Join us in Toronto on November 26, 2024 for our next Rentsync Roadshow stop. Tickets are selling fast, get yours today!
Join us in Toronto on November 26, 2024 for our next Rentsync Roadshow stop. Tickets are selling fast, get yours today!
Ever questioned the validity of the hot takes on Canada’s rental market? Then be sure to join us on this episode of the Sync or Swim podcast, as we dive into an open conversation and unpack the truths and myths of the rental market’s hottest takes. We are excited to have two incredible guests on the show, Max Steinman, the CEO at Rentsync, and Jenna Chick, the Director of Leasing at Fitzrovia. Together, we break down several hot takes prevalent in the Canadian rental market, including renting as a simple waste of money, Canada’s perceived low vacancy rates, arbitrary rent prices and the ability for landlords to make a fair return, rent control as a solution to housing affordability, and more! Thanks for listening, enjoy.
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[INTRODUCTION]
[0:00:03.6] ANNOUNCER: Welcome to another episode of Sync or Swim, brought to you by Rentsync. From operational challenges to marketing mastery, we uncover the strategies in technologies and all things PropTech. So, let’s dive in as we explore the trends, tactics and insights that define the future of multi-family investments. Sync or Swim starts now.
[INTERVIEW]
[0:00:26.2] GL: Well, hey guys, I’m Giacomo Ladas and I’m joined in studio today by two very special guests for a really exciting conversation. One of our guests will be a familiar face if you're watching or a familiar voice if you're listening, the one and only Max Steinman, CEO of Rentsync and Rentlas.ca. Max, thanks for coming to our studio today.
[0:00:43.3] MS: Thanks for having me again.
[0:00:44.5] GL: And there’s always, strength in numbers, so we were lucky enough to get some time with the Jenna Chick, director of leasing at Fitzrovia. Once again, thank you Jenna for being here.
[0:00:52.3] JC: Yeah, thanks for having me.
[0:00:53.6] GL: So, in this episode, we’re going to be tackling some of the rental market’s hottest takes. I’m going to read them out and I’d love both of you guys to give your opinions on them, whether they’re truth, or myth in a polite cordial way. We want a nice conversation here, I know we got hot takes that get in the weeds a little bit but nice and open conversation where there’s truth or myth to any of these hot takes.
I’m going to start off with one that I still hear today as a renter for my family, I’m sure everyone has heard it at some point but the first one is, renting is just a waste of money. What do we think about that? Is there’s some truth to that or mostly myth?
[0:01:26.4] MS: Well, first off, we promise to behave on all these hot takes but yeah, why don’t we start with you, Jenna? Like, you’re in the business of talking to renters like every single day with your team and I’m sure you hear this a decent amount or people under their breath, you know, is saying this sort of thing, so.
[0:01:42.9] JC: Yeah, we heard all the time. It’s no secret that affordability in Toronto, in terms of home ownership has skyrocketed. I also think there’s this stigma of like, you grow up, you graduate, you buy a house, you get married, and all of those things. That’s just not what it is today, I had a colleague who is from New York and it was when she told me, “Nobody in New York buys, everyone in New York is renting.”
That it really resonated that that’s just what you do in a big metropolitan, in a big city and so, you have options to go and buy but renting is a really great option. It’s very consistent, cash out the door, you know what your monthly payments are going to be month over month, it gives you flexibility to move, whether it’s another neighbourhood in the city or if you think that your job might take you away.
We hear it all the time, and I just think it is a myth, yeah. For the right person, renting is a really, really, really great option.
[0:02:37.5] MS: I think it’s a reality as well that just for some people in our current macroeconomic environment that it’s just not a reality that homeownership is on the table for many people right now, right? So, Canada’s homeownership rates have actually been on the decline now for about four or five years and they were very, very high. So, they almost had room to kind of regress back to the mean of other G20 countries.
So, we’re seeing that but yeah, so that means, on the inverse, rentership rates are on the increase and I think it’s just a reality that more people need to rent right now based on the economy.
[0:03:17.8] GL: There’s kind of a stigma though, too. Isn’t there like maybe North America or even Canada specifically that like, renting is somehow like, lesser than homeownership but if find that, that’s not actually the case around the world, right? In some place, like you mentioned there, I’m only going to rent, right? But I feel like there is that stigma still in Canada and probably in the States too.
[0:03:35.2] JC: We’re seeing more often now that people do have the choice between buying or renting and people are opting to rent. They don’t want to deal with the maintenance of a property, they want to be able to lock their door and maybe go down to a winter house or a summer cottage and it’s easy. Maintenance is taken care of they’re not worried about any of those things that do come with home ownership.
Any of the other financial burdens and it is nice to see that people have a choice and are making the choice to rent and kind of reducing that stigma. We’ll say it’s definitely still prevalent here in Toronto but we are about 10 years behind, 10 to 15 years behind than some other major markets where renting is more prevalent.
[0:04:19.4] MS: I’d say, absolutely, especially on the maintenance side, and especially with you know, Toronto in particular, our housing stock is really old. These are homes that need a lot of maintenance. I just got hit with some brutal bills, to be honest, I had to reside the entire back of my house and in doing that, was told I also needed a new roof and we’re talking like CAD 30,000 of unplanned expense, right?
So, that’s one of those benefits if you’re a renter, you don’t even have to consider that sort of stress whatsoever. I think also, on the stigma point, great point. We have sort of a shift occurring in Canada in particular where the idea of an apartment building is changing. We all kind of grew up in this generation where everyone in Toronto and Vancouver in particular but Canada thought of condos as rentals.
Fitzrovia is the perfect example of sort of redefining the entire space where a rental building where the whole building is a rental is now becoming very commonplace and it’s totally changing the way that renters think about new multi-residential properties. I don't know if you want to speak to that.
[0:05:37.3] JC: Yeah, you said it, redefining rental living. So, it’s not going up into your apartment and leaving for the day. We are putting in a ton of resort-style amenities, creating community, creating bonds with your neighbours. Every time we tour people through the building, it doesn’t get old for me of just the sheer shock that a product like that exists in the market, and it’s really, really expanding.
So, you’re starting to see a lot of purpose-built rental buildings coming up in Canada that just didn’t exist before, kind of carving out this different node, aside from the older 60, 70s style rental buildings were not ammenatized. You might have some staff that works at the building but more working remote or split across a ton of different buildings, where they’re dedicated, they’re there for you.
The concierge team knows you by name, you have your property management team, your maintenance team, back to that maintenance point, anything goes wrong, looking to address it within 24 hours and so, just that really lux style of living.
[0:06:38.1] MS: I think, now, when you look up, let’s say you're just driving down a gardener, which is really slow these days.
[0:06:44.0] GL: Yes.
[0:06:44.8] JC: As we know.
[0:06:45.6] MS: Or, just like, anywhere we have a vantage point of the city, if you’re flying into the city, flying out of the city or any Canadian city, not just Toronto and you see all these cranes in the sky, like in the past, you would have said, “Oh, look at all those condo buildings going up” right? And that’s just the way Canadians thought. So, there’s been a reeducation. Now, near 50% of all of those cranes across Canada are rental cranes.
So, we hope, I guess, we hope, that people start. I think the market is sort of being reeducated towards that concept.
[0:07:21.8] GL: I think so and although this podcast will help. Let’s go to another hot take here that, at Rentals.ca, as you know, we’d post our own reports and it gets a lot of media coverage, and with that, comes a lot of conversation that starts from a lot of times, renters and we get this hot take all the time, which I love your opinion on is that, “Landlords are only interested in profits.”
Because what we keep hearing is that the landlords are on one side, renters on the other, they’re just asking for as much money as possible, and that they're only trying to profit. It’s not necessarily having the right person find the right apartments. So, I’m kind of curious about that hot take as we get asked that quite a bit from, I guess, you could understand some renters who are seeing the prices right now.
[0:07:58.5] JC: Yeah, I think, when you look at condo stock and you have those individual landlords that maybe bought one or two or a couple of units or they might be a foreign investor, they’re looking to cover their cost. So, if their costs are going up, rents are also going up. For us at Fitzrovia, community is really at the core of what we do and our product and I kind of touched on it with the last hot take.
But we do a lot of different resident events and programming and really creating communities within our building. Of course, there’s costs that need to be covered and with rising costs, you do see an increase in rent but that is not the first and foremost priority. We want our residents to be comfortable, we want them to love where they live, be proud of where they live and have all of the amenities, all of the community.
It’s nice to see neighbours, chatting with one another. We have a lot of international residents, making friends and you know, it might be their first time in Canada and they really do feel at home. So, creating that sense of community is something we’re really proud of.
[0:09:00.3] MS: Fitzrovia does an incredible job of that. They, you know, really focus on creating sense of community and lifestyle and that really comes through and it’s a real thing. Like, it is a real thing. I think of when I hear that hot take, at the end of the day, it’s also important to remember that nobody builds rental housing or buys rental housing to lose money because nobody does that.
That’s just not the way that we’ve set up North American society, right? It’s a capitalistic society and we do have to remember that and I think it’s important to remember that. For those rental housing providers, if there isn’t an opportunity to make a fair return at the end of the day, they’ll take that capital that would have gone into building or buying rental housing and they’ll bring it elsewhere, right?
So, I don’t think that there’s truth in that, “All they care about is profit.” If all you care about is profit, in any business setting, you’re likely not to have very much profit. Of course, like, you need a great product with a great value proposition that drives demand and then, obviously, profit comes with that, and that profit incentive is what gets at Fitzrovia as an example or any other company out there or investor to say, “Let’s do another one of those projects.”
“Let’s do another, which fill the market with housing supply” which at the end of the day, is really important to society, to renters, so that they can actually afford to rent. If we don’t have more supply, we’re in big-big trouble in this country as we know, so.
[0:10:38.5] GL: But also too, like, what people think of like as a landlord, you know? There are a lot of small business owners who maybe they only own a couple of units, right? And like, the rental properties are their income, right? So, I think there are also ads a little bit too where I think, people just see renters – landlords, I should say as this big conglomerate but a lot of the times too, they’re just everyday people who have a few units.
And yeah, obviously, they need some profit and their cost have also gone up quite a bit too with everything going on, right? So, I think what a landlord is, is a lot of different things for a lot of different people as well. I think that’s important to get across too.
[0:11:11.0] JC: Yeah, it’s not a one-size-fits-all-all title for sure.
[0:11:12.6] MS: No.
[0:11:14.2] GL: Okay, well, we know, vacancy rates right now in Canada aren’t the best. I believe we’re like, one and a half percent national vacancy rate as we stand now with some of Canada’s biggest cities below 1%. So, I get why this hot take is said a lot, it’s impossible to find a good rental. Vacancy rates are low, I get this right now, but is there truth to that? Is it not as truthful, what do we think about that one?
[0:11:38.3] MS: Look, I think, it’s definitely more difficult than it has been in the past but the good news is that there are a ton of new rental buildings being brought to market right now, actually. Basically, the most in the last 30 or 40 years now are coming to market. So, if you know where to look, which is online, you can look through many of the marketplaces like Rentals.ca.
You’d be pleasantly surprised when there’s essentially, a lot more rental stock there that I think people understand. It is generally on the higher end of the market, that’s the one thing I’ll say as a caveat and that also kind of boils down to the fact that right now, it doesn’t pencil very well for developers to build, you know, lower-end or middle-class housing. So, those are the more kind of rare assets that can be tougher to find but still, there’s still good turnover and there’s still availability. I mean, you just have to work hard to find it. Yeah.
[0:12:43.9] JC: I also think there’s a lot more platforms to utilize now, to understand who is renting it, where is the building, the legitimacy of the listing. 10, 15 years ago, were the days of Craigslist or Kijiji and you weren’t sure, “Is this real, is it a scam, who am I meeting with?” And so, as a renter being confident that they know this listing is legitimate. They know who they’re speaking to, where it is, and having developers that do have purpose-built rental buildings, where they can go to the websites, explore, see the collateral, the videos, the photos, the floor plans and make sure that they’re confident in the decision before they actually go in to meet them for a tour.
[0:13:27.1] MS: I think that’s actually an excellent point. There’s a lot of nervous energy out there at the beginning of the rental process for anyone and because of the way that Toronto, as an example or Vancouver has kind of shaped up its rental market in the last 30 years, we have a lot of these smaller individual landlords who own individual condo units like A, the opportunity for being scammed is like, super high and unfortunately, it happens a lot, and B, not knowing if, “Okay, we decide to move into this new condo unit, how stable that will be, right?”
A, like, what level of professionality you’re going to get, potentially out of that landlord or if you’re going to be rent evicted at some point or if you’re going to be moved out for personal use of the unit. That’s actually one of the really nice benefits of purpose-built rentals is just the set of laws around them are completely different in a tendency act and so, I don’t know if you want to speak to that but like, it’s a big benefit, right?
[0:14:30.7] JC: Yeah, I think just the long-term nature, we got a lot of people that come to us that say, “I’ve been burned in the past, I paid a deposit, the landlord was nowhere to be found.” Or they’re moving back in or they’re moving their family into the unit and now, it’s a quick turnaround for me to find something new and so we do hear that often and it is nice to be able to say, “Rest assured, it’s a long-term hold, the building’s not going anywhere, you move in and it’s yours.” So.
[0:14:58.0] MS: The other thing there that is interesting in terms of finding a rental unit or a new place to live that’s trending right now is just, moving from out of a city into another city. Like, we’re seeing the most interprovincial migration on record from Ontario to Alberta and that’s not me telling people to move from Ontario to Alberta by any means but it’s happening.
So, with like the shifting job market and the ability for many people to work from home and have that flexibility, that also opens up, you know, considerably more options. Like, people are coming to Rentals.ca as an example, with kind of like a blank slate mindset where they just go like, “Where is a place I can live where I have a pretty good lifestyle, based on affordability?” And that’s very different versus like the original way of thinking, like, “Location-location-location.”
Now, a lot of people still, a ton of people are coming, “Location-location-location,” But a lot of people are coming, “Affordability-affordability-affordability.” And that’s sort of the first mindset and if you're in that position, today, you’re in a way better position to actually like, move somewhere else than perhaps in the past, where like, you had to bring that. You had to have an employer there.
You had to be able to bring that income level that you're at wherever you’re going. So, that’s also kind of a shift that I think is helpful. That’s something that’s good for renters at the end of the day.
[0:16:33.7] GL: And there’s just like generic tips too. It’s like, you know, the summer rental season is really busy. Maybe you can look in the off-season, right? Maybe you can get a credit check already done, maybe you can get your references in order so that even though, vacancy rates are low, maybe there’s something that you can do that when something does come available, you’re just a little bit more prepared and ready to take ownership of it, right?
I think that’s kind of the thing as well, it’s — are you just going in blind, right? You know that if you're looking, look, and make sure you get everything put together so it’s a little bit faster and I think, as you mentioned as well, like, I think, Calgary for example, it’s like five to CAD 600 less than the national average right now in rent. I mean, it pushes about CAD 2,200 per one bedroom.
So, I could save five, six, CAD 7,000 a year if I could maybe move to Calgary, great city, work from home, there’s so many options of where do you want to live as well. You know, there might not be a good rental in downtown Toronto at a price you’re looking for but are you willing to move to Mississauga, Scarborough, like, there’s a whole bunch of options too. So, I think we touched on that pretty good.
But I think having things aligned before you go into that rental, I think it’s important and I mean, you guys probably speak a little bit, especially yourself, Jenna, about like, what you want from a possible tenant as opposed to applying for building. Like, I’m sure, there’s credit checks and references that go through it but maybe any couple of tips that they can do to kind of get started and maybe beat the line up a little bit?
[0:17:49.5] JC: Yeah. So, speed to execution is huge on this one, especially in buildings where you know, a studio suite comes up and there’s three people that are applying to it. Do you have all your documents ready to go? You're paying your last month’s rent deposit immediately, you're securing the suite. So, things like making sure that you have a solid credit score, you have a letter of employment.
You have two or three recent pay stubs, and if you’re a student, you have that guarantor lined up or if you’re not a Canadian resident, that you do have someone who is a Canadian resident as a guarantor and they have all of their documents. I’d say, the longest part of the application process is more on the rising or on the prospect and then gathering all of their documents.
[0:18:33.9] GL: Got you, yeah.
[0:18:35.8] JC: If you’re able to do that before, as soon as you see a place that you love and you can envision yourself living there, starting that application and submitting them, we see the turnaround time approved in the same day and people moving in as soon as the following day.
[0:18:49.6] GL: I bet that’s super important, especially in like a new building in a lease-up, where there’s more competition over some, call it, more coveted unit layouts and it could be a matter of a day or two days between whether you get like your first choice or your second choice, you see that at all?
[0:19:08.1] JC: All the time. I’ll use our property at a College and Spadina, that we are really – which is located very close to the University of Toronto, very high student population. As soon as the unit hits the market, we have a waitlist of people who are looking for it, and so we really emphasize, “Get everything in order now, even if that suite isn’t available online or we don’t have one because as it is, we’ll let you know.” And it’s kind of that first person in, to submit all that.
[0:19:36.0] GL: Those are great tips and I think it kind of slides nicely into the next hot take, which we see this all the time in the comment section, we’re just going to get right into this, “Rent prices are arbitrary.” You know, that comes across all the time. Like, “Oh, these rent increases, they’re just made up. It’s whatever they want to make.” I have opinions on that but I'm sure you guys both do as well, who wants to go first on that one?
[0:19:59.1] MS: Yeah. I think, again, it’s important to understand that the ability to make a fair return is important in this business as well as any other business and without that ability, what will happen is there just won’t be as much competition, there won’t be as many entrance into that market, and then you actually end up with reverse of what everybody wants, which is what we’re sort of experiencing a little bit right now, which is an affordability crisis.
So, rent prices typically are actually dictated by what the market can bear. I mean, in general, but like, they’re there to ultimately provide the landlords, builders, property managers with the fair return that they ultimately need in order to provide that housing and to do it at an investment return. That makes sense compared to say, other investments like, it has to be better as an example, than leaving your money in the bank with well simple earning 5%.
[0:21:02.4] GL: Yes.
[0:21:03.0] MS: Because it’s a lot easier to leave your money in the bank with well simple earning 5%, they didn’t pay us to say anything about their awesome checking account –
[0:21:12.2] GL: But we’re open to sponsorships.
[0:21:13.0] MS: Yeah, exactly, yeah but I mean, if that’s all you’re getting, then, why would you take on all of the risk associated with either building or buying a rental property and operating a rental property? There’s a lot of risk, it’s not easy as I’m sure, you know, you can attest to.
[0:21:28.7] JC: Yeah, there’s a lot of work that goes into it, a lot of costs that go into maintaining the property, capital work on an older property, all of the resident events and programming we do that doesn’t come at zero dollars and so, to Max’s point, at the end of the day, it is a business. We’re obligated to our investment partners to provide them with a return so that we can continue to do what we’re doing.
With that being said, we’re constantly looking at the market, understanding where the market is priced, and what is fair on renewal rates for non-rent-controlled buildings, ensuring that those are fair. We don’t want people leaving our communities, we want to ensure that we’re keeping residents in our buildings and our buildings full and whatnot but also, at the end of the day, rents are increasing and so, we’re also going to kind of follow suit with that trend.
[0:22:19.4] MS: Yeah, and there’s a reason, like, there’s so many factors why our rental in Toronto is more expensive than Winnipeg, right? It’s not just because, you know there’s the cost to build in certain cities is much, much higher than somewhere else, right? The land use divisions take longer sometimes, right? There’s much more taxes in certain areas, like, it’s – there’s reasons why that’s the case.
And I think that’s why the solution is to not only build provisional rentals but more affordable cost, hence, why they’ve moved to HST to try to bring that down for developers but just more expensive to build in certain areas of the country than others, and it’s a much slower process as well. So, that time as well. That’s – you know, there’s a lot of factors into it.
[0:22:57.9] JC: And I think it’s really important too for us to educate on the value of what you're getting and so, you know, a one-bedroom that’s CAD 2,800 a month, when you read that on paper, it might sound like a lot of money but you’re getting a full two-story, commercial grade gym, you can now eliminate your gym membership at Equinox, that’s CAD 200. Your Rogers WiFi is included, so, strip out another hundred dollars.
You have access to the Cleveland Clinic, so virtual healthcare, you’re not having to go to the walk-in clinic or you know, pay for any of those virtual healthcare platforms. That’s an additional cost and when you kind of do this cost plus analysis and widdle that number down, it actually makes sense, and it’s on us to educate the renter on that, get them comfortable around that.
[0:23:45.2] MS: I love that, like, these are the prices of rent right now but we’re actually giving you more, we know it’s expensive, that is why there’s a bowling alley, you know? There’s – educating the renter I think is a huge part and while we’re doing this podcast, right? There’s so much that we’d like them to have when they’re about to get into that rental journey, just of knowledge of the industry and what they’re getting into, so.
[0:24:04.9] GL: So, yeah, the other aspect is, and you mentioned some of these other cities, you used Winnipeg as an example. I think the biggest cost is land. It’s the biggest cost, right? And I think it’s sometimes gets forgotten in the whole picture that you know, the value component as well is location, which isn’t just the city itself but it goes right down to very specific neighbourhoods and the types of amenities beyond the building that are you know, within those neighbourhoods and you know, Toronto is a world-class city, right?
Like, Vancouver is a world-class city, and that’s not shade at Winnipeg. It’s an amazing place too and I’ve spent like a good amount of time there but you can’t fly from Winnipeg to Munich direct, right? Like, you can fly from Toronto or Vancouver all over the world direct, it’s a massive international business hubs, like unbelievable fine dining experiences.
[0:24:58.9] MS: Yeah, for sure.
[0:24:59.8] GL: Entertainment.
[0:25:01.1] MS: Vancouver’s beautiful, exactly.
[0:25:04.3] GL: Major sports league. So is Winnipeg, they’re like – and not to take –
[0:25:07.3] MS: We love Winnipeg. We literally love Winnipeg.
[0:25:07.8] JC: Just to be clear.
[0:25:09.0] MS: We love Winnipeg.
[0:25:10.4] GL: Yeah, yeah, but that’s the biggest factor as well, right? Like, and those things balance out too and that’s what’s actually happening right now. Like you’ve got a ceiling just based on sort of wage growth too in cities like Toronto and Vancouver where people are making that calculation in their head and they’re going, “Okay, I can’t live as strong of a lifestyle here now.” So, some people are making the decision to move to different cities.
And as they move to those cities, those cities become more populated and some of those people are entrepreneurs and restauranters and they open different restaurants or small businesses, and those cities grow and move even closer and balance sort of out to some of the major metros in Canada. So, it’s all just kind of a – yeah, there’s just a flow to it.
[0:25:59.7] MS: Yeah, for sure.
[0:25:59.8] GL: Right? So, this next one, I’ve been speaking with a lot of journalists and the media out in British Columbia lately because there’s been a lot of legislation happening about Airbnbs and VRBOs and I spent a lot of time talking about this and I’d love a second opinion on this as well from you both. Short-term rentals are ruining the housing market. There’s tons of – I’m sure we’ve talked about it personally, just saw the new legislation happening right now.
Is that true, how does short-term rentals play a factor in all of this? Because there seems to really be some – a lot of new legislation happening to maybe curb some of these. So, again, cordial conversation, but let’s get at it.
[0:26:40.4] MS: Yeah, I mean, like, I think that’s more of a symptom, not the cause, unfortunately. The cause in terms of unaffordability has been lack of supply in the market and I guess, you know, a symptom, well, not that it’s not playing a factor because you’ve got quite a few short-term rentals in major metros across Canada that I think are perceived to be taking up what could be long-term rental supply.
But there’s like consequences to everything, right? So, everybody in Canada does some form of travel and stays in hotels across the country and those short-term rentals are extremely important part of our hospitality sectors. So, you strip them out and guess what? You know, Marriott stock is doing pretty well these days.
[0:27:28.9] GL: Yeah, exactly.
[0:27:30.1] MS: And so, for every action, there’s a reaction. I think, you know, they’ve got a bad rep particularly because of let’s say, in the condo market, where there’s just, what they kind of calling ghost hotels in downtown Toronto and Vancouver and those are really seen as you know, entire floors that are basically like Airbnb or short-term rentals and could be long-term.
So, I think they might be a mechanism to help in call it, the short term for alleviating supply but at the end of the day, we just need to build more long-term rental housing. Like, that’s just it. The only other thing I’ll make a point of there is the reason why a landlord who maybe owns a condo in downtown Toronto, decides, “I’m going to make this an Airbnb rather than I’m just going to you know, post at Rentals.ca and find a long-term renter” is also because of their fear of the rental regulations in a market like Ontario.
I know British Columbia is the same, where under the tendency agreement and with the state of the landlord-tenant board. It’s extremely scary to be a small landlord. Think of potentially getting a tenant who decides not to pay the rent and we’ve seen processes take like a year before that small landlord can evict a tenant in that situation and that small landlord could be near you or it could be anyone who is invested in that in that condo and they can get seriously hurt by that.
So, they decide to go a short-term rentals often because of that fear. I think if you address that fear and you create fairer systems for landlords to deal with unfair situations, naturally, a lot of people would probably not actually want to deal with short-term rentals, they’re a serious pain in the ass.
[0:29:24.4] GL: Sure.
[0:29:26.1] MS: For like, just a slightly better return, sometimes, not even a better return but like, you're talking about you know, people moving in and out on a weekly or daily basis, partying –
[0:29:35.4] GL: Never mind the seasonality of it too, right?
[0:29:37.9] MS: The maintenance is so much higher on a short-term rental, complaints from neighbours, it’s crazy, so.
[0:29:42.8] JC: Yeah, your overall wear and tear has just gone through the roof, which will then increase your cost. It’s a really good point about the landlord-tenant board. You got a tenant into units, and they stop paying, your arrears are just piling up until you actually are able to be seen by a judge, and then to actually get the eviction order is another set of time and then actually getting them out of the unit.
At that point, for an individual landlord, it could be like a make-or-break case for them. For us, we don’t do any short-term rentals so we’re 12 months and above. We see a lot of people who are moving to Toronto, again, international city, international hub for work, maybe they’re renovating their home and they need a stop-gap solution for a couple of months, insurance claims and so, there are groups out there that do operate more professional or corporate short-term rentals in combination with Airbnb.
So, I think there’s a place for them in the market. It’s not a business that we’re going to get into but bringing people to the city, new immigration, having theme setup somewhere for maybe three months before they go on to find their permanent longer-term housing solution.
[0:30:51.1] GL: It’s a great point, especially with our influx of immigration, like, newcomers often first start with like a three-month rental, while they get all their affairs in order, right? So, in the end, like again, every action, there’s a reaction. So, you’re going to hurt the hospitality industry, which supports, by the way, like, probably a ton of renters.
[0:31:13.0] MS: Yes.
[0:31:13.5] GL: Who work in that industry, right? So, if you make it harder to travel to Canada, you make it harder to travel to Toronto because everything’s more expensive and there are no short-term rentals and you’re having to, you know, check into five-star Marriott’s, it’s like, that comes out in the wash.
[0:31:28.9] MS: Yeah, and I think it’s important to hammer home the like, the crisis that we’re in right now is the lack of supply of purpose-built rentals. An influx of 5,000 Airbnbs into the market is not –
[0:31:41.4] JC: It’s not moving the needle enough.
[0:31:42.5] MS: It’s not doing anything, we need a mass scale, right? I think the CMHC said what, three million homes by 2030, which, good luck to that but like, that’s what we’re talking about here, right? So, taking someone’s Airbnb, I’m sure that they’ve worked hard to have a second source of income, right? I don't know what that’s actually doing in the long term, besides kind of limiting people who want to have another source of income who have worked hard for it.
So, it’s kind of a muddy situation, I think that’s what most people actually kind of have fallen on. They’ve kind of agreed that like, people should be allowed to if they have saved up enough money to buy a property and use it how they want because they’ve worked hard to do it, right? And I think when you kind of start limiting that, there is a lot of ramifications that could to come. We hope to get into them but there is a domino effect I think with all of this and maybe that’s too hot of a take but you know?
[0:32:32.0] GL: Too hot, too hot.
[0:32:33.1] JC: Never too hot.
[0:32:33.7] GL: Now, this one is spicy, we’ll see how long we can go for this one. I know this is near and dear to Max’s heart, so I’ll give you the next three hours to talk about this one but rent control.
[0:32:45.3] MS: You go first.
[0:32:45.8] GL: Rent control is the solution to housing affordability. Some truth, some myth, all truth, what do we think?
[0:32:55.8] JC: We’re chatting about this before and I think we’re aligned on this one that rent control helps in the near term. In the long term, it can be detrimental for building. So again, when you are not able to have your rents increase at the same rate as your cost, you’re creating a deficit. The landlord’s then not able to put the money back into the building that they need to, to maintain it and keep it in a well-operating state.
We’ve started to acquire older purpose-built rental stock in Toronto and Montreal and some of the states of the buildings have been really, really challenging.
[0:33:36.6] GL: It’s old, they’re old, right?
[0:33:37.7] JC: They’re old, they need a lot of TLC, beyond TLC, full-gut renovation, and the overwhelming feedback from the residents who lived there before and after is, “Thank you for coming in and fixing these problems.” And what it comes down to is there aren’t the finances there to go and do it and then these renters are left with no choice but to stay in this building because their rent is so far off of what the current market rent is.
[0:34:05.6] GL: Got you.
[0:34:06.1] JC: In Toronto, and so it really does pose this challenge and yeah, I don’t know if you want to continue on but.
[0:34:12.6] MS: Oh, it’s bang on. I mean, to me, rent controls, I kind of use it plural because there’s many different types in different markets and different sort of levels but in general, rent controls and regulations that use rent controls, they’ve basically disrupted the natural business to consumer, call it philosophy that just should exist in any business to consumer market and what I mean by that is like, okay, take any business outside of our industry.
What should happen is the business offers a service or product and with that, they’re generally striving to offer good customer service and a good experience and the customer ultimately makes the decision, A, “Do I want to buy in the first place whatever this product or service is?” B, “Do I want to?” Once they do buy, if they do buy, continue this relationship and buy more products or continue to subscribe or whatever it is.
Make that decision around that, you make that decision around Amazon. You know, I am sure a lot of people out there have you know, subscribed to you know, a service and at the beginning, they loved it and then you know, somewhere along the line they said, “You know, I am not really seeing the value anymore.” And they just shut it down, right? And I think that doesn’t happen in rent control environments, which really is disruptive.
It creates a lot of negative consequences and that’s where you see what’s so particular about our industry is this divide that is created and it’s a real divide between tenants and landlords, tenant groups and landlord associations, and the reason that divide exists is that that natural business to consumer ideology is totally disrupted like, it’s not always in the best interest of a landlord who is in a rent-controlled environment to continue to provide the best possible customer service and experience to that end user because there could be a greater incentive for them actually not to. That’s really bad, so it’s basically created this like affordable –
[0:36:38.8] GL: Because if you move out, I can now increase the rent to what it should already be, right?
[0:36:44.3] JC: You could double it, you could put it on the market at whatever price you decided you wanted to, effectively.
[0:36:50.0] GL: Yeah.
[0:36:50.5] MS: The other thing that’s like I feel you know, basically unfair and you hear like the Federal government right now is always talking about tax fairness and there’s this kind of concept going on as we have like a wealth gap happening in the country where we’re all talking about fairness again but you have buildings in the city of Toronto, which is it’s probably in Toronto, it’s probably the worst case in the country.
Also, in Vancouver just because rents have gone so high, where you know, you’ll have two people, two tenants in a building next door, neighbours on the same floor with basically the same unit paying drastically different rates. Like you’ve said in your newer assets that were purchased that – what was the differences in rents?
[0:37:32.4] JC: You’ll see, you know if you’ve been in a building for 30 years, think back to what rents were for a one-bedroom 30 years ago versus somebody who moved in last year. It’s hundreds of thousands of dollars of a gap.
[0:37:45.2] GL: So, you basically have existing tenants, sometimes we’ll call them legacy tenants, and no shade at these people. They’re not – they’re just following the rules, right? I am not expecting them to say, “You know what? Raise my rents even more.” No one would do that, no rational person but you have these existing tenants ultimately subsidizing new renters and that’s what’s happening, and who’s hurt the most?
New renters, newcomers to Canada, you know, people graduating from university and looking for their first new rental and to start their life, these people are impacted. People have to move for jobs, they’re impacted way more than you know, people who have lived in buildings for a long time and so that also creates a divide, right? Like that’s – the whole thing is quite divisive at the end of the day and again, this isn’t to say that we don’t empathize with renters. There’s a huge affordability issue out there.
[0:38:42.5] MS: Sure.
[0:38:43.0] GL: But you know, its rent control is a sort of patch. It can make a renter's life much better for a short period of time, it will benefit those who are already in rental units but over the long haul, it’s going to limit supply in all markets and that’s just the truth. I mean, in every economic study that’s overlooked in rent-controlled markets, it’s always less affordable than in unrent-controlled markets.
Take Alberta, where everyone is moving right now, there’s no rent control. There is no rent control in Saskatchewan, a lot of interprovincial migration there, and rents are way lower, right? So, it limits supply, it creates a divide between landlords and tenants, and it basically creates an unfair burden on new renters, and so we have to think. Is that like, what we want in the long term or do we just want to focus on creating supply so that things become more affordable long term?
[0:39:40.5] MS: Yeah, like I do understand it like, because I am a renter and in the last few years especially with COVID like we’ve seen an exponential increase in pretty much everything, gas, groceries, all the bills, right? Everything has gone up but you know, selfishly, maybe not even selfishly, it’s kind of comforting to know that, “Hey, my rent only goes up two percent a year.”
At least I know that is going to be the same but on the flip side, I know I can’t move out because my rent has such a good price that I got pre-COVID, right? I think, and that’s what you’re kind of getting into with like how to limit supply because there’s typically less turnover you think because when you –
[0:40:14.4] GL: Kind of, kind of. I mean, yes, when there is less turnover, there is less like choice generally in the markets. So, that’s also not great, like it creates stress in the market and it tends to also increase prices but more so, look, you can’t. You can’t, I mean, some have suggested this but you can’t say to a grocer who is thinking about opening up a new grocery store in Toronto, “Hey, listen, you can only ever sell tomatoes for two dollars a pound.” How much is a tomato? I don’t know.
[0:40:49.8] JC: We don’t know that.
[0:40:51.7] MS: Yeah, exactly. I can’t afford vegetables.
[0:40:52.9] GL: We don’t eat vegetables.
[0:40:54.0] MS: The point is, you can’t set a price and then just say, “Regardless of everything that happens in the macro, when you grow those tomatoes, when you import those tomatoes, whatever, we’re going to let you know how much you can increase the price of those tomatoes.” Like no one would open a grocery store is my point and that’s the problem. There will not be enough capital that flows into the space to promote the development of new housing.
Any type of new housing but specifically and especially purpose-built rentals when you have rent controls. You are basically just limiting the investment not even upside but just the potential of that investment and that’s kind of where we found ourselves now and like, look at cities like New York, rent control, right? Like, look at cities like Toronto, rent control, cities like Vancouver, rent control. Sorry, these are the province that obviously dictates that but these are not affordable places.
[0:41:50.9] GL: Yeah.
[0:41:51.3] JC: And I think on the flip side, so any building in the last seven or eight years that is not rent controlled, which are any of our new, newly constructed assets, making sure that we are very thoughtful and fair around what those rent increases are. So, you know, you’ll hear horror stories of, “I’ve got hit with a 20% rent increase.” You know that’s not fair either, so being very thoughtful around that but having that control I think, in determining what that percentage is as dictated by a landlord’s rising cost as well is where you kind of find yourself in a fair neutral position.
[0:42:28.8] GL: I find a lot of those horror stories that they tend to get a lot of PR because you know, they’re kind of, I don’t know what’s the word? They’re just –
[0:42:38.2] MS: Like juicy?
[0:42:39.4] JC: Well in that.
[0:42:40.0] GL: They’re juicy, yeah, they’re headline-grabbing.
[0:42:40.7] JC: They go viral.
[0:42:41.2] GL: Yeah, they’re headline grabbers, like a lot of the time it’s an –
[0:42:44.4] JC: Clickbait.
[0:42:44.9] GL: Clickbait, that’s what I was looking for, they’re the individual landlord. That’s again, I am not demonizing individual landlords. 90% of them are great but you know, there’s bad actors out there and then it just takes one, one landlord with maybe two condos or one condo to create sort of a headline grabber for the entire industry that paints us a negative brush but it is just one other reason why purpose-built rentals are so necessary.
And because you get these professionally managed buildings, where their goal is not to end up in the headlines, I guarantee you, unless it is for something really cool that you guys are doing.
[0:43:26.9] JC: Something cool and fun and positive, for sure but otherwise, like we’re not interested. We want to stay out of that. An individual landlord is looking at that unit and the increase for that unit, whereas we’re looking at the asset as a whole, and so it’s not the individual unit, 201 unit, 202, 203, etcetera but the building itself and so you have a little bit more flexibility to be fair in that sense.
[0:43:50.3] GL: Or even that individual landlord may be hoping you move out, not necessarily because you’re like a bad tenant but they have some other idea for the property, right? Like, maybe they want their niece or nephew to move in, right? So, it’s like, “Let’s just hit them with a brutal increase and maybe they’ll just move out. I don’t have to go through an entire process, landlord-tenant board, it could take a year.”
And that’s like, I’m not saying that that’s like acceptable behaviour necessarily, I’m just saying these are the types of like vulnerabilities that you can find yourself in if you are a tenant for a one-off small landlord who owns a condo in downtown Toronto that’s you know, yeah.
[0:44:27.8] MS: That’s the thing, the small landlord, right? Like you are wrenching your housing cost recently, right? You know, if you’re like a small landlord who have one or two units, right? One of their properties actually have gone in the last few years, right? If they need to do some upkeep, you know, need a new roof, like new anything like that, right? It is not just the big conglomerates, it’s small landlords are affected by this too.
And I think if you keep that in mind and I think most landlords in Canada are small to medium-sized landlords. Like, there is – most, yes. It’s like 70%, they’re actually like one to ten units, which is like why we almost have to grow the other side of it, like the professionally managed because it’s a safer environment for tenants at the end of the day, safer in a few different senses or –
Like how often, I’m curious, how often is that in your pitch and your leasing agents' pitch and then like how often do residents or prospective residents, like already know that or are you giving them like new information like, “Wow, I never considered that as a benefit that like renting from you know, a professionally managed purpose-built rental is going to benefit me A, B, C in terms of like security?” and –
[0:45:36.3] JC: It’s a combination. So, for those who are international and have moved here maybe lived in a Chicago or New York or city where purpose-built rental is there and prevalent, they already understand and so when they are coming to move to Toronto, they’re looking for those buildings because they’ve had past experience, they know what they’re about, they can rest assured that they’ll be taken care of.
But there for sure is an education component just because the market segment here is so small and so we’re really having to advocate for purpose-built rentals for property management companies. You are not dealing with an individual landlord, we’re on site, there’s faces to names, it’s not just an email that you’re going to hear back, you know, a week or two later. So, there is that education component still although, I’d say less this year than last.
[0:46:26.4] GL: Than last.
[0:46:26.8] JC: Yeah, which is nice to see.
[0:46:28.0] MS: And then on the flip side – I’m sorry, I’m taking question master, are you okay with that&
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