Why Rental Condos are NOT a Solution to Affordable Rental Crisis

May 19th, 2017 · Tell Me What You Really Think Here · Landlord Advocacy, Rental Property

When I first got into this business, we had rental buildings and we did not treat our tenants very well. We had actual low vacancy and people had to save a 25% down payment which took them years and years. We did not maintain buildings because we could not increase the rent, and so the only way to make a little extra coin was to not maintain the buildings/common areas etc. I worked in a few buildings where the standard response to regular maintenance was to wait for the City to order the work.

Then condos came along and for the most part, people who wanted to live in an apartment lived there. They were really luxurious, had very nice amenities, lots of community space, decent square footage. You could be right downtown and not shovel snow. Most of these are extreme lovely buildings and gorgeous places to live. They were designed and bought by people who intended to live there. A good example would be the Empire Plaza downtown.

However today the maintenance fees for these lovely buildings is very high. The reason for that is that buildings cost a lot of money to maintain especially luxury buildings. If you are a condo owner where there is 200 suites, you own 1/200th of the boiler, chiller, roof, pool, common areas, office and none of those items are cheap and easy to maintain. Over time the true cost of building entropy is discovered. No more teaser $200 maintenance fees.

The condo structure lends itself to abuses. Property managers running away with the reserve fund, Condo Board members who don’t own units. An improperly run condo can be a nightmare of epic proportions. The poor unit owners have to pay. It gets even stupider when the condo board starts to wage wars on unit owners or litigate like morons without considering the cost to unit owners even if they “win”

When even Urbanation admits that condos are cash flow neutral the first year of release, you know we are in big trouble.

In fact the only reason for an investor to own a condo is to sell it after the price goes up.

We are so lucky that Mom & Pop & Foreign investors have provided this housing resource to tenants at great expense to themselves. Otherwise we would be in such deep trouble from the lack of supply of rental apartments.

Let’s face it, condos crack cocaine for developers. You build the building as cheaply as possible, sell units off and walk away. If something is wrong like say all the glass starts falling off the building, you just trust your property management buddies to cover for you (You got them the job in the first place) The individual unit owners are isolated and probably don’t have the deep pockets required to sue you for lousy workmanship or fraudulent advertising.

Compare this to a landlord who will contract you to build for them. You will have to build to their specs. I worked in rental buildings that were over 40 years old and we had to change the hot water pipes because they were worn out. Condos… one was 8 years old and all the pipes needed replacing. There’s a definite chance that the landlord will hold you accountable and not pay you if the glass starts falling off the building. You will definitely be sued. The contract between landlord & builder is one of equals. Usually the buyer of the condo is at a considerable disadvantage. They just don’t know as much as the developer, can’t afford expert legal help, and  the traditional pre-construction condo contract is completely in the developer’s favor.

I once knew this landlord, he hired a guy to pave his driveway and signed a contract that said they would install 6 inches of asphalt. The guy did a very nice driveway, but the landlord made a hole in it and discovered only 4 inches of asphalt in several spots. So he didn’t pay the contractor until he put the required amount of asphalt on his driveway. This is a guy you want in charge of the building of high rises that will be there for hundreds of years.

All this to say we need real rental buildings. Affordable living for regular people. Like the ones we used to build but newer, no security, no pool, and an illegal immigrant cleaning the hallways and a super being paid like crap.  One property manager for 10 buildings. I’m sorry people but you can’t afford to live in a condo. Most of you can only afford to live there because your landlord subsidizes your rent $500 or more per month and that’s for a very average building.

That is the facts. The numbers. I have had about 10 percent of my owners sell since the beginning of the years with another 4 listing this month. Every tenant evicted. This was terribly predictable and sad. Frankly a lot of owners kept hoping rents would one day rise enough for them to break even. With the introduction of rent control on all units, they know they’ll never break even. So cashing out is the only answer that makes sense. Kathleen Wynne & John Tory are philanthropists but how many non cash flowing condos do they “invest” in? None I’ll bet.

On the other hand the true speculators don’t care about rent or tenants or being good landlords. They just care about covering part of their expenses until they sell.

This is failed housing policy. They should write case studies about all the Failed Toronto Housing Policy. First of all it’s hard to believe there is a plan, but if there is, I’m pretty sure the planner was a squirrel on meth. While condos may provide some rental housing, it isn’t rental housing and it isn’t affordable.

For many years, the Canadian goal was to get everyone their own home, even poor people should live in palatial surroundings. The most overhoused people I ever met was an Indian couple in Brampton, they had a huge house with 7 bedrooms and only a couple rooms were even furnished. The sad part was that it was so cold they were wearing their winter coats inside to save because it was “too expensive” to heat their house. It was a lovely house but they needed a one or two bedroom house, not a huge 7 bedroom monster.

Since then I’ve seen a lot of young couples way overhoused in 4 and 5 bedroom houses in Markham & Vaughan & Brampton. They actually did need a condo and not 4000 square feet of “forever home.”  The skewing of our ideas about investment in housing is caused the lack of economy. The ridiculous amount of appreciation fueled only by ever increasing debt and our collective agreement that real estate acquisition is the pinnacle of Canadian achievement is a symptom of the problem.

This is wrong headed and foolish. You need a reasonable place with no roof leaks and heating. You do not require 7 bedrooms, 2 family rooms, one living room, one dining room, one large eat in kitchen and a main floor office, with 6 full bathrooms and two half bathrooms and a finished basement with fireplace for two small senior people or a young couple.

Meanwhile my friend Scott Terrio the bankruptcy trustee is tweeting stuff like this. Yes we are a hoot at parties, me with my eviction talk and him with his talk about the people who he sees (and saves) who are so mired in debt, they don’t know what to do next. Ok well maybe we don’t get out much, but he tells me he’s never been more popular. This is not a good sign people.

The point of all this blog post is that we need actual new rental housing for people who rent for whatever reason, like all those millennials who don’t want to give up their avocado toast for 587 years so they can save up a down payment to buy a house. Eventually all those old people are going to need to live somewhere. Last time I checked the monthly GAINS payments are on top of the federal Old Age Security (OAS) pension and the Guaranteed Income Supplement (GIS) payments is a pittance and together that doesn’t quite pay the maintenance fees on a lot of condos although if you get a widows pension you might be able to rent a bachelor in Parkdale. The cockroaches are free and make a delicious and nutritious snack that is keto approved. There are other people who want to rent too, like students, or freshly divorced people, or people who work at a grocery store.

Condos are not the answer because they are not purpose built rental housing. It’s too expensive, unnecessary, and unstable as owner’s buy and sell and tenants are continually uprooted.

To be fair the city and the province did do quite a bit when they evened out the tax structure for condos compared to rental buildings. In the City of Toronto an old multi residential building pays 3 times the property tax burden as a similar condo. For new rental buildings that has changed, and there’s that minimal $125 million fund for development at the Ontario Government, but that’s a drop in the bucket. As a society we need to decide we need rentals because we need housing for many stages in our lives and not all those stages require a property purchase. Our government needs to acknowledge that condos were never designed to be rental housing and that the buildings don’t even function as a condo entity when too many uninterested investors own tenanted units.

Our emphasis needs to change and change fast, because we really need decent affordable housing for families and students and people in our communities. These days I’m renting a lot of nice mansions in the $2500-$3000 range. But a townhouse under $2000 was listed last Friday and rented by Sunday. We definitely need more supply of the under 2K three bedroom townhouses or even apartments.

Just to be clear I’m not talking about subsidized housing which is the purview of the City of Toronto Slumlord Toronto Community Housing Corporation. I’m talking about places for working families with kids and jobs that don’t pay that well. We can’t all be millionaires and we certainly don’t all start that way. There needs to be money for rent, food, toys for the kids, Netflix and maybe a latte or a glass of wine.

People do not need pools, security, concierge, fancy property management, and 24/7 cleaners. They can’t afford it and the cost of all that crap must come from rent. The idea of some philanthropist landlord coming in to save the day has a die a quick and humane death. You might be able to convince some stupid mom and pop investor to buy a condo, but every investor I worked for in the first 10 years of my career is out with pocket fulls of cash. Out. They won’t come back in until they can make money. Period.

I also want to point out that these landlords are not unsophisticated investors like these idiot home buyers/bag holders lining up in a frenzy in the outskirts of Brampton buying out oversized overpriced mansions on postage stamp sized lots. I remember, once getting annoyed because the owner of our building had to pay out 6% interest on last month’s rent deposits when you could only get 2% in a bank account, and he told me not to worry or get too angry on his behalf because he was making 12% in the stock market. Clearly these people have options, if you think for one second they’ll go back into the landlord business without making a decent return, I have some news for you. They’re not.

Fun Fact: The only reason to be a commercial landlord is to make decent return and it has to be relatively guaranteed. If every level of government does not accept and recognize and smooth the way to what should be the goal, we are screwed, landlords will not build and mom and pop landlords are selling and evicting at record levels. The tides have turned.

Ironically encouraging purpose built housing may actually smooth the economic disaster on the horizon.

Govern Yourselves Accordingly.

 

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