There goes the neighbourhood

October 1, 2007 § 10 Comments

So, that friend of mine who got busted for jaywalking last month?  She’s since learned that she’s being evicted from her apartment, which brings the total number of friends of mine who have been evicted from their Mile End apartments to twelve.  Seriously.  Twelve.

I wrote about the Mile End eviction phenomenon in my very first blog post, although I didn’t yet realize how pervasive it would become.  Now that the evictions have reached critical mass, I can say with certainty that this is how it works:

  1. Long-time Mile Ender rents apartment before real estate boom and still pays enviably low rent
  2. Landlord decides to cash in on real estate boom and “renovates” apartment
  3. Landlord sends eviction notice via registered mail, citing shady but superficially legal reason why tenant is to be evicted (e.g. sudden return of aunt/cousin/child to city; renegade pets; noise complaints) 
  4. Tenant thinks about contesting eviction at the Régie de logement, and either
    1. realizes that resistance is futile, or
    2. begins legal proceedings but is meanwhile driven out by threats, harrassment, and/or renovation work
  5. Tenant writes anxious mass email to friends asking for help finding another affordable apartment
  6. Tenant spends weeks looking at overpriced dumps in Mile End/Plateau/Outremont advertised as “charming” or “funky” or “lofts”
  7. Tenant settles for moderately priced non-loft in Parc Extension/St. Henri/Verdun at the eleventh hour
  8. Landlord performs largely cosmetic renovation of newly vacant apartment and
    1. charges two to three times the original rent, or
    2. sells unit for several hundred thousand dollars
  9. Professional couple/web designer/student with trust fund moves into original apartment and marvels at the “liveability” of their new neighbourhood
  10. Vila seethes and writes another blog post

I should point out that under Quebec law, the process described above is technically illegal, but, as no fewer than twelve of my friends have discovered first-hand, there’s no stopping the real estate market.

Then again, maybe there is?  According to The Guardian, economists are concerned that “buy-to-let” landlords could soon trigger a real estate crash in the UK by panic-selling their suddenly devalued properties.  The head of the Association of Residential Letting Agents observes:

There is evidence that landlords have been trying to increase rents to cover their higher mortgage payments, even where local market conditions are unable to withstand increases. Many tenants have simply walked away, leaving landlords with voids.

Meanwhile, the New York Times reports that large swaths of southeastern Queens, central Brooklyn, and the northeast Bronx are on the precipice of becoming ghost towns, the result of predatory lending practices that have disproportionately affected minority homeowners. As one housing activist notes:

“I look at this as a civil rights issue in those neighborhoods where people thought having a home was key to building individual wealth. But what happened is the wealth people built through their hard work has been transferred to Wall Street.”

Finally, the Montreal Gazette cautions that despite the bleating of industry cheerleaders, Canada’s real estate markets are not immune to the housing bubble, and may in fact have farther to fall than those of other countries:

The worry is not that price increases in Canada will taper off; it’s that they won’t do so soon enough. After all, the higher you go, the harder the subsequent drop is likely to be. Already, several economists have pointed out that the price gains of recent years have been so disproportionate to Canadians’ incomes that, in the words of Scotiabank’s Adrienne Warren, “there is little doubt that current trends are unsustainable.”

This state of affairs seemed unthinkable even six months ago, when, despite ample evidence to the contrary, the mortgage industry was still insisting that housing prices would continue to increase in perpetuity.  Today, we are confronted by the consequences of our own willing naiveté, which include the highest rate of home foreclosures since the Great Depression and a real risk of global recession.  Twelve displaced artists seem inconsequential by comparison.

Still, the health of a market city is best gauged by its economic accessibility, which, in turn, is reflected by the diversity of its housing options.  The housing bubble has substantially eroded this diversity and left a callous sameness in its wake: in place of apartments, flats, flophouses, storefronts, and studios, we have condos and still more condos, the financing of which is predicated on the notion that housing is an investment and not a potential home.

I suspect I’ll be returning to some of these themes in the weeks ahead, but in the meantime, if anyone happens to know of any cheap apartments…  

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§ 10 Responses to There goes the neighbourhood

  • Heavy. You lay it out brick by brick and make a hell of a lot of sense. What you are getting at beneath all of the markets and their potential failure is the standardization, the soul-less uniformity (and, by extension, conformity), even the impermanence of the idea of “home”. Once we lose our sense of place and the market takes over completely, well, it’s all one big suburb.

  • rada says:

    It is remarkably similar in Brooklyn, NY, though you have a preponderance of outside developers who buy-out property owners and renovate / re-build luxury condominiums on the property. There was a similar trend in NYC in the 70s, were cheaply made projects were being constructed at the same time as office buildings for high-end city workers and private firms. 30 years down the road, it is becoming more of a residential real estate coup for high-cost living in urban areas. Essentially, the yuppies’ legacy is pushing out lower income residents, regardless of how many generations they’ve been in the neighborhood/location.

    It really has become a war at home. I am not sure if there are any hints of things eventually “leveling out” in the not too distant future. The balancing act might take a lot longer than 3 years, but populations of people are essentially being forced to move away from communities they’ve lived in for decades. Any ethical reprehension?

  • Vila H. says:

    Sparky: Pretty much, except instead of big-box retailers and donut shops we have yoga boutiques and health food stores. (Sighs.) Footnotes on flickr.

    Rada: Oh, scads, and even more after a couple of beers…

  • mare says:

    If you read the documents pertaining to eviction/repossesion at the website of the Régie du Logement (rental board) there is a lot your evicted friends can do. Even after they have been evicted.

    If the owner didn’t rent it to the person that they introduced at the Régie hearing you can even sue them for material and moral damages.

    If it was as easy as you describe we would have done this a long time ago with our tenants who’re paying an absurdily low rent that hardly covers the property taxes and insurance ;-)

    O, and there aren’t many “buy-to-let” landlords right here. It refers to landlords who buy a single family home with almost no downpayment and a high mortgage that will be paid by the rent. But if the rent are low, or your property stays vacant for a while you can’t pay your mortgage. And if you can’t even sell because nobody wants to buy you’ll lose your house to the bank. In Quebec you need a much higher downpayment if the property isn’t going to be your residence.

  • Vila H. says:

    You’re right, Mare–there are legal provisions that are designed to protect tenants from fraudulent evictions. (As an aside to my non-Quebec readers, the province’s landlord-tenant act is in many respects pro-tenant, unlike those in other jurisdictions.) That said, the problem with the “Aunt Marie-Blah is moving in” ruse is that you can’t know for certain that they’re not until after they’ve moved in, which presumes in most cases that you’ve already moved out. By that time, most of the people I know who have been through the experience have conceded defeat.

    As to your second point, the reason I raised the British example was to underscore that problems in the housing sector are spreading beyond the United States, which has the highest rate of adjustable-rate mortgages of the three countries. Because rates elsewhere are substantially lower, experts initially claimed that other countries would not be affected by the slowdown in the US. I was skeptical about their assertions from the outset, but the articles cited above confirm that this is not the case.

    As I see it, the problem goes beyond large mortgages to the general question of affordability. According to the latest US census figures, half of all renters and one-third of mortgage holders spend more than 30% of their gross income on housing costs. Since incomes have not kept pace with housing prices, this suggests that a large number of people are paying more than they can comfortably afford for housing. It isn’t just mortgage rate adjustments that will threaten their homes: it could as easily be an illness, a temporary job loss, the birth of a child, anything that squeezes their housing and basic living expenses. Just as most of us are only one monthly paycheque away from poverty, many property-owners (and some landlords) are only a couple of mortgage payments away from foreclosure.

    There is though, another factor, which does not implicate all property-owners (and presumably does not implicate you ;) but which nevertheless needs to be addressed, and that is greed. It is one thing to raise rents to cover property taxes and insurance costs (and it is my understanding that the Régie has certain provisions that allow for such increases) but it is quite another thing to raise rents and violate the law simply because the market can bear it. In the case of Mile End, the market can bear quite a lot these days, which is why twelve people I care about have lost their homes. Unfortunately, the market neither knows nor cares that it has destroyed a community, which is, as Rada mentioned, just one of many communities like it. And that is what galls me the most.

  • The regie does provide for increases in insurance costs, but not for investment.

    Let’s say we invest $10,000 in our building in a year. (Doors and windows are rotting out of their frames and need to be replaced with something non-rotting and insulated. The rusty fire escape is becoming unsafe and needs repair or replacement. The brick needs to be re-mortared, replaced in some cases, and reattached to the wall before it falls down and kills someone. These aren’t frivolous reasons to spend money.)

    Let’s say we had $10,000 sitting around in a bank account. (We don’t.) If we took it out and invested the money in the property this year, next year we could legally increase the rent to our four tenants by $7 each. Twenty-five years from now, assuming an annual rate of inflation of 2%, we would have recovered $6,600 of the original $10,000 in 2007 dollars. (The rent that tenants are paying right now, before any hypothetical investment and hike, doesn’t enter into this calculation because it’s already spoken for. As in, it goes to taxes and insurance. Not repair and maintenance.)

    Because our bank accounts are empty, we’ll have to borrow any money we need for major renovations and pay interest on it. With legal rent increases we could never get it back. (Interest alone on any amount of borrowed money is more than the rent increase that the regie allows.) That $10,000 would be borrowed and flushed down the toilet. (Well, it would be invested to prevent the building from losing value so that when we get old and feeble and sell the building we get back the purchase price. Not the purchase price + $10,000… unless we sell the building as soon as the money is invested.)

    We don’t have $10,000 to flush. We will have to raise the rents beyond what the regie allows.

    If a landlord is able to avoid renovations and repairs for several years, they may keep rent increases to legal limits for that time. (That is, close to zero.) Then when it comes time to fix things up, they can’t. The revenues from the building can’t pay for the repairs required. In order to conduct basic maintenance, tenants paying low rents must be evicted to be replaced with tenants who can do more than cover the interest on the loan.

    I don’t want to evict our tenants. I want them to stay – this is their home – but to accept rent increases that will allow us to maintain their homes for them.

    If they won’t though, if they take us to the regie every year, I’m sorry but someone’s grandmother is going to have to move in.

    I’m not saying greed didn’t enter into any of your twelve friends’ evictions. Of course it did. (Especially if you include wanting an income for your retirement because you don’t have any savings because they all went into the building in your definition of greed.) Just that what appears to be greed (doubling the rent!) in some cases may simply be math and survival.

    I’m not advocating making it easy to kick people out. I would just like it to be possible to legally not lose money maintaining someone’s home. Like being legally allowed to increase the rent by $25 dollars per tenant when I have to borrow $10,000 to keep their place safe for them. Sure, $25 is a lot, especially on a rent of $400. But $10,000 is a lot too.

    None of this addresses concerns about the global housing market. Just the little sub-sub-appendix about the regie allowing for rent increases to cover costs. Most tenants assume it does and attribute any increase over the legal one to greed. (I know I did when I was a tenant.) It doesn’t. Some of the increase over the legal one needs to be attributed to a desire to have you keep on living there.

    Well, maybe it does, if the question is why did we buy a building if we didn’t have tens of thousands of dollars lying around that we could spend on the building without worrying about whether we ever got the money back. The answer there is that we were paying a very low rent, the building went up for sale, and we knew that if anyone else bought the place we’d be evicted and we’d have to move and pay twice as much rent to live somewhere less nice. Because we’d been paying such low rents we had a little money socked away… and here we are, evil capitalist landlords whining about ungrateful tenants who just don’t understand.

  • Another way to look at stable mixed neighbourhoods and the régie:

    Let’s imagine that my parents got a down payment as a wedding gift back in 1963 (they didn’t) and bought the building I am living in today (they weren’t able to buy for another twenty years). Let’s say they were able to fill it with young people all paying a good high rent of $70 per month. The revenues might have broken down to
    – $10 sheer profit for my hypothetical parents,
    – $20 taxes and insurance,
    – $20 mortgage and
    – $20 repairs and maintenance. My parents, being both ethical and law-abiding, would have observed régie restrictions on rent increases (we are also imagining that these restrictions existed in the sixties). Being prudent sorts, when they won $10,000 in the lottery (free money!) they would have invested it in the house at an average of $1,250 in the building every five years; each of these investments would have resulted in a rent increase of $1 for each of their tenants.

    The regie allows you to increase the rents to compensate for increased taxes and insurance, and to compensate for investments. So we will assume that the $20 alloted for taxes and insurance in 1964 is $200 today. A series of eight investments increased the rent by another $8. The mortgage has long since been paid off, so that money can be rolled in to the repairs and maintenance. Since nobody has moved out, each tenant is now paying $258 per month, which breaks down to
    – $ 10 sheer profit for my hypothetical parents,
    – $200 taxes and insurance,
    – $ 48 repairs and maintenance.

    $20 in 1964 is roughly $130 today – so $48 in repairs and maintenance is only 37% of what they had available 43 years ago. My parents are about to retire and could use a little more than $40 per month ($10 profit from each of the four tenants) in income from the building. They feel stuck, because evicting their tenants – who are also retired – would mean putting vulnerable people in the street to find new apartments at a time when something equivalent in the neighbourhood is going for $850.

    So they sell, and someone else does the dirty work for them.

    Note that in this scenario, the neighbourhood has gentrified: a 1964 $70 rent is the equivalent of only about $525 today, less than the $850 that the market will bear. But it could still be a mixed neighbourhood if the long-time tenants had paid rent increases that reflected increases in the cost of living (repairs and maintenance as well as sheer profit) and not just increases in insurance and municipal taxes. Now, because their rents are an artificially low $258, someone is going to do slimy stuff to kick the old people out.

  • Vila H. says:

    Thanks for writing from the other side, Alison. As I see it, what it all boils down to is a whole lot of people–property-owners and tenants alike–who don’t have enough money in their bank accounts to cover the vastly increased cost of housing. And then, a whole lot of other people–namely, real estate speculators–who have more than enough money to use to turn tidy profits on the vastly increased cost of housing, while the rest of us scramble for a decent place to live.

    Underlying all of this is a larger shift to what economists call a rentier economy, or, more accurately, a return to one. From an excellent piece by Michael Hudson, published in 2006:

    “Never before have so many Americans gone so deeply into debt so willingly. Housing prices have swollen to the point that we’ve taken to calling a mortgage—by far the largest debt most of us will ever incur—an “investment.” Sure, the thinking goes, $100,000 borrowed today will cost more than $200,000 to pay hack over the next thirty years, but land, which they are not making any more of, will appreciate even faster. In the odd logic of the real estate bubble, debt has come to equal wealth.

    And not only wealth but freedom—an even stranger paradox. After all, debt throughout most of history’ has been little more than a slight variation on slavery. Debtors were medieval peons or Indians bonded to Spanish plantations or the sharecropping children of slaves in the postbellum South. Few Americans today would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.

    The solution they found is brilliant, and although it is complex, it can be reduced to a single word—rent. Not the rent that apartment dwellers pay the landlord but economic rent, which is the profit one earns simply by owning something. Economic rent can take the form of licensing fees for the radio spectrum, interest on a savings account, dividends from a stock, or the capital gain from selling a home or vacant lot. The distinguishing characteristic of economic rent is that earning it requires no effort whatsoever. Indeed, the regular rent tenants pay landlords becomes economic rent only after subtracting whatever amount the landlord actually spent to keep the place standing.

    Most members of the rentier class are very rich. One might like to join that class. And so our paradox (seemingly) is resolved. With the real estate boom, the great mass of Americans can take on colossal debt today and realize colossal capital gains—and the concomitant rentier life of leisure—tomorrow. If you have the wherewithal to fill out a mortgage application, then you need never work again. What could be more inviting—or, for that matter, more egalitarian?

    That’s the pitch, anyway. The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.

    Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The bubble will burst, and when it does, the people who thought they would be living the easy life of a landlord will soon find that what they really signed up for was the hard servitude of debt serfdom.”

    When my parents bought their house, they were able to cover their mortgage and maintenance expenses simply by working. They were able to do this because the cost of housing was at that time proportionate to average earnings, as it had been for the previous forty years and would continue to be for another twenty. With housing unhinged from labour, they could not afford to buy and maintain the same house today, nor could I, despite the fact that my earnings will at some future point be higher than theirs. The excess cost would have to be absorbed by other means—e.g., rent—which shifts the financial burden of home ownership from wages to tenants, whose ability to pay is also, in many cases, limited by their earnings, and who will derive no long-term benefit from their investment.

    Of course, it’s a systemic problem, which is no help to anyone. But it isn’t a natural problem, as many people seem to think, which is why I believe it’s worth talking about. It’s the only hope we have of changing it.

  • Yup, I bought that magazine (Harpers, was it?) for that article when it was published – when we were buying our house. I told myself it didn’t apply to us because we were not buying a Single Family Home, which is what the burst of the housing bubble is mostly about, but more applies than I initially thought.

    (“When my parents bought their house, they were able to cover their mortgage and maintenance expenses simply by working.” Was their house a SFH?)

    When I spoke to my mother about this topic her input was that equating property with a nest egg is a new idea. People didn’t have it back in 1964. Condos didn’t exist in any significant way because they made no sense: why give up the flexibility of rental apartment living to… live in an apartment?

    Way back in 1981 my grandmother showed me an article (possibly from The Nation) about the proportion of household expenses in different categories changing since the 1920s (or possibly 1950s). I don’t remember a whole lot of details from the article, but one stood out: about the proportion of expenses going to food and to housing essentially reversing over the time period being studied. So, say, 20% of income going to housing and 50% going to groceries in 1920 reversed to 50% going to housing and 20% to groceries in 1980. Or whatever the figures were. What I took away from that article was the effect that reversal has on consumer spending. Way back when, one could (and did) scrimp on expensive luxury items like butter and eggs, forego bus rides and save money by walking miles to work and back every day… and buy a house with one’s savings. (My grandmother, who has never been poor, still uses old underpants as cleaning rags.) Now that housing – especially property purchases – are so expensive and food is so cheap, scrimping doesn’t get us anywhere any more. So we don’t. I don’t know anyone my age who dusts with their old underpants, and I know a lot of people with lots of consumer Stuff that essentially didn’t exist fifty years ago – CDs, electronics, microwaves, $5 t-shirts that last a summer and get thrown away without regret.

    This has been going on a long time: it’s not a phenomenon of the recent housing bubble. It may not be a natural phenomenon, but Jane Jacobs’ recommendation in your snippet above was low-cost public housing – an artificial solution. (It seems like a good one to me.)

    I understand that you do include property owners as well as renters as people subject to the vagaries of a market not working in their favour. My overlong comments were specifically to the role of the Régie, not to your basic thesis. I’m enjoying this discussion, and I wish I felt more empowered to participate constructively in it at a concrete level.

  • […] just the smoking ban, just as this blog was never really about smoking.  As I’ve written elsewhere, Mile End has changed dramatically since I found my way to it in the summer of 1999.  In drinking […]

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