Economic conditions have recurrently impacted Canada’s real estate market. High interest rates in the early 1990s deterred many from homeownership, with the Bank of Canada’s interest rates peaking at an astounding 13%. These rates, coupled with debt build-up during the inflationary period, led to a negative GDP growth rate. The housing crisis in 2008 caused a significant dip in house prices, but Canada evaded a complete crash due to tight banking regulations, less mortgage secularization, and mandatory mortgage insurance.
The COVID-19 pandemic presented a unique challenge. A confluence of demand-side factors propelled housing prices, while laws enacted to protect tenants against rising costs resulted in a rent freeze in Ontario, extending until December 2021. Given the expected interest rate rises and accompanying mortgage payments, the meager 2.5% rental increase is ill-suited to meet the growing costs.
The Rising Concern of Property Owners
Landlords have experienced a trying period due to these economic and market changes. Inflation, rising mortgage rates, and anticipated significant increases in interest rates over the next 18 months have left many homeowners apprehensive. Over three-quarters of a million Canadian homeowners have deferred or skipped a mortgage payment, particularly during the COVID-19 pandemic, as rental income failed to cover expenses.
Addressing the Financial Hardship: A Look at Royal York Property Management’s Strategy
Founded by Nathan Levinson, Royal York Property Management has proposed a solution for struggling landlords. The company’s strategy is to personally fund the shortfall up to $500 per month for as long as they manage the property, beginning at $39 a month. The goal is to alleviate the financial strain on landlords and instill confidence in investors, thereby stabilizing the market. In effect, Royal York Property Management is functioning in a capacity akin to a lender of last resort.
Economic Reforms: A Potential Path Forward
Beyond immediate remedies, Levinson advocates for long-term economic reforms. He suggests that the Ontario government should permit landlords to serve an N2 Form instead of an N1 Form, allowing an increase in rent for properties built before 1991. Without such adjustments, Levinson posits, landlords will struggle to keep pace with inflation and rising interest rates as they can only increase rent by 2.5%, according to Ontario’s 2023 Rent Increase Guidelines.
Beyond Property Management: A Commitment to Community Service
Levinson’s vision extends past property management into social activism. The founder of One United EMS, an ambulance service, Levinson aims to ensure that ambulance services are accessible to all, prioritizing safety and preparedness.
The Future of Canada’s Housing Market
Despite the recurrent market downturns, it remains uncertain what the future holds for Canada’s housing market. Government policy can sharply influence prices, but predicting the next potential market crash is conjectural at best. The housing market’s shifts invariably affect the rental market, underscoring the intrinsic link between the two. As a result, investors could face disproportionate impacts due to adverse conditions, as maintaining a mortgage payment on their principal property can lead to even tighter margins.
