Housing Affordability and the Ethics of being a landlord
Intro
I've been having many conversations about housing over the last 6+ months with people with many different beliefs. I want to share my feelings here and I invite constructive feedback if you have carefully considered my positions. I fully admit that my solutions may not be perfect but if we can agree on a premise then we can move forward.
The Problem
The first step to solving any problem is admitting you have one. Some stats:
Avg home price in Canada: $716,000 in March 2021
1 in 10 households in core housing need (that's 1.6 million homes) https://www150.statcan.gc.ca/n1/daily-quotidien/201002/dq201002a-eng.htm
20% of all homes are
bought by investors & prices up 38% in ONE year: https://www.theglobeandmail.com/business/article-investors-account-for-a-fifth-of-home-purchases-in-canada-are-they
“With the country’s rental vacancy rate below 3
per cent and an affordable housing crisis raging across the country, rental
homes have become coveted assets for big investors who believe they can earn
steady profits by increasing rents.”
Are we ok with this as citizens? Where rich people can buy up assets
that they DON’T need and charge high prices for people who DO need them? How is this ethically defensible?
More and more this feels like our modern-day slave ownership problem. I know, that sentence probably got many of you on the defensive right away but hear me out:
At the time, many slave owners claimed that what
they did was fine. They said they were “good”
slaveowners and cared about their slaves. They were providing meaningful service to the slaves by giving them work that they wouldn't have otherwise.
Everyone else did it and it was a smart investment to buy slaves. All these points may even have been true and
yet, today, we clearly see that they were wrong.
In 2021, are residential property investors the same? “I’m a good landlord! I care about my tenants! I provide my tenants a place to live that they wouldn't have otherwise. Everyone else I know buys property to rent! It’s a good investment to do it!” These arguments have surprising parallels.
Again, slaveowners at the time saw nothing wrong with what they did. It was normal. Is that what we have now with perpetual renters being unable to "escape" and buy their own place?
Even if you don't see the problem quite as drastically as I described it, most people agree that housing prices are too high for the average person to buy.
Is Renting Desirable?
Many people object to some of my ideas by asking where all the people will find places to rent if we eliminated landlords. This question implies that renting is inherently good and that we, as a society, should want renters.
First, clearly everyone would rather put money towards an asset than throw it away as an expense. Nearly everyone would choose to own a home if everything else were equal.
Next, I understand that there are people out there who are unable to own a home (there are also some people who choose to rent but I discuss this in my "objections" section). There is usually some sort of mental issues at play here but if those people are able to maintain rental payments, why not have those same payments go towards an asset that they can later sell? I realize this is a weaker argument and would likely take a lot of intervention from non-profits to make it work. I'm simply trying to establish that having renters is rarely "good" even if it does, sometimes, seem necessary.
I'm willing to say that we will probably always need apartment buildings for some types of people.
What the 3 main parties have planned
Let me start by saying that I think ALL the parties have massively insufficient plans. My comments in bold.
Conservatives:
1 mill homes in 3 years. How will they get built and
who will buy them? We already have sky-high prices and not enough are being
built.
2 year ban on foreign ownership First, if someone buys all the homes, I don't really care if that person is located in Beijing or in Toronto. Second, why just 2 years? Lastly, the most recent report on this issue (December 2017) showed foreign buyers account for just 3% of all buyers (https://www150.statcan.gc.ca/n1/pub/11-626-x/11-626-x2017078-eng.htm)
accommodate non-full-time workers They’re doing this by “relaxing” the
stress test rules which can make the market even hotter and can lead to a crash
like in 2008. This is an awful idea.
7 to 10 year mortgages fine, I guess, but doesn’t really do anything as most
mortgages get renewed anyway.
no cap gains on principle res This is already the law, why make it sound
like a new thing?
NDP:
500k affordable homes in 10 years Nowhere near enough. We
need 3x that right NOW (see above about needing 1.6 million).
30 year mortgages leads more people to THINKING they can afford a home
without actually changing the fact that it’s just too expensive. Once again just increases demand.
20% tax on foreign home buyers this will hardly matter. Big corps (whether
foreign or domestic) can afford 20% to have perpetual, guaranteed returns
double home buyer tax credit ok, I guess
no HST on construction on affordable homes HST is refundable for the developer
already anyway so how does this do anything? Eliminate HST on the SALE and maybe
it would help.
$5,000/year in rental support for low income families This will just make it
worse as landlords will be THRILLED with this policy. Now they can rent out even
easier and charge more money.
Liberals:
construct/maintain
1.4 mill homes in 4 years Same problem as the conservatives. How will they get built and who will buy them? We
already have sky-high prices and not enough are being built!
ban on blind bidding -good
vacant home tax -inadequate. Why allow these people to own these homes at
all? Unless this tax rate is INCREDIBLY high, it simply won’t matter.
tax-free home savings account -only helps those who already have excess
money. If all your cash goes to rent anyway, this is useless
double first time tax credit -ok I guess.
These policies are so weak that they might as well not have any policies at all. It's like all the big parties are horribly afraid of scaring anyone with money. I wonder why.
What Can We do About it?
Again, let me start by saying that I'm not an expert here. There maybe be better solutions than what I've come up with. I'll happily listen to those with ideas that actually tackle this issue. We can't move forward unless we work together. If we can agree on the premise that it's unaffordable to own a home and that we don't want a society where the majority of people have no choice but to rent for their whole lives, then I'm happy to discuss various solutions with you.
For me, the simplest (not simple but MOST simple) solution is this: Ban all corporations from owning COMPLETED residential properties. Give them 1 year to sell after completing a property. What's the purpose of specifying completed? I still want companies to be able to develop land and build properties. Personally, I would also like to see a cap where individuals may only own 2 residential properties. They can decide what to do with the 2nd one whether renting it out or having it as a cottage or get away but I can't fathom why anyone would need more than that. Of course, there would be loopholes with getting relatives to buy and such. We’d need to discuss how encompassing we’d want the law to be but that requires people much smarter than I.
My cousin also suggested a type of quota system where you could “buy” the right to own more residential property. If this amount was sufficiently high so that real home buyers had an advantage over investors and if all the proceeds of sale of quota went towards non-profit affordable housing, this solution could be excellent. It also requires investigation by properly knowledgeable people.SOME people need to rent!
Agreed, some people want to
rent for many good reasons that have nothing to do with price. But what % of
people does this cover? I haven’t been able to find stats on it but I can’t believe
it would cover even half of current renters.
So, now we have renters who don’t WANT to be renters but are forced to be. They are forced to endlessly pay off someone
else’s mortgage while never being able to build equity. This is clearly bad for
society on the whole.
Banning people/corps from owning excess homes will lower the value of homes which means that developers won’t build as many homes.
This
point just seems completely crazy to me.
Prices are insanely high right now and we still don’t have enough being
built. Developers are making HUGE amounts of money right now. Lowering the price to an affordable amount won't suddenly make it unprofitable to build. Largely, the cost of a home comes
down to the price of the land. Canada is
a HUGE country, we have LOTS of land! (see next point)
Everyone just wants to live in certain places! If they don’t have money they should just move!
See link: http://rentalhousingindex.ca/en/#affordability_cd .
For 50% of people in the ENTIRE province of Ontario, more than 30% of their
income goes to rent/utilities! That’s not just Toronto, that’s the whole
province. This has nothing to do with
people only wanting to live in specific places.
So, why is this? Northern Ontario has seemingly limitless land, how can
the prices be so high? It’s complicated
but one major issue is city councils are generally made up of people who had
the money to campaign. This means they likely already have homes. What incentive do they have to open more land
for housing when all it will do is lower their own property values?
With so many jobs being done remotely, people don't need to live in big cities anymore. If we developed more remote areas with housing that was actually affordable, people would move.
We can’t just give everyone a free home!
I’ve never said
this. Ever. If this is your argument
then you haven’t been listening. I want average people to be able to buy a
home. Right now, if they’re up against
an investor, they simply can’t outbid that person. It’s a completely unfair
fight.
Why should we help lazy people?
Again, I’m not sure how
these changes do that but let’s remember that MANY hardworking people can’t
afford a home either. If we have two
choices: 1) we help the undeserving AND deserving or 2) we don’t help either, I
believe we, as a society, should always choose #1.
Prices are set by the market!
Yes, but with basic needs,
it shouldn’t be. This is the same with healthcare and education. If the market is pricing people out of being able to afford to live then the market is broken.
Closing Thoughts
I admit that I don't know everything about this topic. There may be points I'm missing and I'm happy to talk about different ideas.
I also want to be clear that I'm not suggesting all landlords are some sort of moral monsters. There are people out there who actually CREATE space rather than take it away. They do this by taking properties that are falling apart and making them livable or by convincing city council to let them build an extra unit on their home so they can rent out to people. I have no problems with this. They're adding to the market. What I object to is when investors outbid someone who wants to live in a home then turns around and rents it back to them.
If you're a landlord and you instantly get angry at my points, ask yourself why. Is it because you're uncomfortable with what I'm saying? Again, I'm not saying you're an awful person. Maybe you've never really considered this before. Everyone around you did it and it's a good investment so you joined in as well but now that you really consider it, it's getting harder to justify. Think about what you're doing, maybe you'll find a way to truly help people afford to live!
I'm turning off comments because this is the internet and people just yell angrily but I'd love to discuss this with any of you in a forum where we can talk civilly.
Lastly, a funny way of looking at this problem: