Tag Archives: rent control

Landlords can’t ask for ‘last month’s rent’ plus security deposit, thanks to new rent laws

Your security deposit is not supposed to be used as last month’s rent.

It is now illegal in New York state for landlords to require you to pay last month’s rent in addition to a month’s security deposit when you sign a lease. New rent reforms clearly state that in nearly all cases, “no deposit or advance shall exceed the amount of one month’s rent.”

Nor can landlords require renters with bad credit histories or annual salaries less than 40 to 45 times the monthly rent to pay multiple months of rent up front. In the past, they’ve typically asked for anywhere from three to 12 months worth of rent.

The new law lowers financial barriers to renting an apartment in New York City, a good thing for most renters. But it complicates things for renters who don’t meet the landlords’ income requirements (including students and retirees), have a blemish on their credit record or no credit history at all, such as international renters.

 

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Elizabeth Stone, the managing agent at Stone Realty Management, says the protections may backfire. “We are going to require guarantors or just reject the tenants outright. So those that have lower incomes are going to miss out because landlords are not going to take the risk,” she says.

A lease guarantor is someone who lives in the tri-state area and earns an annual salary of around 80 times the monthly rent. Another option is an institutional guarantor like Insurent (a Brick Underground sponsor), which charges renters a fee for the service, usually 70 to 85 percent of one month’s rent for U.S. renters and 90 to 110 percent of one month’s rent for international renters without U.S. credit history for the 12 to 14 month lease.

What’s the difference between a security deposit and last month’s rent anyway?

Your security deposit covers the cost of repairing damages to your apartment, while your last month’s rent is pretty much what it sounds like. The two are not supposed to be interchangeable.

While the security deposit is capped at an amount equal to one month’s rent, it doesn’t change the fact any rent paid in advance and the deposit are different things and a landlord is entitled to deduct money from the deposit for any costs associated with damage to the apartment when a tenant moves out.

Your lease will make clear what the security deposit is for; it’s designed to make sure you leave a clean, undamaged apartment with a working set of keys so the landlord can easily rent the unit to someone else.

In most buildings with more than six units, the landlord is required by law to put the security deposit in escrow, giving the tenant more protections than if the money was in a private account.

The practice of not paying the last month’s rent

Some New Yorkers claim they never pay their last month’s rent, figuring the security deposit can stand in as the rent.

Adam Frisch, managing principal at Lee & Associates Residential NYC, a real estate company representing building owners in Manhattan, says a tenant might tell a landlord, “I’m not going to initiate the final rent payment and you can keep my security and there’s nothing you can do about it.” He says they are right, “there isn’t much we can do about it,” but if there’s damage to the apartment, a landlord would be entitled to sue to recover the costs.

“Tenants have gotten away with this and will continue to do so, but they are not supposed to,” he says. Certainly, in situations where the apartment needs nothing more than a lick of paint, there’s no loss to the landlord.

Getting landlords and tenants in sync

In the past, the security deposit was legally required to be returned in a ‘reasonable’ time frame, a vague term that gave renters no reassurances. Landlords must now pay back the security deposit within 14 days of the end of the tenancy.

This has some landlords furious, saying the timing is too tight to assess and price out any damage or close the escrow account where the security is held. They are also required to do walk-throughs at the beginning and end of a tenancy so any damage can be properly itemized.

If walk-throughs allow renters to work towards correcting any issues and they know they will get their deposit back promptly, it’s possible landlords may find it cuts down on the practice of using the deposit as the last month’s rent.

Stone disagrees, pointing out the kind of tenant who makes a landlord take the security deposit as the final rent payment is the same kind of tenant who doesn’t take care of their rental during their tenancy.

“Limiting how much money [a landlord] can take up front and limiting the security deposit is designed to stop tenants being excluded from some of these apartments but I don’t think in practicality, it will work for them,” she says.

Source: BrickUnderground -DECEMBER 23, 2019  BY EMILY MYERS

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Ontario’s rental vacancy rate is starting 2020 at a near record low

Mississauga Toronto condo prices<img class=”aligncenter size-full wp-image-196480″ src=”https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/2019/10/Mississauga-Toronto-condo-prices.jpg” alt=”Mississauga Toronto condo prices” width=”1024″ height=”683″ />

Photo: James Bombales

New year, no vacancy. Renters in cities across Ontario will spend another year struggling to find rental housing as prices continue to rise in the face of tight market conditions.

In 2019, the vacancy rate was 1.6 percent and it will likely drop further through 2020 to a near record low of 1.5 percent, according to Central 1 Credit Union economist Edgard Navarrete. For context, the vacancy rate for Ontario’s rental market averaged 2.6 percent between 1991 and 2018.

In his 2019-2022 housing forecast published at the end of 2019, Navarrete noted that the province has seen a substantial uptick in completed new rental units over the last three years. Through the same 1991 to 2018 period, the average number of new rental units added to the market was 1,500. From 2017 to 2019, the average increased to 7,000 units.

The trouble is that increase still doesn’t satisfy the demand for rentals in some of the province’s most competitive markets, especially Toronto, which is said to have the worst rental supply deficit in Canada.

“Government investments in rental housing will continue to add to the rental universe but expect [the province’s] rental vacancy rate to remain stubbornly lower than the long-term average due to continued strong demand from immigrants settling in Ontario and existing renters opting to remain in rental longer until they have a sufficient down payment to qualify for a mortgage loan,” wrote Navarrete in the Central 1 Housing Forecast.

Unfortunately, the main takeaway here for Ontario renters is monthly rents will continue to climb above inflation as long as this sharp disparity exists between rental supply and persistent demand. Navarrete singles out Toronto, Ottawa-Gatineau, London, Kitchener-Cambridge-Waterloo and Hamilton as markets where rental prices will log especially steep increases and bidding wars will keep intensifying. These cities will feel the strain on their rental markets particularly acutely because they are set to absorb the most new residents to the province.

There is hope for a rental unit supply uptick in the next few years, but for those looking for a new rental this year, it’s unlikely to offer much relief. The provincial government under Premier Doug Ford rolled back the rent control measures introduced by the Wynne Liberal government just a couple years earlier. With more flexibility to price rental units in response to market demand, investors are more likely to see condos as a solid long-term moneymaker and purchase units to add to the rental market.

These investor-owned condos are known as the “secondary rental market” since they are not built for the sole purpose of being added to the rental pool. Purpose-built rental units are known as the primary rental market.

The caveat is that the positive market changes this policy shift from the Ford government intended to inspire won’t be felt for at least a few years.

“If we see a large number of investors entering the market today, with the average completion time of high-density housing such as condo apartments anywhere from two to three years from the time shovels hit the ground, it wouldn’t be until after 2022 when the increased rental market supply will alleviate some of the pressures from the primary rental market,” wrote Navarrete.

Source: Livabl.com –

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The Pros and Cons of Investing in Rent-Controlled Properties

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The mention of rent control is enough to make most apartment investors shudder—the notion of artificially capping rents flies smack in the face of American capitalism. But there are several misconceptions about rent-controlled properties. For some, they can be a great addition to their investment portfolios.

 

The Cons of Rent Control

Rent control regulations can be difficult to navigate.

Rent control regulations can be regulated at either the city or state level—or both. The state of California, for instance, allows rent control, but the decision is made at the local level as to whether to adopt a rent control policy.

It’s not uncommon for two adjacent communities to have different policies, one with rent control and the other not. The landscape is continuously evolving; investors need to track these regulations closely as there are routinely efforts (like ballot measures) to change policies.

Related: Rental Owners Everywhere Should Be Concerned About California’s Push for Rent Control—Here’s Why

Your ability to increase rents is capped each year.

Depending on the community, it’s possible that the rent control policy will prohibit landlords from raising rent more than 2 percent each year–in other words, rent increases essentially just keep pace with inflation. This may be completely out of line with market averages, particularly in hot-market cities, where rents have experienced double-digit increases over the past several years.

This ceiling can make deals less attractive to investors in search of strong cash flow.

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Rent controlled properties experience lower turnover.

Typically, low turnover is a good thing as far as apartment investors are concerned. However, some rent control policies stipulate that rents are capped each year until an apartment becomes vacant, at which point the landlord can increase the rent to market rate and then the new cap takes place each year thereafter under the existing tenancy.

To bring units to market rate, they must turn over at least every few years–but tenants in rent-controlled units tend to stay longer than average (sometimes 30-plus years!).

There’s less incentive to improve properties.

One unintended consequence of rent control is that, unable to increase rents, there’s no incentive to invest in a property beyond routine repairs and maintenance. Over time, this can lead to a deterioration (and therefore, value) of the property.

If you decide to sell in the future, your pool of buyers may be smaller.

Given the challenges associated with rent-controlled properties, some investors will never even look at these deals. This inherently shrinks the pool of potential buyers when it comes time to sell.

Related: Due Diligence: What Every Asset Requires Prior to Purchase

The Pros of Rent Control

Rent-controlled properties tend to have lower acquisition costs.

Investors typically use the current rent roll as a major factor when determining the value of a property. Rent-controlled properties, particularly if multiple units are below market rates, are therefore valued lower than what the free market would bear.

This results in lower acquisition costs, which may be a good way for an investor to enter a market they’d otherwise be priced out of by investing in a rent-controlled property.

You CAN increase rents.

Contrary to popular belief, landlords CAN raise rents in a rent control environment—they’re just limited as to by how much each year.

For instance, Oregon just passed a statewide rent control ban this past year that caps rent increases at 7 percent plus inflation annually. That’s a total of 10.3 percent this year. Statewide, rent growth has slowed to less than 2 percent a year since 2016, so the new law makes little difference to landlords looking to increase rents.

Man search apartments and houses online with mobile device. Holiday home rental or real estate website or application. Imaginary internet marketplace for vacation lodging or finding new home.

There are usually policies in place to challenge the cap.

No community wants to see their housing stock decline. To prevent this, most rent control regulations contain provisions that allow investors to challenge the cap when making substantial renovations or improvements to the property.

Rent-controlled properties tend to have consistent cash flow.

Because rents are lower, and because tenants tend to stay in place longer, rent controlled properties tend to have consistent cash flow. What’s more, tenants in rent-controlled properties are less likely to move out during a downturn, which helps investors weather the ups and downs that are inevitable over the course of multiple real estate cycles.

Ultimately, the decision as to whether to invest in rent-controlled properties is a personal one. Rent control regulations can vary so widely–from highly restrictive policies in cities like New York and Los Angeles, to the more flexible rent control policy recently adopted in Oregon.

Anyone considering investing in an area with rent control should spend the time needed to understand the nuances of the policy. One misstep in violation with a rent control law could cripple an otherwise promising investment.

 

Would you invest in a rent-controlled property? Why or why not?

 

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Rental market braces for influx of tenants

 

Rising interest and strict mortgage qualification resulted in fewer Canadians seeking homeownership than rental accommodations last year, and 2019 will bring more of the same.

“It’s going to continue,” said Marcus & Millichap’s Vice President and Broker of Record Mark Paterson. “People will continue renting rather than dealing with residential mortgages. The rental market right now can barely keep up with the vacancy rate in Toronto, for example, being around 1%.”

Competition for rentals will be even fiercer this year in urban centres and that will push rents upward, creating a spillover effect into satellite markets.

“The rental market will see an increase of 8-10% because of demand,” said Paterson. “Unfortunately for people trying to find affordable housing, they’re looking elsewhere in secondary markets. They’re priced out of city centres, and that means the talent pool for jobs will end up in secondary markets.”

The Marcus & Millichap’s 2019 Multifamily Investment Forecast Report notes that apartment projects have become more financially viable, as evidenced by 60,000 units in the pipeline countrywide. However, that’s little relief given how few vacancies there are.

“The number of occupied units grew by 50,000 last year, outpacing supply growth nationally just as 37,000 new apartments came online,” read the report. “The national vacancy rate declined to 2.4%, the lowest reading since 2002. A shortage of construction workers, a long approval process and higher development and financing costs are slowing the delivery schedule this year, curbing completions by roughly 2,000 units from last year’s total.”

“Historically, Canada has been heavily reliant on condominium owners to supply the rental market, filling the void that purpose-built rentals have not been able to close. Prices have climbed substantially for condo investors, though, slowing this practice… and pushing more residents in search of housing to the apartment market.”

While secondary markets will enjoy the dregs of Toronto’s renter pool, the city will remain popular with renters. As the city has matured into a leading North American tech hub, the vacancy rate is under even more pressure.

“Microsoft, Intel, Uber and other companies have plans to increase operations in the city and bring on new workers,” continued the report. “Amid its solid reputation as a top innovator in tech and a mature ecosystem that supports the industry, the GTA will attract young professionals in greater numbers this year. Many new residents choose to rent, not only due to barriers to homeownership, but for greater mobility and to be near local employers, restaurants and nightlife.”

Source: Mortgage Broker News – by Neil Sharma 31 Jan 2019

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Rent control is doing little to curb Toronto’s soaring rents

Haider-Moranis Bulletin: In the long run, rent controls reduce the growth in available rental stock, which further accelerates the increase in rents

In April 2017, Ontario’s then-Liberal government introduced the Rental Fairness Act, which expanded rent control to all private rental units.Cole Burston/Bloomberg

Do stricter rent control laws slow the increase in residential rents? Housing advocates and left-leaning governments believe they do. However, recent data from Ontario appears to offer further proof that this is not the case.

In April 2017, Ontario’s then-Liberal government introduced the Rental Fairness Act, which expanded rent control to all private rental units. The Act restricted rent increases to 1.5 per cent in 2017 and introduced additional provisions to protect tenants from being evicted.

The Act was enacted to protect against “dramatic rent increases.” Chris Ballard, then the Minister of Housing and Poverty Reduction, claimed that the Act would ensure that Ontarians “have an affordable place to call home.”

 

The Toronto Real Estate Board’s (TREB) Rental Market Report for the second quarter of 2018 revealed that the Rental Fairness Act has had no observable impact on market-based rents, which grew at similar rates from 2017 to 2018 as they did from 2016 to 2017. In fact, three-bedroom apartments experienced a significant increase in average rents in 2018.

TREB’s data is based on its rental listing service for the Greater Toronto and surrounding areas. From April to June 2018, almost 12,000 apartments were listed while 8,497 were leased. One and two-bedroom apartments constituted the largest segments of rental units. Also, almost a thousand townhouses were listed and 665 leased for the same period.

TREB data provides more of a market-based view of the rental market than what has been reported by the CMHC. Unlike TREB, which lists market-based units (condominiums and townhouses) that are primarily owned by private investors, CMHC’s reporting of rental markets is largely for, but not restricted to, purpose-built apartment rentals.

Despite the differences in rental stock between CMHC and TREB, even CMHC’s data reveals that instead of a break, rental rates accelerated in 2017. For instance, rents for two-bedroom units increased by 3.3 and 3.2 per cent in 2015 and 2016 respectively but jumped 4.2 per cent in 2017. If proponents of stringent rent controls were hoping for a decline in rent acceleration, it didn’t happen.

The purpose-built rental universe has remained steady across most of Canada. In the Greater Toronto Area (GTA), the number of purpose-built rentals has remained around 330,000 units for more than a decade. During the same time, the number of rental condominiums in the GTA increased from under 50,000 to more than 100,000 units.

CMHC data for October 2017 reported average rents for two-bedroom units at $1,392 and $2,263 in purpose-built rental buildings and condominium apartments respectively. In comparison, TREB reported the average rent for two-bedroom condominium apartments in the fourth quarter of 2017 to be $2,627. Even for the condominium apartments, TREB reports higher rents attributed most likely to the higher quality of the underlying stock.

CMHC reported rents for purpose-built rental buildings are significantly lower because of their less than ideal location and dilapidated condition, a result of age and deferred maintenance. These buildings have remained under rent control for decades, and their owners are disincentivized to improve the quality of the rental stock. TREB data, by contrast, is based on privately owned rental condominiums whose owners, until recently, were incentivized to maintain their units in a state of good repair.

Since April 2017, condominium rentals and other dwelling types have also come under the rent control regime, thus creating the same disincentives for structural improvements of units as the ones observed for the purpose-built rentals.

The CMHC data reveals that, as expected, average rents in older buildings were lower than rents in newer buildings. Furthermore, rents on average are higher in the high-density urban core than the low-density suburbs, making suburbs significantly more affordable to rent than in or near the downtowns.

With high turnover rates where new tenants are not subjected to rent restrictions, rent controls are ineffective tools for addressing rapid rent increases. The average rent for units in purpose-built rentals and condominium apartments has risen far above the stipulated rate since the Rental Fairness Act was enacted. In the long run, rent controls reduce the growth in available rental stock, which further accelerates the increase in rents.

Rent stability is achievable primarily by increasing the supply of the rental stock. This requires changes in regulations to facilitate, instead of hindering, new residential development.

Murtaza Haider and Stephen Moranis September 5, 2018

Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.

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