Rental Controls, Toronto rules for Airbnb and CMHC – How Economic Nightmares are created – August 26, 2019,
I read today about the potential devastation a volcanic eruption could cause to the modern world. I often think about Asteroids, Volcanoes and other natural disasters that I believe we as humans should spend more time studying instead of focusing on greed-based initiatives like rental controls, Mortgage insurance, minimum wages and other services that force the cost of living up necessarily which ends up fueling poverty. What’s the problem in Canada right now? The Cost of living is too high, why is the cost of living too high? Because the Government of Canada whether it be municipal, Provincial or Federal has created all sorts of financial wizardry in order to STIMULATE THE ECONOMY
Why do Uber and Airbnb exist? Because of government regulations, if you ever want to become a taxi driver, the regulatory body in that industry artificially raised the barrier to entry, which the taxicab industry then passes the prices onto the consumer, taxi cabs in Canada are so expensive that it allowed uber and Lyft to become billion-dollar companies within a few years, basically the exact same thing has happened with Airbnb.
Airbnb exists and is growing its presence in cities like Toronto, primarily because of Progress policies of Rental Controls and mortgage insurance, both which have fueled a condo and housing boom. Toronto is actually an ideal candidate for Airbnb, primarily both rental prices and mortgages expenses have skyrocketed.
A brief understanding of the damaging effects of Rental Controls and how the CMHC makes the problem worse
Canada Mortgage and Housing Corporation (CMHC) is a Crown Corporation of the Government of Canada which facilitates mortgage insurance, so basically CMHC helps people who otherwise couldn’t get a mortgage to get a mortgage, this ofcourse makes the pool of buyers for housing a lot larger than it would be, it should also be mentioned that CMHC (a Federal government entity) is also in the Mortgage-Backed Securities market and they actually help to protect Private Sector Profits and the expense of the Canadian taxpayer, this of course makes housing even more expensive. It should be noted that CMHC is federal.
Rental Controls are Provincial and municipal, The Residential Tenancies Act, 2006 is the current law in Ontario that governs landlord and tenant relations in residential rental accommodations. On April 20, 2017, the then Premier of Ontario Kathleen Wynne in an effort to get re-elected, along with Chris Ballard, Minister of Housing, announced the Fair Housing Plan. The plan included a provision to roll-back the post-1991 rent control exemption such that all private rental units, including ones, built or first occupied on or after November 1, 1991, will be subject to rent control. This change was effective on April 20, 2017.
Premier of Ontario, Doug Ford’s Conservative Government enacted legislation in 2018 so new construction is not subject to rent control. Rent control does not apply to new buildings, additions to existing buildings and most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018.
Now, why did I write all of this? Because the Private sector builds rental housing and if the privates sector sees that Ontario is in political turmoil with rental housing, they won’t build rental housing, now on the flipside of this, there are detached houses and condo apartments, via CMHC incentives, more private-sector money is being pushed into building Condos, now obviously most of the condo units are empty, but this is where Airbnb comes in.
Airbnb, The Bank of Canada and the CMHC a match made in heaven
In Canada, its important to remember that we have a Government Bank, which is a Crown Corporation, in Canada we also have a government mortgage insurance known as the CMHC and together these 2 entities don’t want to see any deflation, because deflation of prices is death to the CMHC and death to the CMHC could trigger economic instability to Canada’s credit market. Now, as many people know, most Canadians are in debt, which means most Canadians are reliant on creditors to finance their lifestyle.
Most hurt by an economic downturn would be the real estate industry, if mortgage defaults rise, so do mortgage insurance rates, if mortgage insurance rates are forced up, fewer people qualify for mortgages from banks, if fewer people qualify for mortgages, housing price deflation occurs, if housing price deflation occurs, home equities disappear, if home equities disappear, most real estate investors can no longer pay their bills and once this happens you get a housing collapse. However, this Ponzi scheme can stay afloat as long as new money keeps feeding the mortgage market and this is why foreign investment is so important and why, preventing Airbnb and other short-term rentals from operating is only going to fuel the coming economic downturn.
There are calls for the Government to build more housing, however, what people often forget is how expensive it is to build and maintain and NOT-FOR-PROFIT government housing building. Elevator repair people are hard to find and very expensive to pay for, government housing requires plumming, electrical a day to day maintenance staff and depending on where it is, you’ll need police to frequently patrol the place, community housing is a net negative of Provincial finances and it will be like this for eternity. The harsh truth about living in a big city is that a large chunk of the people who do live in cities like Toronto really shouldn’t. Because if you can’t afford the cost of living in a city, what most people will do is turn to the government to solve the problem and what often happens is the government makes the problem worse.
The reason why there shouldn’t be rental controls revolves around maintenance costs, so tenants are destructive and landlords aren’t allowed to kick out destructive tenants, destructive tenants have rights, destructive tenants also have a sense of entitlement, destructive tenants often have children and destructive tenants often look at all landlords as evil. So when the collective society votes for rental controls, investment in rental housing ceases, this is actually why CMHC is beloved by so many people. Because CMHC, gave developers a choice between becoming condo developers and rental housing suppliers? Now, which of the two sound better to you? Building a condo, you don’t have to worry about rental controls or tenants bringing you to court, obviously, most developers opted to build Condos and Condo, detached and semi-detached housing units are private property that can be used for Airbnb and rental houses.
The housing developers now found a quick way to pass the problems onto individual investors. Being that most real estate investors either buy to flip or buy for cash flow, Airbnb is a match made in haven and in many ways Airbnb is being propped up by CMHC. Now, the reality is I’m not sure if the government can do anything to solve this problem, because Airbnb is basically a shared-accommodation.
Now, under Ontario law, A tenant who shares a kitchen or bathroom with the owner or the owner’s family does not have a legal right to remain living on the premises without the owner’s consent, and can usually be evicted at any time without notice. So even if restrictions are put on Airbnb, there are loopholes around it and quite frankly I’m not sure how the government will be able to enforce Airbnb laws if people simply stop using the Airbnb APP and move onto something more sophisticated.
Now, a simple way to solve this mess is for the government to get out of the Mortgage insurance business, and for the government to end rental control laws, but I doubt this will happen, unfortunately, the way I see it, Canadians, in general, are going to have to learn things the hard way. Via government edict you can’t fix economic problems, economic problems reside with the individual, living in a big city is expensive, if you can’t afford living in the big city move to a more affordable city, if you’re employer values you, they’d finance you, actually prior to the minimum wage laws and rental control las, employers would finance their employees living arrangements. But stupid people created stupid laws, and the employers don’t have an unlimited supply of wealth so employers stopped offering additional benefits to their HARDWORKING employees. As an example, in the 1980’s the insurance company an UNEDUCATED family member of mine used to work for offered to buy her a house.
This stuff used to happen all the time, there’s nothing special about a house, a house is actually a money pit, but you see the modern-day progressive Canadian thinks MONEY is everything, so instead of looking at the cost of living, people focus their attention on making more money, progressives are greedy, just because they justify their greed by calling themselves Liberals or Progressives doesn’t mean they’re not greedy. You want the government to give you rental controls, you want the government to give you free housing, you want the government to help you qualify for a mortgage and now you want the government to regulate Airbnb, well if the people want to raise the cost of living that’s what they’ll get.
Interesting times ahead!