The new mortgage rules that were announced by Ottawa last week have already had, and will have, some dramatic impacts on the marketplace. But as it becomes increasingly difficult to obtain Calgary mortgages, Toronto mortgages, and any high-ratio mortgage in the country, it’s having a huge effect on our rental market. And now, landlords are taking that opportunity as one that will let them drive up rental prices.
The fact that landlords can increase their rental rates stems from two factors. The first is that landlords must have at least 20 per cent down when buying their investment property and so, the new rules don’t apply to them. The second is that, as those new rules push more buyers, especially first-time buyers, out of the market, they still need a place to live and so, they’ll likely turn to a rental. And with no other options, these renters really have little choice but to bow to the price the landlord is asking.
It was the Canadian Real Estate Magazine that conducted the poll among landlords to see who and how many of them would be raising their rents. An astonishing 60 per cent of respondents came back saying that they would.
One respondent to the survey wrote, “Since rental properties require 20 per cent down, and therefore no Canadian Mortgage and Housing Corporation insurance is needed, the rule will have no effect on most investors in terms of obtaining financing.” They continued on to say, “The upside is that less people can afford homes therefore more renters. The downside is that it may reduce prices if the demand softens.” And that of course, could pull renters out of the rental market and push them back into a once-again-affordable housing market.
And that’s just what could happen. As more buyers are pushed out of the market, home prices could fall due to less demand. If that happens, those buyers that were renting could go back out onto the market.
Sal Guatieri, senior economist with BMO Capital Markets echoed those same sentiments by saying, “The new rules, which limit the availability of insured mortgages to amortizations of 25 years or fewer and to homes less than a million dollars, will curb demand and thus dampen prices.” He continued on to say, “By our estimate, to neutralize the impact on mortgage payments of the amortization rule change, average home prices would need to fall about 3 per cent. By helping to cool the market now, the rule changes should increase the odds of a soft – rather than hard – landing.
With other economists predicting a housing correction of 10 – 15 per cent in the next two years, landlords may not be able to squeeze every last dime out of their renters for too long.
