Downtown investors raise rents to pay the mortgage

The majority of CREW readers -- investors themselves -- are suggesting the phenomenon of rents outstripping mortgages has more to do with market forces than landlord ambition.

The poll found that 38 per cent of respondents blamed landlord excesses for this phenomenon, while 25 per cent of respondents said that exorbitant multi-family prices were to blame, which led to renters carrying the costs for the landlord.

Another 38 per cent pointed to the scarcity of rental units as the top reason. The end result, for many investors, is obvious.

Nick Bachusky, a mortgage agent in Ottawa, says: “Many landlords of mine look to at least break even on mortgage payments, property taxes, utilities and maintenance – and then they look at the other market rents in the area and will adjust accordingly. If it is not favourable for them they will usually keep looking until it is favourable.”

In downtown Vancouver, for instance, investors are able to ask for a very high rent because the location is so favourable.

Kelly Hudson, a mortgage professional at Dominion Lending Centres, describes a familiar scenario. Her friends pay $2,300 a month to rent a two-bedroom apartment in Vancouver’s popular neighbourhood of Kitsilano.

“They will never be able to afford [to buy the property] unless they win the lottery,” she says. “But they are willing to pay a high rent for the location and, due to high demand for some locations, the landlords can command a high rent.”

The dollars and cents argument hold sway across the industry, although it's one many consumers fail to take into consideration, argue mortgage financing professionals.

“This, in part, is a very simple equation that has been around forever,” says Phil Butler, a mortgage broker at Centum. “Supply and demand; supply is short and demand is great, so people will pay higher rental rates."

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  • by Hal 2014-11-17 3:35:06 PM

    Anyone who says that "landlord greed" is the problem simply doesn't understand supply and demand economics. The landlords charge what the market will bear. Walmart charges what the market will bear. So does everyone else. Greed has nothing to do with it.

  • by Barbara Buote - Mortgage Agent 2014-11-17 4:02:36 PM

    Let's face it, the Bill B20 legislation changed the game completely with particular attention to the reduction
    of amortizations from 30 & 35 years to 25 years for insured mortgages.

    This alone has eliminated many first time buyers (and others) an opportunity to escape the very expensive rental
    markets and may exclude them for many years to come. While the government's argument for making these changes
    was to avoid what went on "down south", the truth is that mortgage delinquencies in Canada are well below 1%.
    Very little is ever written in mainstream media as to the current and potential longterm effect of limiting the ability
    of our young people to purchase a home, which may be for some, the only opportunity to create some form of
    personal wealth.

    35 & 40 year amortizations were the norm after World War II when the National Housing Act was established as a
    means to provide affordable housing for returning veterans and their families. It obviously worked well for that
    generation as they were able to accumulate sizeable wealth by their later years.

    What does the future hold for this generation? Why are we not speaking out and addressing this issue?

  • by Jason Clements 2014-11-18 1:39:18 PM

    Of course any property investor would look to at at least break even.

    There's more to property ownership than just the mortgage payment, so rent (whether downtown or not) would have to be higher to also include property taxes, utilities (if included in rent) and maintenance.

    If only the mortgage is covered there's no extra money for upkeep and repairs of the property. And then the property becomes rundown and the owner becomes a slumlord for not maintaining the property.

    Owning a rental property is just like any other business and the owner wants to be able to make a buck.

    Starbucks more than covers their costs and if you don't like their high prices you buy your coffee someplace else. As the article says, it's the rule of supply and demand. If people don't want to pay the high price of rent downtown then they just look for a place in a cheaper neighbourhood.

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