's not helping anybody.

[00:30:03] It's it's an excellent point because it's it's it's equivalent to like the criticism that people have of housing and how like you know people who have owned houses for 20 years basically are benefiting from the growth in the housing market and young people aren't which is true yeah but it's like literally the exact same thing happening in in.

[00:30:20] In in rent control and i think if you were to be able to illustrate that in date i would probably show much just the same story.

[00:30:27] Well going back to that that those people i was just telling you about some of my friends a little bit of time trial and other pain you know they were renting 20 years ago right they started renting the late 90s early 2000s.

[00:30:38] And you know now look at anyone trying to go down there and rent anything right now like they'll never have us that same opportunity right and they're going to be paying three four five times more than than those people are for smaller units.

[00:30:48] Yeah yeah and so it does give a lot of economic advantage to people who were in the market earlier like rental or ownership and that that's an an economic like that's a negative externality and efficiency right so to i guess to go back to that the and what i just found what i pulled this from it says what does economic evidence tell us about the effects of rent control.

[00:31:05] It was by Rebecca diamond and it was on the brookings dot ed website that was where those couple of studies so there's a couple more here so it's a similarly if rental rates are below market rates renters may choose to consume excessive quantities of housing right so you might not.

[00:31:23] Yeah after getting it for cheap like. Think about New York's a great example right all of these new yorkers who are like globe trotters now and because they have a place there that they're there for one month a year they're there you know and maybe they go down.

[00:31:34] During COVID they moved to to Miami right or whatever so it's right yeah but everybody was no but i mean like if you can afford that if you're if you're paying.

[00:31:42] You know 10 20% of market rent and and now you're hoarding a unit we'll be talking about people hoarding houses it can happen in the rent.

[00:31:50] In rents as well as there's all to rent control and am i correct to say that we kind of saw that being exploited in like the Airbnb arbitrage type thing yeah I mean that would be a great example right yeah people.

[00:32:00] People identify and cheaper apartments renting five or six of them and then going and putting a 25 or 50% up charge on that apartment after you know thrown a nice couch from some my key a furniture in there really like that's literally what this says right here.

[00:32:15] Yeah no exactly it's a great point. In control they are you can also lead to decay rental housing stock which we've been mentioned before landlords may not invest in maintenance because they can't recoup some of these investments by raising rent.

[00:32:28] So let's just all quickly go through the pros of rent control you can go through the cons of rent control just as a summary and we're going to.

[00:32:35] Yeah I know I'm what's new year new me and I'm gonna be the goal I'm gonna be the bullish here and you can be the bear so.

[00:32:42] Yeah and for those of you who are joining us from you know if it's you made a new year's resolution to invest in real estate or you know you want to educate your.

[00:32:50] Yeah you learn more you know develop yourself we're happy to have you on board thanks for joining us and give us a share we love to meet our audience especially new people.

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[00:33:08] And we're going to be the next one that was it's a really good review and I'm like I'm at the point where I'm like I was like is there where we can make this a competition because I feel like people are competing to have like the best reviews.

[00:33:18] Yeah and so just keep doing that please anyway for anyone that leaves a really great review if we read in the show and you and you you can send an email along with it and and day and I will hop on a call with you.

[00:33:27] Well you can have a 30 minute call with with the two of us and that's just a little thank you for the hilarious and creative reviews we're getting is that that's on the right. That's a very pretty good bribe for today. Yeah, sure. We'll work on some better bribes.

[00:33:40] Yeah, that's it for now. I actually chose. Yeah, so the pros of rank control are predictable and rent predictable rent increases that one's pretty obvious. You know that ensures that they're predictable and modest at a set amount it's stability for tenants.

[00:33:53] So it offers a sense of security against unexpected large rent increases in displacement. Higher occupancy rates for landlords because if rents are cheaper you'll have lower vacancy rates so you actually might have less turnover and less like rent seeking behavior people.

[00:34:05] Shifting between units and so you could have you know you could have a market where rents are high but you'd have higher vacancy and more people comparatively shopping.

[00:34:13] And then finally is community benefits so stable tendencies under rent control can lead to stronger communities because people stay there longer and they have you know ties to more and then ideally would have more local spending so it's better for the local economy.

[00:34:24] Yeah, we like the local economy. Okay, now let's talk about the cons of rent control. The first one being limited housing quality and upgrades. The landlords may not be incentivized to improve or maintain properties beyond the minimum requirements potentially leading to declining housing conditions.

[00:34:43] This is where we start to ease into that very ugly word that landlords hate which is slum lord. So don't be that discourages new construction rent control can deter new construction and investment in rental properties as the return on investment.

[00:34:59] Maybe seen as insufficient in this basically just means if you've got an old building that you can't check up the rents.

[00:35:06] And it's in disrepair and you need to go and fix it what is your cash on cash gonna return like if you've dumped a bunch of money into a building that has a limited return.

[00:35:16] The third one being reduced rent and mobility rent control may encourage tenants to stay in their units longer than they otherwise might have. That is very true.

[00:35:26] I know people that literally will not leave their units because they're like I'm paying $900 here the minute I leave it's gonna go over $3,000. That reduces their mobility and the potential to and the potential effect of availability of housing for other people trying to get into the market.

[00:35:44] It also has an impact on the overall housing market because rent control can create disparities in the housing market benefiting some tenants while leaving others without access to more affordable options. It can also lead to shortages in rental units in more higher demand areas.

[00:36:02] The final con here is the administrative costs implementing an administering rent control programs can encourage significant administrative costs. And that piece is really interesting from my perspective like when you think about the state of the Ontario and BC landlord tenant boards versus like Alberta or Saskatchewan.

[00:36:20] It's not just pure cost but also the impact it has on creating backlogs, more conflict which means more court dates, more resources, more wait times etc.

[00:36:29] 100% I mean, I think it also allows people on both sides to take advantage or to kind of have a little bit more wild west mentality because you're like hey.

[00:36:39] I can start messing with your stuff because or I can do this because I'm not going to have to deal with this for nine months or 16 months in here case.

[00:36:47] I mean, I remember that tweet about how the how broken the landlord tenant board was it was like is the equivalent of having a bank robber in your store or a robber not a bank robber in your store and forcing them to stay there robbing you for nine months before the police show up.

[00:37:05] So if there's anyone from the landlord tenant board listening come on. And the final con is inequality rent control policies make might benefit tenants who are relatively well off or that are.

[00:37:19] That have been there for quite some time and these policies are rarely tested anyone allowing anyone to live at reduced rate so that ones especially interesting when you talk about like inefficiencies in the landlord tenant board because you hear a lot of like lawyers right like these lawyers who.

[00:37:38] There's that guy like driving a McLaren like living in not patent payers rent like two years in Toronto right so I mean people who have who know the system and you have a lot of money can just basically have free rent.

[00:37:49] So it's a scary it's a scary thing especially when you've got landlords that are are good simple business people trying to provide housing that are getting taken advantage of by. You know, these so called professional tenants or lawyers in the clear.

[00:38:04] Yeah, yeah, yeah. Okay, then that was a pretty good prone con list let's finish it off by going through province by province with their rent control policies what they include how much you're able to raise it, etc.

[00:38:20] I started a start us off here. Yeah, so sorry without burda landlords cannot increase I think I started this in in alphabetical order and then I added some at the end so it's kind of like somewhat alphabetical.

[00:38:32] Landlords cannot increase rent until at least is lasted one year or past so that's kind of your your limitation on the timing of it but there's no limit to how much the increase can be.

[00:38:42] So advanced notice is required for periodic rentals interesting in alphabetical order here from a to b as in beautiful British Columbia.

[00:38:52] Three point five percent is the limit for rental increases in landlords must give tenants at least three months notice of any rental increase, which can only occur every 12 months and they are actually linked to the rate of inflation, which is which is interesting here so.

[00:39:11] And we have a lot of time to share with three months notice at three and a half percent in BC perfect next up we have a minute to about 3% which is up they had it frozen so it was 0% last year as a pandemic effort.

[00:39:23] So 23 is 3% landlords can increase rent every 12 months without least three months notice increases above the annual guideline rent required pre approval from residential tendencies branch, which is that's that's a pretty standard thing across.

[00:39:35] And it's pretty standard that has to be done on a renewal of the lease and that you can get an above guideline with a permit from the board.

[00:39:44] Okay nice here in Ontario 2.5% rent cannot be increased more than once every 12 months in landlords must not fight tenants at least 90 days so again three months in advance increases above the guidelines require special approvals.

[00:40:03] So next one is Quebec and this one is interesting because it's a sliding scale we've talked about this before but they really base it on what type of heating or like electricity that you use it a little bit more because your costs could have inflated a lot if you're on heat pump or you're something that was subject to the carbon tax.

[00:40:20] And they're sorry not heat pump oil rather than a heat pump and so their lowest cap is 2.3% but I think goes up to is I want to say as high as like almost 7% with the ones that are on oil we have another episode on it so we'll bring it up again next time when we're talking a little bit more about utilities and stuff like that.

[00:40:38] This is a good example of why it's worth starting to think about separately me during stuff in the present economy especially when there's a lot of grants to do stuff like that.

[00:40:47] And capital available I mean M.L.I. Select is a great example of CMHC's program for their environmental efficiency where you basically have to increase the baseline performance of a building from.

[00:40:57] So if you're working here you have to improve the performance of it by 40% to get 100 points on your environmental efficiency for CMHC. For M.L.I. Select, I mean if you're doing that you might as well again individually meter suites and beyond capitalizing the cost structure in.

[00:41:10] That's also just good because it helps your tenants be more conscious of the electricity that you're using because you're so much more likely to abuse electricity if you.

[00:41:18] If you're not working for your, yeah, abuse like the, you know, like the, you know, like he's on to the right dishes.

[00:41:23] Yeah, it'll be a day yeah laundry house extra warm yeah and yeah just because you don't see it right like it's not even just it's not even to assume malice it's just like if you don't see it. It's hard to, yeah there you go so that's an original.

[00:41:36] Yeah, you're so good at this. Okay, Saskatchewan. No limit in Saskatchewan. No limit to the amount for fixed term tenants is no renting creases permitted unless agreed upon by both parties at the start of the tenancies.

[00:41:52] So Saskatchewan doing their own thing over there in the prairies I like it now Dan. We've got five more provinces and territories here when you rip through them quickly here.

[00:42:04] Yeah, so Nova Scotia is 2% I think that's the lowest in Canada, Newfoundland and I think that was temporary there wasn't one for a bit and then they did it as like as a response to pandemic and housing crisis.

[00:42:15] Newfoundland, no limit north of territories, no limit, no new nivoot, no limit and you can is 3.3%.

[00:42:22] And all these were done at the end of the lease by the way. So at least is designed basically to lock in a rental rate for a degree upon period of time that's basically the primary function of of at least.

[00:42:33] So that's why so like if you have a 6 month lease then on the renewal of that lease you could do it. If you have a 12 month or if you have a 2 year or sometimes you get 10 into 1 to 5 years, because they want to lock in a rental rate for 5 years, right commercial you see at all time, 5 plus 5 plus 5 right.

[00:42:46] Yeah, no I mean it's fast name to look at Canada against such a such a vast place and and you know not much uniformity or conformity among among the provinces here when it comes to dealing with 10 and dealing with landlords.

[00:43:02] And it landlords rents, etc. etc. So you know this was a this was a fascinating one for me. I learned something through this one as well through the research we did for this because rent control versus non rank control was a very interesting interesting thing to look at so hope everyone got a ton of value out of this there's also you know, damn whenever I have a question about rank control or tenants or anything that I go to our esteemed colleague Nicky who has been a guest in the podcast.

[00:43:31] Who's also one of our experts in our course and community realist who comes on and graces us with her or present center and seeing him out in all of the comes to this kind of stuff. So remember this is all important because tenants are the real asset.

[00:43:47] Your real estate asset has to cash flow and if it can't cash flow you're likely in trouble. So take all this with a grain of salt do your own research and share this podcast with someone because new year new us guys.

[00:44:02] And before we wrap up I'm going to read this amazing review it says the year round Santa's of Canadian real estate. It's Christmas Eve and I just gifted my kids the realness of life after talking them into bed and letting them know that Santa was a real man.

[00:44:13] But did not fly around on rain, years and somehow slipped down eight billion chimneys come on now what a trot what tropical country has a chimney. I think he was on a surfboard in the trouble countries that's what I heard but he was a man

[00:44:27] That wanted to spread good human spirit with gifts just like Nick and Daniel these gent are year round Santa's

[00:44:34] Giving the gift of knowledge to solve the Canadian housing crisis and empowering Canadians that our real estate has many solutions empowering both the investors and the end users whole housing. So and

[00:44:46] And that's viable browsing housing by Apple podcast and I think I spoke with Mitch in this gentleman might actually become part of our realist dot CA course in the near future.

[00:44:56] So love it looking forward to that after reading that review. So thank you very much. Leave us a review. Yeah, and let's make this 2024 an amazing year because I actually we're starting to see deals out there yeah markets interesting. Let's get some deals done.

[00:45:12] The Canadian real estate investor podcast is for entertainment purposes only and it is not financial advice Nick Hill is a mortgage agent with premier mortgage center and a partner in the G and H mortgage group.

[00:45:26] Licent number one zero three one seven agent license M two one as zero zero four zero three seven Dino photos are real estate broker licensed with rare real estate a Member of the Canadian real estate association the Toronto real estate board and the Ontario real estate association