Statistics Canada said 11.2 per cent of Vancouver home owners reported income from a rental unit.JENNIFER GAUTHIER/Reuters
Recently released statistics show that Vancouver has the highest percentage of mom-and-pop landlords in Canada, which may not come as a surprise for anyone with a mortgage to cover.
Statistics Canada said 11.2 per cent of Vancouver home owners reported income from a rental unit. In 2020, 7.9 per cent of Canadian households overall reported rental income. The data only includes small landlords, not trusts and corporations that manage buildings.
The report says the growth rental income from small family-owned properties coincided with low interest rates, which had enabled people to buy second investment homes or homes that contain a suite. The most common of these small property owners, who some observers have called “artisanal landlords,” are couples living in big cities. Close to half are between 45 and 64 years old. Two out of three earn a regular income as well as income from their rental sideline.
The data line up with previously released StatCan statistics that showed one in five homeowners own a second or third property in Vancouver. Region wide, the figure is 16.4 per cent, similar to Toronto.
Mom and pop property management will only become more popular as the population grows, says a long-time real estate marketer. What is not known, is what type of accommodation they are renting out, such as short-term vacation rentals.
Vancouver is a landlord city for a few reasons, explains BakerWest partner Jacky Chan. Mr. Chan, former CEO of Park Georgia Realty, specializes in the presale market but is involved in the sale and management of all housing types, and he says investors are active right now, particularly wealthy buyers. Those buyers aren’t at the mercy of inflation or dependent on a record-low interest rate in order to buy. Mr. Chan is seeing this activity play out with the buildings that his company is currently marketing in Vancouver and Toronto. BakerWest parent company Baker Real Estate has sold at least $1.2-billion worth of real estate in the past six months in just two Toronto projects, one, known as 8 Elm and the other, Forma, a two-tower complex of 73 and 84 storeys on King Street West designed by architect Frank Gehry.
For investors, the fundamentals are clear, Mr. Chan says. They see that Vancouver real estate price increases are always higher after a decade, despite any fluctuations, Mr. Chan says. The fact that the five-year-fixed rate is the same rate as the variable rate of around five per cent, tells Mr. Chan that the rate probably won’t go higher.
“What that means is the average rate of the next five years will be what it is now, or lower. So try to ponder that. If the rate in the next four years is going to go higher than what it is now, there is no chance the bank would set the five-year fixed rate at the current percentage level, because if that’s the case, they would all lose money,” Mr. Chan says. “So if you are a smart borrower, you know that in the next five years the average rate of interest is going to be less than the five-year fixed. When you know that, you can really utilize your money and your investment in a very wise way.”
Land costs and construction costs won’t significantly drop any time soon, he says. As well, with the federal government upping the immigration numbers each year, to 500,000 additional people by 2025, demand for housing will only increase.
“I don’t know how it would be mathematically possible for demand and economic activity and retail or anything to drop, because there are just too many people,” Mr. Chan says.
“I think with all those metrics, everyone knows the cost of replacement [housing] is not ever coming down, unless something catastrophic happens. You can lock in your position, knowing that there will be more people, more demand, and not enough supply even at the current levels.
“And because rent has also increased dramatically, around 25 per cent in one year in Toronto and Vancouver, it makes a lot of these investments make sense to be a landlord.”
The provincial and municipal empty homes taxes also turned some owners into landlords. The province commissioned a report released earlier in the summer on its speculation and vacancy tax, which showed about 20,000 secondary market rental homes had been brought online as a result of the tax. The report also showed that foreign demand for investment homes very likely drives up local housing prices.
“Those experienced [investors], opportunists who just park their money, with the empty homes tax measures, it forces them to rent their properties out, which is a good thing,” he says. “It does solve the supply issue in the rental market, and creates more revenue for the government. Originally we thought that would be detrimental to the landlord situation: ‘oh my God, with the empty home tax and speculation tax we cannot hold onto our properties. We have to sell them.’ But no, that’s not the case. In my experience dealing with many landlords and running property management companies and portfolios, stuff like that, it was probably less than five per cent of landlords that decided to sell their properties.”
Vancouver landlords are not, however, necessarily interested in the long-term tenant market. Vancouver has a lucrative short-term rental market that would have been included within the Statistics Canada figures, says Simon Fraser University City Program director and adjunct professor Andy Yan. For example, there are many landlords choosing to make $400 a night off their downtown condo rather than rent it for $2,600 a month.
“This latest data release from Statistics Canada allows policy-makers to better understand the various types of demands that are made on housing supply in Canada,” Prof. Yan said. “The next step is to decide which demands should have priority, and which ones need to be either supported or discouraged.”
Mr. Chan knows of downtown Vancouver condo buildings that have opened their doors to short-term rental. The downtown Espana at 689 Abbott St., a multiple tower, 446-unit complex allows short-term rental and has a list of Airbnb guidelines on its website. Online it’s easy to find one-month stays at condo tower The Tate, which offers fully furnished apartments. On Craiglist, there’s an ad for short-term stays at a furnished three-bedroom at the luxury Shangri-La near Coal Harbour.
Now that travel has opened up again, the Airbnb type of landlord is getting a lot more active, says Mr. Chan. He has clients who sub-lease rental units in order to run short-term rental properties, and they make a nice profit.
“They will rent a unit for $2,000 a month and run an Airbnb, and still it’s legal. I’ve seen that with my clients. It was very popular before the pandemic. For a lot of companies that’s their entire business. They find these below market or cheap rental units and they just rent them, and right away they turn them into short-term suites for executives and students. That’s coming back for sure.
“It can create an entirely different economic model … and I think Vancouver has that innate competitive advantage for the landlords and property owners to do such things, because it is a very sought after city.”
David Hutniak, CEO of LandlordBC, says he’s not surprised that the secondary rental market is flourishing.
“The primary reason that the secondary market dominates the rental market is because we didn’t build purpose-built rental for 30-plus years,” Mr. Hutniak says. “We’re still just scratching the surface on the construction of new purpose-built rental.”
Mr. Hutniak thinks that the empty homes tax measures as well as restrictions around short-term rental, including the requirement for a business licence and minimum 30-day stays, likely turned some owners into long-term landlords.
“However, the continuing significant presence of investors in the condo market has also contributed to the number of secondary market landlords. Not sure what that will look like going forward with increasing interest rates.”
Mr. Hutniak mostly represents large landlords but is in favour of the growing secondary market, and he welcomes small landlords to join the organization. He’s of the view that the more landlords, the better it is for the housing situation. However, he also advises amateur landlords to either join his organization to mitigate risk, or use a property manager, rather than trying to run a landlord business solo.
“I have no real concerns that there are so many secondary market landlords. We need all the rental we can get,” Mr. Hutniak says.
“In terms of public policy, LandlordBC is of the view that government should be encouraging and incentivizing the construction of an over-abundance of purpose-built rental housing. That’s the long-term solution to our rental housing crisis in terms of overall supply, and security of tenure, more diverse communities and professional management.”