December 18, 2020 | The Whiff

Because the world has too few taxes, Toronto just created a new one. Like Van, there’ll soon be a vacancy tax, mostly affecting condos. The average unit which in local political minds is underutilized will attract $6,500 a year in tax, atop property tax of about $3,000. Plus condo fees averaging $6,000 a year. That’s $1,300 a month in overhead, even without financing or utilities.

The local realtors, often tools but this time wise, argue it’s nuts. Sure, whack ghost landlords who buy units just to sit on them for capital appreciation (if many actually exist), they say, but when the state starts taxing because you don’t spend enough sleeps in your own dwelling, well, it’s Orwellian.

The industry suggests principal residences should be exempt, for example, or places which are empty because they can’t rent. After all, if T.O. wants to be a world class city, it should accommodate post-pandemic international business people who need a stable local pad for periodic accommodation. Not that the house-lusty, envy-riddled moisters will agree.

But wait. Some interesting dynamics are at work here.

First, there’s a big surplus of condos for sale. Listings have doubled in a year. Sales have plopped. Prices are down. In the core $1,200-a-foot has dipped to $950. (A prime DT listing yesterday broke the $750 mark.) That’s 20% off. The new tax will likely force more units onto the market, since being a landlord totally sucks (rent controls, no evictions). So, prices drop further and no new rental supply is created.

Meanwhile the vacancy rate, as mentioned here the other day, has tripled in a year. Things are way better for renters than they used to be – lots more to choose from, landlords desperate for tenants, and falling rents. In short, the vacancy tax is, well, just a tax. When politicians say there is a social good involved, their pants are on fire.

And, wow, look at those rents. Here’s a map showing how the’ve plunged in various Toronto hoods.

Source: Rentals. ca. Click to enlarge.

Rentals.ca and Bullpen Research show just how much of a wallop the slimy little pathogen has had on the amount landlords can charge. On average Toronto rents have collapsed 20% this year. Says analyst Ben Myers: “”It is unlikely that even the most bearish market watcher would have predicted a 20 per cent annual decline in average rents in the former city of Toronto. We expect the market to continue trending downward for the next four to six months nationally but start a slow recovery in the second half of 2021.”

And it’s not just Toronto. Rents are falling in most places. No wonder. Tourism and short-term rentals are kaput. Restaurants, bars, clubs, business and sporting events are shuttered – places where a lot of renters work. Immigration levels have crashed by 70%. University students went home to mom’s place. So did the downtown WFHers. Worse, governments have sanctioned non-payment of rent through no-eviction edicts, while capping rents and allowing landlord-tenant boards to be hobbled by the virus.

“The rental market in Canada has done a 180-degree turn from extremely hot to extremely cold, with November 2019’s average rent of $1,918 per month up 9.4 per cent annually, compared to this year’s decline of 9.1 per cent,” says the report. “The national figures are heavily influenced by what is happening in the Greater Toronto Area, where rental rates for condominium apartments have plummeted year over year.”

It’s a perfect storm a-brewin’.

Thousands of newly-completed condo units are coming to market. Covid is getting worse every day, and seems on track to make for an awful January. The odds of a more profound and extended lockdown are growing – fewer service industry jobs, fewer renters. Travel bans and crashed tourism. Also more work from home and an exodus to the burbs. Plus now an idiotic vacancy tax which will increase listings, decrease rentals and help nobody, while removing $50 million a year from citizens.

Anyway, do you smell it? Yep. A whiff of opportunity.

Things will not always be as they are. The vaccine will transform society over the next couple of years (despite the knuckle-draggers in the steerage section of this pathetic blog). The virus will fade. Downtowns will restore. Office towers will eventually repopulate. The arenas, clubs, galleries, restaurants, high-end stores, museums, markets and funky hoods that make cities magnets for humans will attract once again. Travelers, business conventions, sports teams and artists will be back. The reasons people were willing to pay big bucks to live in the middle of this cacophony of humanity will become obvious. And many will look back on the winter of 2020 as a unique moment.

So, here’s the forecast: moaning, gnashing with intermittent lamenting and periods of wailing followed by clearing and, yes, FOMO.

Garth Turner December 18th, 2020

Posted In: The Greater Fool

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