The latest set of federal mortgage rules has been blowing a cool wind over almost every Canadian real estate market. With the exception of Ottawa, Montreal and a few others, home prices have slowed down or dipped, sometimes upsetting the calculations of homeowners counting on windfall sales. The average price of a home in Canada stands at $491,000, down 10 per cent from March of last year, according to the Canadian Real Estate Association (CREA).
But that isn’t making much of a difference for many homebuyers. On the one hand, if you take out Toronto and Vancouver, the national average home price slipped just 2 per cent in the last 12 months — not enough to make up for the fact that, under the new stress test, prospective buyers now have to show they’d be able to keep up with their bills even if their mortgage rate rose by two percentage points.
On the other hand, in Canada’s two most expensive markets, the stricter mortgage rules are pushing many buyers toward less pricey condo and town homes, which is in turn driving up the price of those properties. Condo prices are up 26 per cent and 14 per cent since last March in Vancouver and Toronto respectively.
READ MORE: New mortgage rules 2018: A practical guide
So how much does one need to make these days to qualify for a loan to buy an average-priced home in some of Canada’s largest cities?
We looked at the numbers using the mortgage affordability calculator of rate-comparison site RateHub.ca. Here’s what we got:
In Toronto and Vancouver, you need well north of a six-figure salary to buy a middle-of-the-road property, which in both cities is likely to mean a condo or a townhouse — if you’re lucky.
The picture isn’t so bad in most of the rest of Canada, where an average income is enough to buy an average home (the country’s median household income stands at $76,000, according to the latest Census data).
Our calculations also include a downpayment of 20 per cent, an amount of cash that may be out of reach for many, especially first-time homebuyers. We also based our math on a 5-year fixed mortgage rate of 2.99 per cent, which is among the lowest in the country but not necessarily available everywhere.
Still, perhaps most importantly, we assumed buyers had no other debts. This is a big “if” as “54 per cent of Canadians have non-mortgage debt, which makes it even harder to qualify,” said Robert McLister, founder of rate-comparisons site RateSpy.com and mortgage planner at intelliMortgage.com
Things like credit card payments and car loans also factor into the stress test, with lenders looking at total debts taking up no more than 42 per cent of your annual pre-tax income.
“Every $450 of monthly [debt] obligations reduces the mortgage you can qualify for by [about] $100,000,” according to Bryan Freeman, senior vice president and mortgage agent at CanWise Financial, a brokerage associated with RateHub.
There are a host of other factors that might push buyers over the edge, Freeman said. For example, if you rely on freelance income that varies from year to year or on commissions, bonuses or overtime, what goes into the calculation is your two-year average pay.
Then there are property taxes, which are part of the housing costs that shouldn’t take up more than 30-32 per cent of your gross monthly pay.
The property tax rate can vary significantly from region to region and “is definitely a consideration,” Freeman noted.
Still, there are ways in which today’s house-hunters can stretch their affordability, McLister said.
One of them is turning to credit unions, which are regulated provincially and not subject to the latest federal mortgage rules.
“The income required is roughly 12-13 per cent lower for borrowers who use a credit union that qualifies them at the 5-year fixed contract rate,” McLister said.
Another possibility, if you have a down payment of 20 per cent or more, is lengthening your amortization from 25 to 30 years, which boosts buying power by about 8 per cent, according to McLister.
Logging in more kilometres will also help you get the house you want.
“If you’re open to commuting, you can drive an hour and get at least 30-50 per cent more home for the same income,” he said.
And, then, obviously, there’s buying a smaller house.
The rule of thumb Freeland advises clients to use is to aim for a mortgage no larger than four times their income.
“Even 4.5 times is pushing it,” he said.
The B.C. government is proposing multiple changes to try to better protect tenants from the so-called “renovictions.”
Tenants will now have four months instead of two to find a new home if a landlord decides to demolish or renovate the unit.
Under previous rules, tenants had 15 days to dispute the eviction notice, which the provincial government has now doubled to 30 days.
“Tenants need stronger protections when a landlord is choosing to renovate or sell their property,” said Minister of Municipal Affairs and Housing Selina Robinson in a release.
“The requirement to offer units to the original tenant will also help address improper uses of this provision by allowing the tenant to confirm that the renovations did occur,” read a statement from the government.
If the landlord evicts a tenant but the renovations never take place, tenants will be compensated with 12 months’ rent instead of two.
“This compensation would also apply in situations where the landlord used a vacate clause because they had plans to move back in, but then re-rented the unit to someone else.”
“The proposed amendments to the Manufactured Home Park Tenancy Act will assist displaced tenants to move their home to another site, if possible, and compensate them for the loss of their home if they are unable to move it,” read the release.
As experts and veterans of the vacation rental industry in Vancouver, our HeartHomes staff often get cornered at potlucks with the following questions:
Is the city cracking down?
If I rent my apartment out, am I going to get sued?
What should I do this summer?
We’re here inform our friends of the current bylaw situation in Vancouver, so you can make clear decisions about what you can do.
Lets dig in.
Is the city cracking down?
Yes and no, but mostly yes.
Currently all short-term rentals (defined as rentals available for 30 days or less within Vancouver) are prohibited. The City’s new Airbnb licensing regime, set to take effect April 1 2018, carve out an exemption for primary residences only. Only primary residences may obtain a short-term rental license. Full details on the new licensing regime can be found here.
A “primary residence” is defined as a home where the resident lives “most of the time”, pays bills and receives mail, and is the home associated with tax, insurance, income tax, MSP documentation, driver’s licenses etc. This means that if you own an investment property you may not list it on Airbnb.
Additionally, to obtain a primary residence for a stratified apartment, Owners must obtain approval of your strata or demonstrate that your strata’s bylaws permit Airbnb. Tenants making use of Airbnb must submit their landlord’s consent to obtain a license.
If I have a license, how many days per year can I rent out my place short-term?
Theoretically, 365 days a year.
However at that point it’s pretty clear that you were fibbing about it being a primary residence. Unless you’re a homeless hustler. Will this be monitored? We are not sure yet.
OK, I have a primary residence, and I want a short-term rental license – how do I get one?
We’ll know soon.
The City has yet to unveil its licensing application process, despite the fact that the bylaws are set to take effect in a couple of weeks. However the fee is minimal (less than $75 / year). We recommend keeping an eye on the city website for instructions on how to get your license.
Will Airbnb require that Vancouver listings be licensed and delete listings that are not associated with a valid license?
Unknown and a very big question.
In other jurisdictions that have similar licensing regimes, Airbnb has not required proof of license, however Airbnb does make available a field for users to input their license number. Hosts can signal to Airbnb that their registration is “pending” (what proof is required is unknown).
Airbnb is not a regulator and won’t enforce against non-complaint hosts unless their own butt is being held to the fire by the City. This is unlikely because of how the incentives are structured: the City benefits from a thriving Airbnb economy; Airbnb benefits by appearing both compliant to reasonable City bylaws and fostering a thriving, uninhibited hosting economy.
However, Airbnb has been known to cull listings prior to submitting data to government authorities that don’t fit with its friendly, neighborly sharing-economy vibe, as it did in New York in late 2015. Airbnb has typically strongly resisted sharing user data with authorities, (reasonably) citing privacy concerns. However, Airbnb’s end-game is to optimize for widespread adoption, and if the shifting winds of the market require greater adherence to the regulators rather than protecting host and consumer privacy, then that’s exactly what they’ll do.
Bottom line on this question, is that Airbnb may one day delete listings that do not have licenses, as they have recently done in San Francisco. However, this action took 3 years to come to fruition, so expect some delay on this front.
If I rent my apartment out, am I going to get sued?
If you violate a City of Vancouver bylaw and the City takes action against your contravention, the likely consequence is a fine. The consequence has not been set out in the Nov. 14/17 council minutes. The City HAS sued at least one property owner for hosting on Airbnb; or rather, they targeted the owner’s management company – Sonder (formerly known as Flatbook, a Montreal-based sharing economy startup).
How much will the fine be? We are not sure yet.
Am I responsible for taxes? What about PST/GST, and is there a tourist tax?
Income tax Yes. PST, No.
If you generate income on Airbnb you are responsible for reporting that income, just as you are responsible for reporting ALL world-wide income from ANY source to the CRA. As for PST/GST and MRDT, Airbnb has recently agreed to remit PST / MRDT to the Province directly from guests, so you don’t have to do anything on that end. This is a huge win for everybody in Vancouver.
What about the Vancouver Empty Homes Tax?
The Empty Homes Tax is a tax of 1% of a property’s assessed value levied against properties that are vacant for six months or more each year. A property that hosts vacation rental guests is considered “vacant”. A property must be legally tenanted by a long-term renter (or combination of renters) for at least six months of the year to avoid application of this tax. The City requires the name(s) of the persons who are long-term tenants of your property as a part of your declaration.
The Empty Homes Tax in conjunction with the STR licensing regime can be thought of as the City’s mechanism to enforce against non-complaint hosts.
Property owners must make an annual declaration that their property is not vacant. Failure to make a declaration results in a deemed vacancy declaration. A false declaration can be fined for $10,000 per day of the continuing offense.
We have no information on how tenant names and records will be tracked by the city, or whether having more than one property listed with the same tenant will raise a red flag with the city. That is yet to be determined.
What’s The Bottom Line?
The end game is enforcement and prioritization. The City’s enforcement regime will need to choose who they target and they will likely go after those that have received complaints. Generating a case against a non-compliant host may require the City to book a night at the listing, which is an onerous and expensive step (and one that many hosts are savvy enough to detect). The city’s annual budget is rumored to be $250,000 per year, which doesn’t amount to a large enforcement team.
Up until now the City’s enforcement has been complaint-driven, and it has encouraged the public to call them up to complain. Ultimately that is likely to remain the case due to both limited resources for enforcement and the conflicting incentives the City is responding to. On the one hand, it’s good politics to respond to all strains against Vancouver’s limited rental housing stock; but the City also knows that Airbnb supplements its limited hotel stock, brings new business to the City, and that enterprising property owners lean on Airbnb to survive in an extremely expensive City.
The status quo – a tricky mix of discretion and judgment calls – will prevail.
Vancouver-based Sam Beckford wants to dispel the notion that commercial real estate is a risky endeavour.
The founder of Successful Property Strategies is an adherent of “the McDonald’s strategy of business—they’re more in the real estate business than the hamburger business,” and owns three commercial properties worth $14.5mln that have only $1.68mln left of repayment. He understands the reticence people have towards commercial real estate, but says, if done properly, it can yield substantial returns.
As an overture, Beckford—an investment coach and author of four books about small business and business coaching that have been translated into nine languages—says that owning commercial real estate is much less cumbersome than owning a residential property and renting it out, because of the quality of tenants and the leasing structure.
“One of my tenants is the federal government of Canada,” he said of the Services Canada office in his building. “That lease is worth about $1.3mln in payments. Other tenants signed five-year leases with five-year renewals. In their previous office, Service Canada was in that building for 26 years, so to have a single tenant who has the potential of that long of a lifespan is unheard of in residential.
“You’re also dealing with contracts, not people. That’s huge because when it comes to people having horror stories with bad tenants and bad management, the courts side with the tenants because they think they’re being taken advantage of, but with commercial properties, you’re dealing with 30-, 40-page contracts that clearly define everybody’s responsibilities and rights, and courts typically side with the landlord. But usually it doesn’t get to that because the lease is so defined. With residential properties, even if the tenant is doing something illegal, or borderline illegal, you can’t evict them because it’s their home, but with commercial you can lock the doors.”
Beckford has heard time and again that commercial properties are too expensive to buy as investments, however, unbeknownst to most people, the Business Development Bank of Canada loans considerable sums of money for commercial property ventures.
Coupled with the fact that a commercial landlord is responsible for much less than a residential landlord—including maintenance and property taxes—Beckford calls it a no-brainer.
“In commercial, maintenance is the responsibility of the tenants. If it’s inside the space, they’re responsible, whereas with residential maintenance, it falls on the landlord. The commercial tenant pays their share of property taxes, too, so you’re protected against your cost increases.”