A recent news article reports the B.C.'s Residential Tenancy Branch allowed two landlords to hike rent by 23.5%.
According to the article, one of the big five banks issued to two speculators (referred to in the article as "landlords") variable rate mortgages for which the bank accepted as collateral properties these two "investors" foolishly assumed – as did the bank – that tenants would pay rents sufficient to meet their mortgage payments.
There are several problems here, none of which are the responsibility of the tenants and all of which illuminate the corruption and assumed impunity at the heart of the financialization of housing in Canada.
Most glaringly, the bank in question ignored in assessing the creditworthiness of these would-be "landlords" that they were borrowing to speculate. This should be a giant red flag for any loan officer, whose sole purpose in life is to perform due diligence to establish that it will be repaid before approving any loan.
In the case of these loans, the speculators ignored the question, as did the bank, of how they would repay them when their mortgage payments ballooned. Obviously lacking sufficient reserves or other sources of income and depending entirely on future rents to pay off the loans in question, these hustlers went crying to the RTB when the free money at the heart of Canada's real estate bubble dried up.
These speculators and this bank both knew that the rate of increase in the rents they could demand per the Rental Tenancy Act is less than the rate at which their mortgage payments could (or would depending on the terms of the loan) increase.
The plan in the scheme reported, which seems well on its way to succeeding now that the RTB has dumped these bad loans into the laps of tenants who are paying rents everyone knew could not cover them if interest rates increased, is to evict them creating more homeless people (or sell the properties to someone else who will and pocket a hefty capital gain), jack the intertenancy rent increase through the roof, and replace them with tenants sufficiently flush to pay those rents.
The loan is a bad loan. The correct solution is for the bank to write it down. Investments are not magic money machines that always make a profit. Speculators frequently lose money, as do banks careless enough to loan it to them.
In the case of these particular properties, the Housing Ministry and the courts should reverse the rent increases granted by the RTB and make it clear that covering variable rate mortgages is the responsibility of borrowers and the banks that issue them, not tenants.
Bill Appledorf
Victoria
