The ongoing housing crisis regularly makes headlines in Quebec, and with good reason: rising rents, a scarcity of certain types of apartments, pressure on tenants, etc. But what about landlords?
Contrary to common belief, the situation doesn’t just offer financial opportunity. It’s profoundly changing the reality of income property ownership… for both investment landlords and owner-occupant landlords.
A Crisis… But Not Everywhere!
It must first be noted that this housing crisis doesn’t affect all market segments equally.
It mainly concerns affordable apartments, where demand far outstrips supply. Conversely, owners of higher-end rentals or houses to let may face different problems, such as longer vacancy periods or a highly fluctuating demand, depending on the area.
Impacts on Owner-Occupant Landlords
Although they live in their condo or house, owner-occupants are directly affected (for better or worse) by the housing crisis.
1. A Rising Property Value
The positives:
- An appreciation in value that results in a more profitable sale.
- The opportunity to access more favourable refinancing terms.
The negatives:
- Paying higher municipal taxes.
- Paying a higher welcome tax.
- Paying more for a new property.
More affordable dwellings, for which demand is high, are under strong pressure.
2. A More Competitive Market
The housing shortage has led to fierce competition between buyers, especially in the affordable price ranges.
The consequences:
- Buyers may have to make purchase decisions quickly.
- Buyers might find themselves in a bidding war.
- Buyers are under more pressure.
Conversely, certain properties at the top of the market may be subject to an opposite dynamic: a slowing market.
3. Changing Rules
In response to the crisis, the government may introduce various measures on a continuous basis, such as new rental or resale regulations, tax adjustments, or urban densification projects that might affect a property’s perceived value.
Homeowners should pay close attention to these changes.
4. A Better Real Estate Strategy
Whether you’re looking to sell, buy, or renovate, the present climate calls for a long-term outlook and a solid understanding of the target market (a real estate broker can guide you).
Impacts on Investor Landlords
For owners of income properties (apartments, condos, houses, multi-unit properties), the current crisis brings both benefits… and significant challenges.
1. Rising Property Values: A Double-Edged Advantage
The surge in demand, mainly in the mid-priced segments, has helped inflate the value of many properties, particularly multi-unit buildings.
The positives:
- An appreciation in value that results in increased net worth.
- The opportunity to access more favourable refinancing terms.
The negatives:
- Municipalities imposing higher property taxes.
- A shrinking pool of potential buyers due to steep entry prices for new investors.
- The market greater market uncertainty depending on the type of property.
2. Rents That Don’t Always Cover All the Costs
In some cases, it’s the landlord that’s worse off. For example, they may have taken on a substantial mortgage to purchase an expensive property, while inheriting below market rents that they can’t raise quickly, putting them further into debt.
In fact, Quebec has strict rent control regulations to protect tenants. Rent increases must be justified and can’t simply follow market trends.
Hence the importance of crunching the numbers before buying!
3. More Sensitive Tenant-Landlord Relations
The housing crisis has directly affected the relationship between landlords and tenants.
Today, effective management hinges as much on interpersonal skills as it does on facts and figures:
- Communicate rules and expectations clearly from the outset.
- Be transparent when making decisions.
- Diligently maintain the building to avoid conflict.
4. Greater Opportunity… With Greater Risk
The strong demand is attracting new investors, but the market has grown more complex. Profitability depends heavily on the type of property one wants to invest in. It can be difficult to generate a return on a rental out of step with the market (overpriced relative to actual demand). This is where the expertise of a real estate broker comes into play.
In other words, the housing crisis is bigger than the problem of rising prices. It’s changing the rules of the game for both landlords and tenants.