Front Burner - Canada’s rental crisis

Episode Date: March 14, 2022

Rents in Canada are skyrocketing, and tenants are struggling to keep up. One in three Canadian households rent, and yet much of the public conversation around Canada’s housing crisis focuses on homebuyers. Today on Front Burner, Shaina Luck brings us her investigation for the Fifth Estate into Canada’s rental crisis: what’s driving prices up, the role of institutional landlords, and the absence of government action.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. We moved in here in 2010, eight days before we had a baby, and we've been here ever since, so 11 years last September. This is Melanie Crawford, and the here that she moved into 11 years ago is this cozy four-bedroom house in Brantford, Ontario, over an hour west of Toronto. It's where she and her partner raised three kids. I mean, 11 years is their lifetime, and for us it has been too. So

we've planted deep, deep roots here in this specific neighborhood and watched it grow too. It's home for us. But recently, her landlord called with the news that every renter dreads. She said, well, I need to move in and renovate it to sell it. So I had four months notice to change my life of 11 years. I was devastated. We all cried. Literally, we cried. Melanie found herself thrust back into the rental market for the first time in over a decade and found that it looked very, very different. Nothing is in the budget that I thought. Nothing. I pay $1,450 a month for this four-bedroom house,

and I couldn't get a two-bedroom for that amount of money right now. I couldn't. So I have to pay double regardless. And I make the same money, right? I don't know about math, but it spells impossible. This impossible situation Melanie found herself in. She's not alone here. One in three Canadian households rent. And as rents skyrocket up and incomes stay roughly the same, rent. And as rents skyrocket up and incomes stay roughly the same, experts say Canada is in a rental crisis. My colleague Shaina Luck has been taking a closer look at this crisis for the fifth estate, and she joins me now to talk about what she found.

Hey, Shaina. Hi, Jamie. So when we say there's a rental crisis in Canada, what are we actually talking about here? Give me a sense of the big picture. Well, you've probably heard the stories from renters about how things just seem to be getting worse and worse. So we really wanted to dig into that. And when we looked at the numbers, we found that between 2014 and 2019, rents went up by an average of 20% in Canada. And we found on average, incomes have gone up a bit over 3%, about 3.5%. So you can really see the discrepancy in what people are making versus what

they're having to pay in rent and get a sense of why people are being squeezed. And we just heard so many horror stories. You know, people are competing. They're lining up to get a chance just to view basement suites. And Canada Mortgage and Housing Corporation says that a two bedroom now is beyond the reach of an average person, even if they work full time in eight different Canadian cities. And I'm not just talking about Toronto and Vancouver, the big cities anymore. So some of those cities on the list included Victoria, Halifax, Peterborough, Ontario. So it's it's getting very difficult to be a renter in Canada. Well, related to that, we just heard from Melanie a bit in the introduction there. She's from Brantford, Ontario. So like you said, not Vancouver, not Toronto. And still, she struggled so much to

find a place. And I know that you followed her along on her hunt for a new home. And can you tell me a bit about what that search was actually like for her? I just, I'm going to guess it was brutal. Yeah, brutal is the word for sure. Melanie told us that she really wanted to stay in this community in Brantford, where she raised her kids. But she went to look at one place because she was just hunting, you know, on Kijiji, the same as many people would have done. And she saw this ad, she went to look at one place because she was just hunting, you know, on Kijiji, the same as many people would have done. And she saw this ad. She went to check it out.

And she really thought that she had a good application in there with a landlord. But then she received a call to be told that someone else had actually offered a year's worth of rent up front. So $30,000 down. That was devastating for her because she couldn't offer the same thing. So they lost out on that application. So today's email said that our family's great and they wish us luck, but somebody else offered a year's worth of rent upfront and we can't compete with that.

a year's worth of rent up front and we can't compete with that so I need $30,000 to rent a house which I don't have. So after that she went to look for another place and this place was far from her old neighborhood there really aren't a lot of schools in that part of town. It's sort of the industrial edge of town, not near her kids' friends. And also, it was much more expensive and smaller than what she had been hoping for. I feel the price of the house is ridiculous. Not that I have an option. Oddly enough, I have been submerged in this twilight zone long enough that there's a part of me that's like only 25 50 right but then I'm like wow it's almost like I just got excited for getting hit in the face with a shovel like it's weird how your perspective changes you know at

that point she was just feeling like I need to take anything she took her son Emmett along with her to the house viewing. And she said that was just the genius move because somehow the landlord just fell in love with Emmett and understood that this is a family that needs this house. And she felt that that was almost how they got in. So they were finally able to secure that house. It feels like we're being led to slaughter.

It's so corrupt that we are being charged that. It's the same space, the same amount of space, the same walls, the same everything. But because people don't have a choice but to rent because they can't get a house or they can't qualify for a mortgage, they're just robbing us. Let's talk a little bit about why rents are going up the way they are. And I understand that at least part of it is like the same thing we hear about with houses, right? Supply doesn't meet demand. Yeah, that's right. We're hearing that all the time. That is true. There's not enough new homes being built in Canada to go around. At the same time, our population is growing through immigration and through just natural

increase as well. And so it's putting a squeeze on the existing housing stock. But at the same time, there's something else going on too. And we explored this in our research, Canada's losing housing that was once considered affordable housing. So we found one study that showed that Canada lost more than 300,000 of those really affordable units between 2011 and 2016. And we only know for sure up until 2016, because that's the census data that we have right now. But we do know from the CMHC that they are seeing this trend continue. So really, we could say that it is more than 300,000 affordable units by now. So that's an awful lot of units that have essentially disappeared from the market. And so what's what's going on there is the $750,

just for example, $750 a month unit, it's not disappearing into thin air, but it's being sort of rebranded for somebody who can pay more than $750. So then you might see the price jump up. And I know that you met someone who is watching this conversion that you're describing happening in his own building. So tell me about Kevin O'Toole and the changes that he's seen, because I think it's a pretty good illustration of what you just described. he's seen? Because I think it's a pretty good illustration of what you just described. Yeah, absolutely. In Kevin's building, the difference is really stark. So he lives in Hamilton, Ontario, and he's lived in this high-rise building since 2010. When I moved in here, it was $7.15 a month, all inclusive.

Now, he's 72 years old. He has a pension, and he also works part-time at McDonald's. And Kevin really loves his building. He has a community there. His neighbors look out for each other. They bring each other food. This floor that I live on, I can leave the door open and nobody's ever come in. If there's a parcel left there and I'm not home, my neighbor will pick it up and leave me a note that he's got it.

I love this community. And at 72, where am I going to go? But at the same time, he's seeing other apartments, his neighbors who have just moved in, they are being charged far more than he's being charged. And he worries about this because he's protected by rent control laws. So his his rent stays. It goes up by sort of manageable increases for him. But a few years ago, a real estate investment trust bought his building. And ever since then, he's noticed that his new neighbors are paying just so much more than he could afford.

The guy next door, it's a new place. He pays $1,800 a month plus hydro. He's paying $1,000 more rent than me for the same thing. Right. We've talked about these real estate investment trust reads a bit on the show before. You mentioned earlier, Melanie was talking with the landlord who liked her son. That sounds more like a kind of mom and pop landlord situation, maybe somebody who owns a house that they rent out. But this idea that there are these big institutional landlords buying up housing, the so-called financialization of housing, right? And so the changes that Kevin's seeing in his building, they're not unique. This is happening to apartment buildings all across the country,

right? And tell me more about how this works. Yeah, so this is the business model for a number of large, in some places in the industry, they call them institutional landlords. And they've taken over a lot of Canada's multifamily stock. So apartment buildings that are more than six units. So we're talking about Kevin's building. And there's been a growth in these institutional landlords in Canada. And the way that these institutional landlords work is they're looking for older apartment buildings with lower rents. And there's lots of those in Canada,

because most of our large apartment buildings were built before the 80s. That's an aging stock of apartment buildings. These are, in some cases, buildings that do need upgrades. So these companies buy these aging buildings, and then they do some repairs, and then they raise the rents in the units when they turn over. So, for example, when Kevin's new neighbors move in, they might move into an apartment with a bit of a spiffier kitchen than Kevin's. But along with that, there's an increase in the cost that they pay. And they also increase the cost of things like parking and laundry and little costs. So this is something that Kevin's seen as well. Does Kevin feel pressure as the rents are going up in units

all around him? Absolutely. So he personally, I mentioned there's rent control, there's rent control in Ontario. And so Kevin is covered under that. But you've seen some of his neighbors, you know, feel pressured to move out. They wanted the legacy tenants out. It was simple as that. And they said it. Move. That's what we were told. You can move. We were told that some tenants in that building had, for example, been offered bonuses to leave the building. Wow. So Kevin, yeah, Kevin feels that his landlord would be very happy to see him move out. They don't care if I move out of here or if the guy next door moves out. They don't care. They will just bump up the rent. You talked about these rent control laws that exist in provinces like Ontario, also BC, that prevent companies from going in and just upping the rents across the building by whatever amount that they want for people that are living there. But I do understand there's like kind of a workaround, right,

around these laws? Yeah, that's right. So often in provinces that do have rent control, so take Ontario, for example, there's a process where a landlord can apply to increase the rent above the normal rent control cap. So in Ontario, it's called an above guideline increased application or an AGI. And it's meant to cover the cost of renovations, capital investments, it's meant to help the landlord make back some of that that cost that they would put into the building. Now, Kevin's landlord is, I mentioned it's a REIT. The name of the REIT is InterRent. And InterRent wanted to do an AGI increase of almost 10%. And Kevin and his neighbors really disputed that. They felt that the renovations that InterRent wanted to do weren't really necessary. They felt that they

were cosmetic. We fought them tooth and nail about what the capital expenditures were. A lot of the stuff they did to us that they fixed was cosmetic. Did they have to put in those new structures in the front? Again, cosmetic. Did they have to put in new railings? Again, cosmetic. And in here, they're stating about the landscaping. Did they have to plant all these streets, which if you look now are still crap? Like, it's cosmetic. So yeah, cosmetic doesn't help us. The neighbors in that building,

they fought this raise. They went to the landlord-tenant board, which is their right to do. They disputed that increase. And they also did a number of other things. They went on a rent strike to pressure the landlord. And in the end, the landlord tenant board decided that a 4.4% raise was appropriate. So Kevin and his neighbors did get some of what they wanted, but the landlord did still see the rent go up. And I you know, I should add that it is not that usual for tenants to get together in the way that Kevin's building did and go to the landlord and tenant board and fight this. I mean, it takes a lot of organization. It certainly did for them. And it's tough for tenants to have the kind of expertise and the wherewithal to fight their landlord,

who usually has more money, more resources on their side. So we found that the landlord almost always wins in these rulings. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50%. That's because money is

confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. To be clear here, this idea that above guideline increases or increasing laundry fees or turning over units is a way that an institutional landlord like Kevin's, like Interrent, might increase revenue for shareholders. That's not something you have to speculate about. That is literally what Interrent itself says to shareholders, correct? Oh, yes. Yeah, absolutely. Interrent's really clear on this with their shareholders. It's all there in their annual reports. And this is exactly the same way as it is with other REITs.

They're very transparent with their shareholders about the kinds of strategies that they use. We look through many annual reports and it's all there. Sometimes you do have to know real estate language to interpret it because they talk about turnovers, which is when an old tenant leaves and a new tenant comes in. They talk about repositioning, which is basically what they mean when they say renovations. And they talk about, you know, raising fees on parking and laundry. And this none of this is a secret. It's all pretty standard practice in the industry, but it is very profitable. In the last decade, inter-rents apartment holdings have tripled, and the money coming in from those properties increased five

times. I understand that between 2015 and 2020, the top four REITs in Canada have paid out more than $2 billion in profits to their investors. Yeah, that's right. Now, those are only the top four REITs. And there are many other companies that operate in a very similar way in Canada. So you get a sense that this is a massive industry. Yeah, big time profitable industry. Were you able to talk to Interrent about this? Like, what did they say about all of this? No, they didn't actually respond. We asked them for comment, and they didn't get back to us. But we did speak to Michael Brooks. He's the CEO of the industry group called RealPAC. Now, Interrent is a member of that group, and so are 124 other big real estate owners and developers. Now, he told us that buying old buildings and renovating them is the way that large institutional landlords make their return.

In fact, he called AGIs critical. I mean, this is like an old house. It's the same analogy. At some point in time, you need to do a lot of upgrades to modernize that house. That's really expensive. He said that from his point of view, it's really important for the housing stock that somebody buys these buildings and does these renovations because in his view, Canada has old stock and you don't want to see them get so old that they get demolished. He characterized the renovations as really expensive because those buildings are so old. So he told us,

you know, essentially his view is these renovations are very necessary. But of course, we just talked about those massive profits. So could they afford to do some of these renovations without passing those costs onto the tenants like Kevin? And this is what so many other people said, well, if you're a homeowner, you have to pay all these things, but you own the home. I don't. I mean, what if they just made a little bit less money, I suppose? Well, I asked him about that. I asked him, you know, how does he square those two things, right? The idea that the companies do make a lot of profit versus the idea that they can't afford to do it without

raising the rent on someone like Kevin. And he justified this by pointing towards pensioners and retirees. He said, you know, actually the people who are investing, they are the ones who are receiving these profits. And a lot of pension funds invest in real estate. And these pension funds need to pay out pensioners who need this income. The top 21 owners of apartments in Canada are fund managers for pension funds, REITs, a few private companies. When you say millions in profits, it flows right through to the end unit holder. That is true, that pension funds often do invest in real estate and they do that because they're looking for consistent returns. But pension funds are not the only people who can invest in real estate.

You know, anyone can invest in real estate. So I asked him, what would you say to folks who say they can't afford market rents? And he said he does feel this is a problem. It's the responsibility for everyone in society. But he also made the point that he feels the purpose of the private sector isn't to be a public good. It's to make money. I feel for them. It's a problem we all have to address. I don't know whether you're putting that problem on our industry's shoulders or not. Again, what I'd say to you is you can't expect the private sector to solve all social ills. I mean, I guess if you follow his logic, then it's the government's role to tackle these kind of social problems.

And so where is the government in all of this? Well, we tried to talk to them about this. And for weeks, we asked for an interview from the federal housing minister, Ahmed Hussein. And we were told repeatedly that the minister was too busy. But we wanted to talk to him about the national housing strategy, because there is one in Canada that is supposed to be helping all Canadians to be able to better afford their housing. And actually, we're halfway through it, because Prime Minister Trudeau announced this 10-year strategy in 2017. So we're now in year five. But their strategy has been heavily criticized.

You know, we talked to many experts on housing, and not one single person we talked to, who studies housing or who works in housing thought that that strategy was going to fill the need. And, you know, when we asked the minister for comment, they wouldn't make him available, but his office did send us back some information. And it didn't answer our questions about how many affordable housing units have been built under the national strategy. It also didn't answer what the rent in those units would be. And so this left a lot of questions for us. You know, we know that wait lists, for example, to get into public housing or co-op housing are really long. Where do those people who are being displaced from market housing, like the REITs housing, where do they go? And we talked to many people like Kevin and Melanie, and they really aren't quite sure what to do.

They have roofs over their heads for now, but they don't feel like a lot of help is available to renters. And if they were ever in a situation again where they needed to move, they would wonder. They would have questions about a unit being available for them. All they're saying is first-time homeowners. Nobody's talking about the renters. Nobody. And we're just as equally important as somebody who owns a home. I don't want something for nothing.

I wasn't brought up that way. And most of my friends aren't either. But damn, let me live. Before we go today, I wonder if we could just go back to people like Melanie, to people like Kevin, and the stress of all of this, of not knowing if you lose your apartment, if you'll be able to find another one, of having to basically trade down. Like, what is the toll of all of this on people like them? Well, it's hard. It's, you know, it's emotionally hard. It's financially hard.

Melanie told us that we visited her on her moving day. And she told us that they had to get rid of a lot of their possessions because they did find a new house, but it was smaller than their old house. So they had to get rid of about 30% of their possessions and they had to pay more in rent to do it. We're paying $1,100 more a month for significantly less space. And we've had to literally either throw out, sell or donate, you know, almost 30% of what we've built in the last 12 years. And she was really conscious that if she didn't have some of the advantages that she does have, that there are people who might end up on the street. If you're somebody that's renting and you are facing what I'm facing right now and you do not have the advantages that I have right now,

then you're going to be homeless. And she just was very glad in the end to get into the new home that she did, albeit there were some huge challenges for them along the way. Sheena, thanks so much for this. You're welcome. All right, that is all for today.

This story is part of the CBC News series called Priced Out, taking a look at why we're paying more for everything these days, from food to gas to, of course, housing, and how Canadians are coping with these higher costs. You can find more priced-out stories at cbcnews.ca. I'm Jamie Poisson. Thanks so much for listening to FrontBurner. Talk tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.