Legislators in Ottawa just dropped an atomic bomb on housing in Canada. BC landlords can benefit, if they play their cards right.
In October, legislative changes rocked mortgage lending Canada-wide. Middle-class Canadians attempting to buy their first home saw buying power destroyed by 24% or more. Changes to the mortgage rules make it harder for home-buyers to get into the market or qualify for mortgage insurance.
These same mortgage rules may prove highly beneficial to landlords. Changes to federal mortgage insurance criteria will result in greater numbers of people who must rent instead of buy. Inability to buy a home means greater numbers of potential tenants.
As a result, there will be an increase in middle-class, high-earning tenants. BC landlords who capitalize by appealing to these tenants will reap the rewards.
As of October 17, any residential mortgage insured with CMHC must qualify for the Bank of Canada 5-year rate. While a typical residential mortgage may be offered around 2.5%, the Bank of Canada rate is currently 4.64%.
Thousands of prospective home buyers now need to qualify for a mortgage interest rate 85% higher!
If a middle-class family with $100,000 in annual household income saved up a downpayment of $40,000, they previously qualified for a home purchase price of around $664,000. Under the new rules, they qualify for only around $500,000, representing a 24% drop in purchasing power.
For middle-class home buyers, particularly first-time home buyers, these new rules mean a massive reduction in their ability to buy a home. This legislation will have a substantial impact on residential housing markets coast-to-coast.
Benefit to BC Landlords
BC landlords and apartment building owners in virtually every city in British Columbia can benefit from these new rules. Any middle-class earners who don’t already own a home are less likely to buy a home.
Where will they turn? Rentals.
Thousands of British Columbians between ages 25 and 40 will be placed in a position where home ownership is pushed far into the future. Obviously, people still need a place to live and their options will be limited to rentals.
Positive impact for landlords will be greatest in secondary markets where home ownership is a reality for middle-class earners. Markets such as Langley, Abbotsford, Chilliwack, Kamloops, Kelowna, Nanaimo, Courtenay/Comox and Prince George will see largest increases in prospective number of tenants. Larger, more expensive markets have already seen a similar shift as benchmark housing prices have been pushed out of reach for many middle-earning professionals.
How to Capitalize
BC landlords can create an environment which attracts these high-earning middle-class tenants. A focus on attracting tenants aged 25 to 40 earning household income of around $75,000 will pay big dividends. These tenants will rent long-term and pay more if the unit provides the style and amenities they expect.
Appliances like dishwashers and in-suite laundry are a must. They can be expensive to install, but if you want tenants earning $75,000 or more, these appliances are a must have. Even for buildings with small plumbing, European-style washer-dryer combination machines are an excellent option. Filling a building with high-earning tenants can more than pay for the difference.
If you’re remodelling, use clean, modern finishings. Anything that looks like it’s from the 1990s or early 2000s has got to go. Old laminate counters should be replaced with stone or faux-stone counter tops. When it comes to interior design, use earth-tone and white colours. Gloss white cabinet doors are an easy way to dress up an aging kitchen.
Clean and brightly-lit common areas are another inexpensive to make your rental building look appealing. Use a grey or beige off-white paint for the hallways. Brighter light bulbs can spruce up common areas. Dingy hallways will not be tolerated by your high-earning tenants. Adding metal number plates to front doors can make a building feel more “condo-class.”
Developers, focus on creating rental opportunities with 1-bedroom plus den or 2-bedrooms suites. New rental developments in secondary markets should cater to high-earning renters aged 25 to 40. Apartment and townhouse suites with 2-bedrooms will be top rentals for tenants affected by the new mortgage rules.
The new mortgage rules make buying a house less affordable for middle-class aged 25 to 45.
More of this middle-class demographic will remain renters.
Landlords can reap the rewards by catering to these high-earning and reliable tenants.
Attract the best paying high-earning tenants with:
- Modern finish and interior design
- In-suite dishwasher and laundry
- White kitchen cabinets, stone countertops and earth-tone colours
- Clean and bright common areas
Seth Baker is Managing Broker at Multifamily Real Estate Services. He helps clients make money from apartment building market trends. Seth can be reached at [email protected] or (778) 235-9293.