Affordable Housing in the GTA?
PART ONE Last week, I wrote about the provincial governments “stabilized rent increase guidelines” which is scheduled to take effect in 2013 if passed. This raised another interesting topic in the city of Toronto of affordable housing as one of the proposed arguments for this new law is the stabilizing of rent in Ontario keeps housing affordable. However, as a property manager and owner in Toronto I’d like to explore the idea of “affordable housing” a little more, providing a different perspective in a 3 part series. First though, we need to understand the path to property ownership… Financial Qualification: In order to qualify for a mortgage, about 42% of your (before tax) income can be used for mortgage (principal, interest and taxes), heating and monthly debt (like credit cards, loans etc). If your income covers, you have good credit, the down payment (plus 2%) available and job stability then you qualify. As interest rates are so incredibly low, people are taking on more mortgage debt (since they qualify for it) and prices are continuing to rise. I’ve seen real estate double in value in the last 8 years with only small upgrades to the home. For an investment property, you typically need 25% down payment or the banks won’t give you a mortgage. In 2011, the average MLS listing in Toronto was $465k so you need $130k (deposit, legal, taxes) just to get into the rental market. Supply and Demand: You want to invest in real estate in Toronto? Try finding an investment property that has positive cash flow and doesn’t need a huge upfront investment. Even when you do find a diamond in the rough, there might be other hiccups like a lender who only uses 50% rental income (although Toronto has a vacancy rate of 1.9%) or an appraiser who assesses the property 20% below market value and the bank wants a larger down payment. Maintenance: So now you have the investment property and a year later, once you have stable renters, you want to upgrade the windows, replace an old fridge, change the locks and hook the fire detectors into the electrical system. However, taxes and your utilities have gone up 3% and 5% respectively but you are limited to a rent increase of 2.5%. Without the cash flow, many landlords will postpone the repairs until another year, wait until it is an emergency or not do anything. How does this impact the market? The tenants grow frustrated, move out, and then landlord does the necessary repairs. The landlord is then free to increase the rent by 10% (or more) before new tenants take possession. How does that make housing affordable in Toronto? Next week, we discuss the concept of affordability in a major urban centre. Mekler Property Management offers property management services in the Greater Toronto Area. For more information please visit us at www.Mekler.ca – We help you be a landlord without being the landlord!
wonderful post! I am regularly looking to find great blogs on Toronto related topics