What's driving up London's student rents? Higher borrowing costs a big factor
CBC
As students in London face rising rents — in some cases reporting being unable to find rooms in a shared house for less than $1,000 a month — a local landlord says higher borrowing costs may be partly to blame.
After graduating from Ivey Business School at Western University, Mike Rosehart took a deep dive into real estate investing starting ten years ago. At their height, his student rental properties amounted to about 150 rental rooms in multiple properties in London. At the same time, he built a following by blogging and posting videos about investing, frugal living and achieving financial independence.
He's since sold off many of his student rental properties, but not because it wasn't profitable.
"It can be a great business," said Rosehart. Though he still owns some student rentals, in recent years, Rosehart has scaled back to free up more family time now that he's a father of three.
Along the way, he got an education, often sharing his lessons learned online, in the economics of being a landlord of student rentals.
As pros, he lists the steady demand and the fact that landlords can earn more renting per room than by renting the same three-bedroom house to one family.
But there are cons too. More turnover means more cost. Students sometimes party and cause damage, and some find it a challenge to live away from home for the first time: "I've had to take calls from concerned parents," said Rosehart.
He feels the biggest factor pushing up rents now is the recent rise in interest rates over the past year, with the Bank of Canada hoisting its benchmark rate seven times in 2022 to its current rate of 4.25 per cent. The same rate was just .5 per cent in March when the interest rates hikes began. Next week it's expected to rise again, pushing big bank mortgage rates into the six or seven per cent range.
All that interest lifting has had a dramatic impact on borrowers, including landlords who often borrow to buy their properties. Rosehart said borrowing costs are his most significant expense as a landlord.
He points to one property he owns as an example. A monthly mortgage payment that was $1,800 a year ago has now jumped to $3,000.
"So if rent doesn't double, I just lose $1,500 a month if I hold this property," said Rosehart.
And while higher interest rates have created a softer market to buy rental properties, Rosehart said the 20 to 25 per cent price reduction in home sale prices over last year isn't enough to make up for the higher borrowing costs.
In order to remain "cash flow positive" on a property, Rosehart said landlords sometimes have no choice but to increase rents for new tenants.
"The mortgage payments have doubled and tripled in some cases," he said. "As a landlord, I expect that to flow through into the rental market."
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