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How Housing Market Regulations Ruin Tenant-Landlord Relations

Housing-Market / Market Regulation Jan 20, 2014 - 03:22 PM GMT

By: MISES

Housing-Market

Predrag Rajsic writes: An Open Letter to My Landlord

Dear EIWO Canadian Executive,

Unfortunately, it has become necessary that I express my and my family’s displeasure with the way your company has been treating us as customers. Our recent interactions with the management indicated that your company puts negligible importance on the past six years of our business partnership. Although we have been paying rent every month for the past six years without any issues, your staff assumed that the best way to communicate a late payment for the previous month is an N4 eviction notice. The N4 notice states in large bold and underlined font that “this is a legal notice that could lead to you being evicted from your home.” This eviction notice was accompanied by a letter that “asks that in the future you (meaning my wife and I) make more of an effort to have your (our) rent paid on time.”


I wonder why your staff immediately took as their task to judge the amount of effort I put in my daily activities. Your staff incorrectly assumed that my lack of effort was the cause for the late payment. Is it not possible that I put extraordinary effort in making my payment on time but still failed? You would, I hope, agree that there are situations in which, despite people’s extraordinary efforts, they still fail to achieve their goals. You would also, I hope, agree that some people can be quite successful in many activities while putting minimal effort in them. By judging my personal choices and by giving advice on how much effort I should put in achieving my daily ends, your staff is crossing the boundaries of tasteful and respectful conduct.

However, since this is only a symptom of a more serious underlying problem, l will put your employee’s imprecise and, in my view, arrogant language aside. Let me, instead, express my complete understanding for the way I was approached as your tenant. Given the current regulatory environment in Ontario, it is in fact, rational that a landlord provides low quality service to his/her tenants. Why? Because under the current regulatory system, a landlord has minimal to no benefits from providing high quality service. In fact, a landlord may even achieve financial gains by providing low quality service. Ontario is one of the most legislated and bureaucratic regions in the world for tenant-landlord relationship management. Under this regulatory system, landlords are subject to the rent stabilization program and to a plethora of other requirements. This program has at least three main consequences: (1) it reduces the revenue that the landlord has on disposal for providing quality service; (2) it creates excess demand for rental units; (3) it provides incentives for landlords to evict tenants with a longer tenancy history.

The rent stabilization regulations prevent landlords from increasing the rent from year to year by more than a certain percentage. That percentage for the 2014 rent relative to 2013 is 0.8 percent, which is a fraction of the general inflation rate for this year. Rent restrictions applied over a longer period of time suppress rents below the level that would be established on the market in the absence of this regulation. As a consequence, there is a higher quantity of apartments demanded for rent — there is excess demand. Because of this excess demand, landlords have little incentive to make their current tenants happy with their housing service. In a market with excess demand, it is relatively easy to find a new tenant in a short period of time. In addition, under the current regulation, the starting rent of a new tenant is not linked with the amount of rent paid by the previous tenant. This means that, compared to the rent paid by the previous tenant, the rent of the new tenant can be increased by more than the maximum allowable percentage for old tenants. Under these conditions, I, as a tenant with a longer renting history in this building, may become a liability rather than an asset for your company if the company can collect more revenue by putting a new tenant in the apartment I am currently using. It may be beneficial for your company that I get dissatisfied with the quality of service and thus choose to leave.

It is clear that under the current incentive structure, which is in most part a consequence of the regulatory environment, being kind or respectful to your tenants has no obvious financial advantages for your company. Unlike other, less regulated businesses that need to attract their customers by providing service that is better than the competitions’, the rental housing industry in Ontario is not facing this incentive. An act of kindness or respect would be a personal favor toward your tenants, not something you do to ensure better financial viability of your business.

I accept the reality that your staff is not willing to provide this favor to me and my family and treat us with the respect we think we deserve. However, it is puzzling to me why your staff expect us to do your company favors. One of your property managers suggested my wife and I can avoid these N4 eviction notices if we deposit post-dated checks or if we set up an automatic withdrawal account in our bank. But, the only thing we are obligated to do under the law is to submit our payment by 11:59 pm on the first day of each month. Relative to our legal obligation, the two options your staff suggested are clearly favors that we would be doing to your company. Favors need to be earned, and according to my judgment, your company has not earned any favors from me or from my family.

I also think we will stop doing you the favors we did in the past when we omitted to mention a number of errors committed by your staff. For example, due to the poor judgment of your staff, my family had to spend more than a year living next door to a violent drug addict with serious psychological issues. It was clear to me from the first day of his tenancy that something was seriously wrong with this individual, and it is beyond me how your staff was not capable of noticing this. Your staff tried to pressure my family into supplying a written complaint to make your job of evicting this individual easier. Your employee should have been aware that, since I have two small children, such a complaint would put my family in danger of this highly unpredictable individual, who eventually triggered several police interventions. It is not my job to fix the errors your employees have made. I have omitted to mention this and a number of other instances of unprofessionalism shown by your staff, and I did this because I wanted to do them a favor by forgiving them their blunders. This will stop now. It should be made public that your staff has made a number of poor judgments at this location. I have no reason to believe that these poor judgments will stop any time soon.

It is unfortunate that we are facing this situation, but, maybe our experience and experiences of other Ontarians can be used to illustrate the fact that the current tenancy laws do not promote conflict resolution and peaceful cooperation, as laws are intended to do, and as I teach my students. Instead, these laws create incentives for lack of mutual respect, which fosters distrust and hostility, quite the opposite of what good laws are supposed to do.

Sincerely,

Predrag Rajsic

Predrag Rajsic is a postdoctoral researcher in the Department of Food, Agricultural, and Resource Economics at the University of Guelph in Ontario, Canada. See his blog. Send him mail. See Predrag Rajsic's article archives.

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© 2014 Copyright Predrag Rajsic - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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