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WALKER: Rent control is a bad idea

Mark Walker is a real estate agent and the broker/owner of Kelowna’s Walker Real Estate.
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February 11, 2018 - 12:15 PM

 


OPINION


With housing costs on the rise, you’ll hear some commentators suggest the government impose strict rent control measures. While this may be well meaning, it is ultimately a bad idea for everyone.

Before we dive in, let’s put some clarity around what rent control is exactly - in short, it is a government measure that dictates how much a landlord/property owner can charge for the renting of a home, apartment, condo or other piece of real estate. This can either be done by imposing an artificial ceiling that rent cannot climb above, or by limiting increases to stay below, or on a par with, a predetermined average.

In my opinion, rent control is one of those ideas that looks good on paper and may make people feel protected, but in practice, it simply doesn’t work, and it certainly doesn’t protect anyone.

For example, when a landlord's expenses increase more than the rent they’re able to charge, do you know what they do? They sell the property. The tenant will then be faced with moving costs and will be paying market rent at their new home. In most cities in our province, including Kelowna, the vacancy rate is extremely low, so the tenants may not even find a suitable new home in their desired community.

As someone who has been in real estate for over 20 years, owned over 70 investment properties and built and sold six houses, I can assure you that price and availability are a function of supply and demand. The only way to lower the price and improve availability is to increase supply. Period.

I can tell you that most people I work with aren't ‘professional’ landlords. Generally, they buy an investment property that just barely covers all their costs. Consider this very typical scenario:

The landlord purchases a rental property. They then spend 15 - 45 days finding a tenant, paying the mortgage all the while. Once the tenant moves in, they start depositing rent cheques. Sounds great, right? Except, at the end of the year, the landlord does her books and realizes that with the extra expenses, such as the hot water tank she needed to install, she merely broke even. “That's ok... Next year will be better because I won't need to install a new hot water tank, and the property won’t sit vacant for 15 - 45 days.” At least that’s what she thinks.

At this point, she could legally raise the rent 3 per cent which is $45/month on a $1,500/month rental, but she really ‘likes’ her tenants so she holds off. However, at the next year end, she realizes that she actually lost $3,500 on the year! WHAT, how can that happen? Well, when she digs deeper, she finds the answer - property taxes went up $600/year, strata fees went up $70/month ($840/year), the service call for the dishwasher leak and replacement was $2,060 ($1,260 for the dishwasher and $800 for the floor repair). Say goodbye to your family vacation…

This time the landlord decides that she must raise the rent. She legally raises the rent $45/month ($540/year) hoping things get better. However, next year she discovers she’s out even more money than before. Taxes and strata also went up (again)... Can you guess what happens next?

The landlord puts in a call to her realtor - hey, that’s me! - to find out what she can sell it for. “WOW - it went up $40K. Let's sell!” She lists her place and gets $35k more than she originally paid for it. However, after she pays the lawyer, the Realtor, the bank's mortgage payout penalty, reimburses herself the money she was short for three years and pays the Property Transfer Tax on her new place, she discovers, to her horror, that she actually lost $2,100 overall. Still no family vacation...

As for the tenants, they aren’t doing much better in this scenario either. Once they learn that the landlord is selling, they take a look online and are shocked to find that places like theirs are renting for $500-600 more than they were paying, and there’s very little available.

The tenants decide to ask the new owner if they can stay, explaining that they will even pay more (which is not permitted under the Residential Tenancy Act). In any event, it’s irrelevant, as the new owner plans on living in the unit, so the tenants have no choice but to move. Now they find themselves checking classifieds 50+ times a day, calling all the property managers in the city and still having no luck.

Finally, the tenants find a place that is $450/month more than they were paying, and on the opposite side of the city. Even though they don't want to live in that area because it’s an extra 20 minutes from work/friends, and a much less desirable location, they reason that they have no choice but to rent it. Moving day comes and it goes well. They both took a few extra days off work and hired a truck, costing them an additional $1,500 that they really didn’t have.

So how do we fix the housing crisis? Because there’s definitely a crisis. In my opinion, the government should focus on increasing rental units with reduced property taxes, builder incentives and zoning changes that only permit rental housing (not condos). On top of that, they should also be giving non-professional landlords incentives. Make people want to have rentals, do not punish them for it. Some seem to think that because someone has a rental they are rich, but as they example above illustrates the real world is not so black and white.

What do you think? I’d love to hear your thoughts.

If you’re considering investing, buying or selling in the Kelowna real estate market, I encourage you to contact me directly at 250-764-4344 - it would be my pleasure to answer any questions that you may have.

— Mark Walker is a real estate agent and the broker/owner of Kelowna’s Walker Real Estate. His company runs the website KelownaProperties.com - Kelowna’s most comprehensive real estate search tool - and KelownaCondos - your source for all you need to know about condos in Kelowna.


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