A recent news article states that the Residential Tenancy Branch of British Columbia allowed two landlords to increase their rents by 23.5%.
According to the article, one of the five major banks granted adjustable-rate mortgages to two speculators (referred to in the article as “landlords”), accepting real estate as collateral. These two “investors” – like the bank – falsely assumed that the tenants would pay enough rent to service their mortgage payments.
There are several problems here for which tenants bear no responsibility, but all of which shed light on the corruption and perceived impunity that underlie the financialization of the housing market in Canada.
Most strikingly, when assessing the creditworthiness of these potential “landlords,” the bank in question failed to take into account the fact that they had borrowed the money for speculative purposes. This should be a major red flag for any loan officer whose sole purpose in life is to carefully check whether the money will be repaid before approving a loan.
In the case of these loans, the speculators, like the bank, ignored the question of how they would repay them when their mortgage payments soared. Obviously lacking sufficient reserves or other sources of income and completely dependent on future rental income to repay the loans in question, these crooks went crying to the RTB when the free money at the heart of Canada’s housing bubble dried up.
Both these speculators and this bank knew that the rate of increase in rents they could charge under the Rent Act was less than the rate by which their mortgage payments could (or would, depending on the terms of the loan) increase.
The plan of the reported plot, which now appears to be well on its way to success after the RTB saddled these bad loans onto tenants whose rents everyone knew they would not be able to pay as interest rates rose, is to evict the tenants, thus creating even more homeless people (or sell the properties to someone who will do so and pocket a hefty capital gain), drive up rent increases between tenants, and replace the tenants with tenants wealthy enough to pay those rents.
The loan is a bad loan. The right solution for the bank would be to write it off. Investments are not magic money machines that always make a profit. Speculators often lose money, as do banks that are careless enough to lend them money.
In the case of these specific properties, the Ministry of Housing and the courts should reverse the rent increases granted by the RTB and clarify that the coverage of variable rate mortgages is the responsibility of the borrowers and the banks that issue them, and not of the tenants.
Bill Appledorf
Victoria
