Why I rent

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Over half of all new condos in Toronto are bought by speculators. Some call themselves investors. Some are proud flippers. Others crave to be amateur landlords, even if they lose money every month. About three in a hundred are foreign dudes, according to CMHC.

As mentioned a time or two, I rent a condo in the core. Steps from the soul-sucking office tower I’m occasionally held hostage in. It’s a cool space, but I’m not buyin’ it. As an owner, I’d be down over $1,200 more a month than my rent. Ouch. I’ll let the landlord take the hit.

Meanwhile directly beside my building is a new condo tower nearing completion. It’s 55 stories. In the last month the parking lot next door sprouted a sign announcing 28 new floors of condos. The venerable Albany Club down the street is being rezoned for a 25-storey condo tower. The site next to it is under construction for a 30-storey condo tower. Oh yes, directly across King street a heritage building now wears a placard warning it’s soon to shoot higher by almost 40 stories. Yup, all condos.

When I’m downtown on business for a few days a week, I walk Bandit in the only sizeable park for blocks, surrounding Toronto’s oldest cathedral. At 7 am there are enough dogs running around to fertilize Argentina. And Millennials everywhere, spilling out of their 500-square-foot boxes perched far above, blinking in the daylight.

Local realtors are reaping a high rise windfall at the moment, as recent mortgage rule changes and limited supply put detached houses, semis, townhouses or even garages out of reach. Sadly, many people don’t understand that real estate equals dirt, while condo ownership is more about space and risk – and not being a renter. I think all this activity will end badly, since without steady, consistent, annual appreciation in condo values, buying one of these units is a financial death trap. Especially if you plan on being a landlord.

A fatal flaw investors of all kinds have involves recency bias – believing what’s happening now, or has just taken place recently, will go on forever. It might be stocks, Hatchimals or condominiums. All the same. Most things bought for emotional reasons (like wanting ‘security’ in where you live) end up in distress. Just ask condo owners in Calgary, for example.

It’s a good example of what externalities can bring about. Crappy oil prices caused economic activity to decline and that sucked off jobs. Over 21,000 positions have vaporized in the past year – about 2.5% of all the jobs – and this has been enough to kick the crap out of all the people who, three or four or five years ago, thought it would be a great idea to buy a Calgary condo (or two) and rent it out.

The stats are now grim. There are 2,500 empty apartments in Cowtown for a 7% vacancy rate. That’s up three times in three years and at the highest level in 25. From a peak in 2014, rents have fallen between 25% and 35% – and are still declining. Landlords are throwing in free months of rent, paying moving expenses or coming over to give tummy rubs, all to get their units occupied. Condo prices, meanwhile, are traveling lower right along with lease rates.

Not just Calgary, either. Things are worse in Edmonton, in most of the Maritimes and Saskatchewan. In that flat province, for example, the apartment vacancy rate has bloated from 6.8% at this time last year to 9.4% today. The average rent is now below a grand a month. In Estevan, almost 30% of all apartments are unrented and unloved. In Saskatoon the vacancy rate tops 10%.

This is what happens when supply exceeds demand. In Alberta, Saskatchewan, parts of Quebec and much of the Maritimes, weak commodity prices and a sucky economy have brought condo prices and rents down simultaneously. In Toronto the threat is a surge in condo units hitting the market just as the draconian new mortgage rules transform the market and when mortgage rates are normalizing. Of course, you can be like realtor Casey Ragan, who yesterday put out a media alert to let everyone know how well he’s doing.

“In 2016, units are selling almost faster than I can show them,” he says. “Sometimes condominiums and lofts in some of the most popular locations are shown the same day as they are listed, or they are sold before the following day.”

Good for you. And who’s buying?

The speckers. The flippers. The wannabe landlords. Firsters. People without calculators.

Housing analyst Ross Kay tells me $191 billion in real estate equity has been lost in BC in the past five months, as sales and prices diminish. Meanwhile the nation’s lowest vacancy rates are in Vancouver and the Lower Mainland.

Not for long. And now you know what may be coming. Renters rock.

The illusion

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This, says Tennysen in Vancouver, is “the illusion of demand.”

How elegant. How concise. The real estate and development industry doing all it can to conceal that market fundamentals are changing by the day. And not for the better. It’s an attempt to fool the media, social media and ultimately consumers. In one Facebook post, we have before us the death knell of our times.

Shannen Carlson is a West Coast publicist, marketer and purveyor of beautiful women as president of Calendar Girl Productions. This time she’s been hired to make a new condo development look like it’s news – a purposeful act to mislead. The intent is not to market the real estate project to potential buyers, but to create FOMO by hiring people to pretend they want it.

Isn’t business great when ethics aren’t involved?

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Needless to say, shams like this – intended to score a precious few minutes on the local TV newscast, or go viral – wouldn’t be required if enough people actually cared about a new set of condo boxes being built. But they don’t. Sales in Vancouver last month were a disaster (again) – down 38.8% from a year ago, and 15% below the declining 10-year average. The market in BC peaked last winter, and was in serious distress even before local politicians polished it off with the Chinese Dudes tax and the vacant-house levy – just as Wild Bill Morneau was stressing the moisters.

What a perfect storm.

“Changing market conditions compounded by a series of government interventions this year have put home buyers and sellers in a holding pattern,” says local realtor boss Dan Morrison. “Potential buyers and sellers are taking a wait-and-see approach to try and better understand what these changes mean for them.”

And that’s when you hire Shannen and her Lawn Asians.

But this is not just about losing a moral compass in troubled BC. People across Canada should see what’s happening in markets that were on fire three years ago – Vancouver, Calgary or even Saskatoon (apartment vacancy rates are now surging there with rents falling) – as harbingers of conditions everywhere. Lots of other people do.

The latest worriers are no slouches. On Monday Canada’s banking regulator gave financial institutions a blunt warning housing could blow up and taken some lenders with it. “A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers,” said Jeremy Rudin, head of OSFI (Office of the Superintendent of Financial Institutions). “Given the risks and vulnerabilities arising from the current environment, sound underwriting is now more important than ever.”

“A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers… House prices in most Canadian markets have never been higher, supported by mortgage rates that have never been lower.”

But here’s the thing. Bankers are coming off eight years of loaning money recklessly – financing first-timers with no credit history and no money, for example, at the same low rates provided to experienced buyers with 50% deal equity. Foreign students get loans. Retired pensioners get them. There are even mortgages for laneway houses, for people shacking up with unrelated other people and (of course) purchasers who have no down payment and need to borrow that, too. No wonder mortgage debt is off the chart at $1.3 trillion, yet wages have barely budged.

What’s Rudin worried about now? Simple. A real estate correction dropping prices 30% would (says Moody’s) result in $17 billion in losses for the companies he regulates. And just imagine the impact on taxpayers, who stand behind CMHC. No wonder that agency is arguing for higher down payments plus linking the amount a person can borrow to a multiple of their income.

There’s more. Now the OECD is on our case.

The international body has just issued a report spanking Canada for creating an “acute risk” of a housing correction, especially in Vancouver and Toronto. “Such a correction would reduce residential investment and, through wealth effects, private consumption, and in an extreme case could threaten financial stability,” it says, stating the downturn is likely to be “disorderly.”

Well, there ya go. The bank regulator, CMHC, Moody’s and the international community vs Shannen.

But, jeez. Eighteen hundred bucks for sitting outside in a chair? I’m in.