Canada's 'housing bubble' deemed close to bursting

[esquire]

Originally Posted by someone123

I don't think these scenarios are comparable. It's my impression that rent is only being deferred. And many people are still paying rent. It's possible for tenants to fail to pay their rent under many other scenarios. It's always a risk.

I would be okay with some kind of government loan being extended to landlords in the name of fairness since the government intervened. But that doesn't change the bottom line of high risk highly leveraged investing where you can't handle 1-4 months of semi-interrupted cash flow.

Yes, tenants technically still owe the rent. But being owed rent and collecting are two very different things. And now you have a scenario where people who are OK with the prospect of moving once evictions resume have no real incentive to pay rent beyond wanting to do the honourable thing. Not just for a month either, but for close to a half year in many jurisdictions.

I'd wager that Maribeth Shields will not come out remotely close to being made whole for this. Once you factor in the costs of chasing down tenants and enforcing judgments against them, I could see her getting something along the lines of a dime on the dollar.

Anyway, I realize that there are situations involving market fluctuations that are not deserving of compensation. If you buy an apartment building in a mill town and the mill shuts down cutting the property value by 75%, then that's on you. No compensation is deserved. But this is a different situation... governments have effectively told landlords and tenants that for a period of time, only landlords still have to live up to their end of the lease deal. Maribeth Shields is not looking for relief from the market, she wants relief from a government decision that has created serious problems for her.

[Truenorth00]

Originally Posted by esquire

Anyway, I realize that there are situations involving market fluctuations that are not deserving of compensation. If you buy an apartment building in a mill town and the mill shuts down cutting the property value by 75%, then that's on you. No compensation is deserved. But this is a different situation... governments have effectively told landlords and tenants that for a period of time, only landlords still have to live up to their end of the lease deal.

I don't really see the difference. If she had screened for higher quality tenants, she'd still be getting rent. It's not like every tenant in the country just stopped paying rent in March.

[whatnext]

Originally Posted by ssiguy

Renters are NOT getting bailout and are not receiving a nickel of government assistance anymore than owners are. These non-eviction decrees are not, in anyway shape or form, a rent subsidy but rather just a deferment. If the tenants can't pay all or most of their rent they cannot be evicted due to our unique circumstances but they still owe ALL of the money to the landlord.

Yes there will be people who take advantage of the situation but is no different than landlords who refuse to give back deposits when the tenants leave for the smallest of details, don't properly maintain the apt, try to soar the rents due s small improvement of the apt, or toss the tenants out due to "renovictions". Unfortunately you will always have unscrupulous landlords and tenants.

I wonder how many renters realize that? If not, there is going to be a wave of apartments coming available in 4 months.

[esquire]

Originally Posted by Truenorth00

I don't really see the difference. If she had screened for higher quality tenants, she'd still be getting rent. It's not like every tenant in the country just stopped paying rent in March.

The difference is one scenario involves the market and nothing else. The other scenario, and the one at hand, involves government restricting what landlords can do to deal with the situation.

Suggesting that it's on the landlord in the article because she didn't sufficiently screen her tenants is about as absurd as claiming that Ottawa shouldn't pay CERB because people should have known better than to work for businesses that weren't resilient enough to keep employing them through a pandemic.

[lio45]

Originally Posted by Truenorth00

I don't really see the difference. If she had screened for higher quality tenants, she'd still be getting rent. It's not like every tenant in the country just stopped paying rent in March.

I'm with esquire. The normal tradeoff for someone who screens less is that you can evict as needed. After ~15 years of one and ~8 years of the other, I can say that the optimal way to run my portfolios is to screen pretty heavily in Quebec (my vacancy rate is high; when in doubt, sorry, I'll err on the side of keeping an unit vacant) and to screen very little in Florida (everything's pretty much always full and if I have to evict on occasion, that's reasonably easy; plus the law in FL allows landlords to charge a deposit).

But now the rules of the game have changed in the middle of the game - THAT is the problem.

If you'd told her "oh by the way eviction will cease to be an option next year" last year, then of course she would not have made the business decision to NOT screen for only top-quality tenants at the time.

[lio45]

Originally Posted by esquire

But this is a different situation... governments have effectively told landlords and tenants that for a period of time, only landlords still have to live up to their end of the lease deal.

That's exactly the problem, summed up in one sentence.

[someone123]

Originally Posted by lio45

But now the rules of the game have changed in the middle of the game - THAT is the problem.

If you'd told her "oh by the way eviction will cease to be an option next year" last year, then of course she would not have made the business decision to NOT screen for only top-quality tenants at the time.

This is a valid objection but the wider picture is that without government intervention there would still be a huge train wreck of many tenants not being able to pay (eviction or not) because they have no money and the economy is in tatters. Really you have to factor a program like CERB into the net government impact on landlords as well. Plenty of people are using CERB to pay rents they would not otherwise be able to.

And I still say the landlords who can't handle losing 50% of their cash flow for 1-2 months were in a very exposed financial situation. You take out multi-decade mortgages and you need every single month to go well to avoid financial catastrophe? Crazy.

[theman23]

Are banks not deferring mortgage payments?

[Truenorth00]

Originally Posted by lio45

I'm with esquire. The normal tradeoff for someone who screens less is that you can evict as needed.

You'd still have to have the financing to get through the eviction process which takes time. So anybody claiming they'd be safe through eviction despite not being able to handle two months of no revenue is being dishonest. They are irresponsibly overleveraged. Simple as that.

And if you have over two dozen units and half aren't paying, I'd say the fault is with your screening process. Especially when we have data that says 90% of Americans paid their rent:

https://www.globest.com/2020/04/16/aprils-apartment-rent-defaults-werent-that-bad-after-all/

Also, if you're taking on $1.2 million in debt to make $24 000 in income, I'm going to say those numbers alone tell me that you're irresponsible. We're going to have to discuss the banks enabling this kind of shit again.

[misher]

Originally Posted by someone123

This is a valid objection but the wider picture is that without government intervention there would still be a huge train wreck of many tenants not being able to pay (eviction or not) because they have no money and the economy is in tatters. Really you have to factor a program like CERB into the net government impact on landlords as well. Plenty of people are using CERB to pay rents they would not otherwise be able to.

And I still say the landlords who can't handle losing 50% of their cash flow for 1-2 months were in a very exposed financial situation. You take out multi-decade mortgages and you need every single month to go well to avoid financial catastrophe? Crazy.

So you support a tenant who is making bank being able to not pay rent for months?

My main point is, why should a rich tenant get a subsidy while a poor owner gets shafted?

Your saying that landlords should be able to take it, but why can't tenants take it? Does a landlord bear some inherent responsibility thats some unsaid law in our legal system? Why does a landlord need to be responsible for everyone's rent but tenants don't have to be responsible for their own? What legal argument can you make for a tenant to be able to stop paying rent. Are we a fair and just society or not? Why should landlords be ready to be without rent from every tenant for months but tenants can't save a few months rent? Or simply cover a reduced wage since they still receive $2000+ in stimulus a month right now.

Say a tenant makes 200k a year, but the landlord makes 80k, why does the landlord need to subsidize the tenant?

This goes against progressive taxation. We put the burden on the rich not the landlord.

And why the hell is the landlord more able to handle not getting paid for months than the government? Rents can't be collected but taxes and utilities must be paid on time?

This is the equivalent of saying we will no longer arrest people who rob stores since store owners can afford to take it since likely most of those who rob are unable to afford to eat.

Of course the landlord screens for tenants. But there's a huge difference between a tenant that pays because that's your legal obligation and a tenant that pays because he wants to. If its suddenly legal to rob stores I guarantee you a lot more people will. Are you going to blame stores for not screening who they let enter better?

We are all equal under the law and deserve the same treatment, tenant, owner, business owner, etc.

[Truenorth00]

Originally Posted by misher

So you support a tenant who is making bank being able to not pay rent for months?

Absolutely zero evidence that her tenants are "making bank" other than her word.

When 90% of tenants in the US paid rent for April and only 50% of her tenants did, I would say the issue is with her screening process. Also, she has a portfolio of 27 properties, but only $1.2 million in mortgages and still only makes $24k net profit? She's either lying about her numbers or so incompetent that she shouldn't be in this business.

[MolsonExport]

Originally Posted by misher

Say a tenant makes 200k a year, but the landlord makes 80k, why does the landlord need to subsidize the tenant?

This goes against progressive taxation. We put the burden on the rich not the landlord.

Quite possibly this is the most bald-faced, self-serving baloney that I have read on this thread, in a thread that is chock-full of bald-faced, self-serving baloney.

[someone123]

Originally Posted by misher

So you support a tenant who is making bank being able to not pay rent for months?

I don't have strong feelings about any of this. I'm not an anti-landlord lobbyist.

I'm just pointing out that programs like CERB help the landlords too, that it is possible to build a house of cards by borrowing too much, and that bailouts of risky investments encourage risk-taking that may be suboptimal in the long run.

[Truenorth00]

Originally Posted by someone123

I don't have strong feelings about any of this. I'm not an anti-landlord lobbyist.

I'm just pointing out that programs like CERB help the landlords too, that it is possible to build a house of cards by borrowing too much, and that bailouts of risky investments encourage risk-taking that may be suboptimal in the long run.

This entire example is from the US. So CERB and such don't don't apply. It's also in Connecticut, a fairly well off state. And as I've shown above 90% of American renters paid in April. If this landlord's collection rate is so far below the national average, that says more about the landlord than the tenants.

I sincerely hope the coming credit crisis forces some real regulation. Not the papered over policies were got after the 2008 GFC. And we aren't exempt in Canada, as the graphs I posted yesterday show. Canadians are leveraged up to the tits.

[someone123]

Originally Posted by Truenorth00

This entire example is from the US. So CERB and such don't don't apply. It's also in Connecticut, a fairly well off state. And as I've shown above 90% of American renters paid in April. If this landlord's collection rate is so far below the national average, that says more about the landlord than the tenants.

I sincerely hope the coming credit crisis forces some real regulation. Not the papered over policies were got after the 2008 GFC. And we aren't exempt in Canada, as the graphs I posted yesterday show. Canadians are leveraged up to the tits.

Yes although when I say "programs like CERB help the landlords" I mean that stimulus aimed at tenants will generally circulate to landlords too. I wasn't suggesting that CERB specifically had a material impact on this one anecdotal landlord in Connecticut. The US has its own analogous programs and I think they might be more expansive, with some money being paid out regardless of employment status.

I'm not surprised that most tenants have been paying, and like I said before we need to be careful about measuring this and attribution to covid or compensatory policies because there's always some lateness and there are always some deadbeat tenants.

[misher]

In BC we have a $500 rent subsidy for tenants who lost their job. But why are all tenants able to not pay rent employed or not? Only people who receive the subsidy should be eviction exempt.

I can’t see how anyone but a maniac can defend this. No wonder I end up arguing with so many people on this forum. You support anarchy.

[someone123]

Originally Posted by misher

In BC we have a $500 rent subsidy for tenants who lost their job. But why are all tenants able to not pay rent employed or not? Only people who receive the subsidy should be eviction exempt.

Here's a BC housing page about the $500 rent subsidy: https://www.bchousing.org/news?newsId=1479155088004

It's paid directly to landlords. It's pretty clear it's beneficial to them and not just tenants. A tenant has a big incentive to get the $500 monthly payment delivered from the province to the landlord instead of deferring payment.

[ssiguy]

There will always be people who take advantage of situations whether it be for rental or any thing else. This is no different than slum landlords who take advantage of tenants knowing that, in places like Vancouver, there is no where else for them to go.

The reality, however, is the vast majority of people, both tenants and landlords, are responsible and fair minded and are trying to work together in such difficult times. Most know that this is the right thing to do both legally and morally. How many times have we never been able to get a parking spot but the disabled parking is empty? All the time because most people honour their rights and responsibilities.
This is all part of living in a civil society which the vast majority of people gladly accept. There will always be people who take advantage of situations and toss these ideals aside but luckily they are the small minority.

[Truenorth00]

This petty bullshit over who is more moral, landlord or tenant, hides the bigger problem: the banks and ratings agencies are doing the same shit they did in 2008. Housing is just another inflated asset bubble falling apart. There's also bubbles in auto, corporate, education loans. Etc. Heck, CMBS is now called "Big Short 2.0" and it's actively collapsing a few hedge funds as we speak while making huge returns for those who bet against commercial real estate. Recent examples of shenanigans:

[Truenorth00]

Most of these greedy overleveraged fools would not be getting involved in real estate if the banks weren't facilitating them and CMHC wasn't securitizing housing for the banks.

After this is done we all need to have a long chat about how CMHC is distorting the housing market and removing moral hazard by letting the banks run wild.