Kathleen Wynne Gives Toronto Condo Investors Yet Another Gift: $15 Minimum Wage
This week Kathleen Wynne dropped yet another huge economic bomb on Ontario by announcing minimum wage will soon go from $11.40/hour to $15/hour. This has left many businesses and pundits reeling, but how will this affect real estate investors? This economic ‘bomb’ could turn out to be a massive ‘gift’ for investors – find out why on today’s episode.
2:30 News and updates in minimum wage.
5:10 Pros and Cons of minimum wage.
12:41 How wage increase can affect your life.
15:38 How it affects the housing market.
Andrew la Fleur: Ontario premier [Kathleen Win 00:00:02] just gave Toronto condo investors yet another huge gift. Find out what it is on today’s episode. Welcome to the True Condos podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market, and condo investing in Toronto.
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On today’s episode, want to talk about the latest gift from everybody’s favorite premier, Kathleen Win. The Ontario liberals, they’ve dropped another bombshell lately. This time, the news is minimum wage. Minimum wage is going to be increasing a lot. Minimum wage is going to be going up to $15 per hour in Ontario, $15 per hour. Currently it’s sitting somewhere just over $11 per hour. By the date of January 1st, 2019, it’s going to be $15 an hour. They’re phasing it in as of January 1st, 2018. In about six month’s time it’s going to be up to $14 an hour. That’s the big jump. Then just one year after that it’s going up another dollar to $15 an hour. That is a minimum wage. That’s the minimum amount that any employer in Ontario must pay their employees. Wow.
I can remember my first job was actually flipping burgers at McDonald’s back in probably around 1995, 1996, somewhere in there. Minimum wage at the time was $6.40 or 6.35, something like that. Looking back now, it just seems almost laughable, but at the time, I was excited for that. I was excited for the opportunity to earn some money. I was excited for the opportunity to be employed and to get out into the workforce, albeit, obviously just on a part-time basis on the side while in high school. Wow. $6.40, and now today, minimum wage has been announced, it’s going to be $15 an hour, which is getting close to triple what my first job was. I don’t know if that makes me old or what.
Anyways, minimum wage, that represents a 32% increase. It also represents the number of people earning minimum wage or less … Sorry. Earning $15 or less in Ontario is about 1.5 million people in Ontario. Obviously most of those people are going to be concentrated in the greater Toronto area, where most of the population resides. Going back to my headline for this podcast, here is another huge gift for Toronto condo investors. You’re probably scratching your head saying, “Andrew, what do you mean? Where are you going with this?” We’ll get there in a moment, but let’s just look at some of the pros and cons of minimum wage. It’s important to think through these major economic announcements as real estate investors. You want to understand what’s happening always in the broader economy, and be a student of the economy, be a student of politics to some degree, and see what’s happening in the culture and in the population, and where things are heading, and what sort of trends to be aware of. It’s very, very important. Again, part of that is listen to this podcast you can help you do that.
Pros and cons of this new minimum wage. Obviously, some of the pros are … Some of them are obviously, from the pros side, you’re going to have more spending power. More people are going to be having more money, especially a bottom up approach. People at the bottom of the economy, so to speak, are suddenly getting a massive pay raise. They’re going to have a lot more dollars in their jeans. They’re going to be looking for places to spend those dollars. They’re going to be getting out there and circulating that money back into the economy. When money is circulating into the economy, that’s a good thing. You want to keep money moving all the time, and as the money moves, then the economy grows and commerce takes place. Capitalism takes place. People cooperate, exchange goods and services. That is how wealth is distributed and created. Quality of life is tied to that and will increase for more people.
Businesses that sell stuff will benefit. Businesses that sell stuff, particularly to consumers, will benefit. They will probably sell more stuff. That’s a lot of people, a lot of businesses will sell more stuff, because there’s going to be more dollars out there in the general economy to be spent, more spending dollars. Particularly, young people, young working people who are that classic 18 to 25 bracket, those young people are the bulk of people in that sub-$15 an hour range. If you’re one of those people and you are working, you are going to benefit. You are going to benefit from this.
On the cons side, cons of this major increase to minimum wage, some businesses will actually shut down. Many, many businesses are operating on very tight margins, and any increase in costs would cause them to stop being profitable. Some of these businesses will simply shut down. It can be argued whether that’s a good or a bad thing. If you’re operating on such a tight margin that this kind of a thing would erase your profitability and you would have to shut down, you can argue if that’s good or bad or deserved, or if that’s just capitalism at work. You can look at it different ways. Certainly, it’s never a good thing when a business shuts down and jobs are lost and livelihoods are lost.
Other cons, some businesses that don’t shut down will fire people. People will lost their jobs because businesses could still continue to operate, but they just can’t afford to hire more people, or they will let go of some people. Increased automation. You go to McDonald’s these days, what do you see at McDonald’s and other places? Instead of going up to the person at the till and making your order, they just have a computer screen, a touch screen. You just type it in yourself. Soon I’m sure you can just do it on your phone. Starbucks, you can do it on your phone. Less and less people will be needed. It’s a huge subject of conversation right now, is the future of the workforce and automation. More and more investment will be put in by big businesses, especially, into automation and how they can eliminate workers all together and do things automatically with computers and apps and other things.
Another con, prices will go up. Prices will go up. Prices of goods and stuff and services, and certainly food, prices will go up. One of my clients and good friends in the restaurant business was telling me that, based on a typical restaurant operation, with the new minimum wage, obviously labor costs are a huge portion of a business’ overhead is labor. Their cost is labor. So prices of food, he was saying, in restaurants will probably, just to keep their profit margins the same, prices would have to go up approximately 20, 25%, 20 or 25%, which is huge increase happening in a very short period of time. Enjoy those $6, $7 Big Macs for the time being, because soon they will be … A Big Mac will soon probably cost you $8, $9. That’s just a reality. Prices are going to go up. Brace yourselves, people. Prices of food, especially in restaurants and grocery stores are going to go up a lot.
Final con is, again, flip side of what I was saying before on the pros side, young people. Young people will be adversely affected in the sense that, if jobs are going to go, it’s going to be young people are going to feel it the most. If you’re young and you do have a job and you still keep your job, you’re going to benefit a lot, because you’re going to be making a lot more money. But if you lose your job, obviously you’re going to be hurt a lot to hurt your job. Young people are going to be losing their jobs, but at the same time, those young people who are working are going to be making a lot more money. They’re going to be benefiting from that.
Interesting. Definitely keep your eye on this in general as in condo investors. Be very interesting to see how this affects the economy and how businesses respond, and how prices … I’m very interested in particular to see how prices react. I think we’re going to see broad scale increase in prices of all kinds of stuff across the board. It’s going to happen. Inflation is coming. Get ready for some serious inflation, because of the new minimum wage going up 32%. 1.5 million people in Ontario are about to get a massive raise. For many of them, the raise will be 32%. Can you imagine sitting there thinking about whatever … Think about your job right now. Imagine you got a 32% raise. You knew a 32% raise was coming down the pipe. How would that affect you? How would you change your planning? How would you change your spending? How would you change your life?
I think, and here’s where I’m finally, after rambling on for a while here, I’m finally getting to the point of this podcast and the headline of this podcast, which is how I think this is going to affect your life if you are in this category is, the first thing, or one of the very things I think you’re going to think about if you’re about to get a 32% wage increase is your housing. Where are you living? I think one of the first things you’re going to do is think, “It’s time to upgrade. It’s time to upgrade my living standard.” Obviously a lot of people working minimum wage are living at their parents’ houses. They are living under the care of someone else as a dependent. A good chunk of people will be living in very basic apartment conditions, for example, basement apartments or older, 1950s and ’60s apartment buildings in sub-optimal areas of the GTA. Many people are sharing accommodations. They have a roommate or multiple roommates.
Boom. Overnight, here’s a 32% raise. You’re going to 11 bucks an hour to 15 bucks an hour. That is a huge increase. You can certainly … I think one of the first things you’re going to do is you’re going to look at upgrading your living situation. Obviously, what I’m going with this is that, as condo investors, investors who are buying apartments, which are the most affordable type of housing available to rent compared to renting a house, we’re going to benefit.
Again, all these basement dwellers, people sharing apartments, people living at home, they’re going to be thinking, “Hey, it’s time to upgrade, baby. It’s time to get my own place. It’s time to move out of the basement and into a studio or a one bedroom apartment.” Hey, two roommates living together making 11 bucks an hour each. They have a two bedroom apartment. They’re paying 1000 bucks a month or something each. Okay. Now let’s get out of this bad location. Let’s go downtown. Let’s get a great pad downtown now. We can afford it. Let’s go up to, instead of 2000 bucks a month shared, let’s do 2500 bucks a month shared. We’ll still have money left over.
Again, I think that is going to be a huge spin off from this new minimum wage from the liberals is, people are going to be upgrading their housing all over the place. 1.5 million people, okay? We talk about the 100,000 people coming to the GTA every year and how that’s affecting our housing market continually and growing our housing market continually, 100,000 people. Well here’s 1.5 million people who are suddenly going to have more cash in their pocket, more dough in their jeans, looking for a place to park it and to spend it. These people are not suddenly going to start buying condos. No. I’m certainly not saying that, but renters at that low end of the market are going to be looking to upgrade on mass. Are 1.5 million people in Ontario going to move? No. But even if it’s half that, even if it’s a quarter of that, we’re talking about hundreds of thousands of people in Ontario who are going to be looking to move within the next year and a half. This is coming very, very quickly down the pipe.
I believe that’s going to put … It’s going to be great news for condo investors. It’s going to definitely put upward pressure on rents as demand for rental properties increase and as more and more people move. That’s going to put increased pressure on rent. If you’re a condo investor today or if you’ve bought something pre-construction or you’re expecting it in the next couple of years, it’s great news for you. Get ready for … Again, the government is basically creating out of thin air a massive new potential customer for the product that you have. The product that you have is housing, quality housing. The thing that you want as an investor is more and more customers for your product. Well, guess what? You’re getting 1.5 million new customers, and it’s not happening slowly over years. It’s happening like over night! In the next year and a half this is all coming down the pipe.
Very good news for condo investors. Kathleen Win drops another gift on us. Of course, the other gift that we’ve been talking about lately is rent controls and the fact that … She’s giving us both sides here, guys. She’s increasing the demand by increasing minimum wage for what we’ve got. She also decreasing the supply by dropping rent controls and basically all developers are now saying, “Okay. No more rental buildings, guys. Let’s stop the rental building pipeline. Let’s go back to condos. We’re getting out of the rental business.” Less and less supply for competing rental housing, and more and more demand for renters looking for quality places to live. That will push rents up across the board in Ontario. Again, ultimately, this is a continuing story of inflation, inflationary pressures. If you believe that inflation is coming in Ontario, if you believe what I believe, which is that all these things that the government is doing, new taxes and more costs, costs, costs … The costs of everything is constantly going up. This is inflation. Prices will rise. Prices of everything will rise.
If you believe that inflation is coming, you should own hard assets. Real estate is the ultimate hard assets to own. If inflation is coming, rents will inflate, or prices of the underlying asset will inflate, or both. No matter what happens, you win if you own that underlying hard asset, i.e., the condo, i.e., the real estate asset.
There you go. I hope you enjoyed today’s episode. I hope it gave you some food for thought, something to talk about as you are chatting with people at the water cooler or at cocktail parties or at a barbecue this weekend. I’m sure real estate will come up, and perhaps this minimum wage thing will come up, if you are a business owner especially. I feel for you if you’re small business owner and this is going to hurt your bottom line, but again, it just reinforces the fact that you want to own hard assests, and real estate is the ultimate hard asset. Over time it’s just going to continue to out perform all other assets. Get in, get as much as you can. Hold it for the long term. Live long and prosper. Happy investing to you. Thanks for listening, and make sure you go ahead and share this podcast with somebody that you know who could benefit. Until next time, we’ll talk to you soon.
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