In a heated rental market, prospective tenants are looking for anything to give them an edge on the competition, and one Toronto-based startup hopes that its model of pairing renters with landlords provides a solution.
Cios Technologies Inc. launched a free tool this month called Cios Verify, which allows renters to secure pre-approval for rent, as well as connect with verified landlords.
“We’re experiencing an extremely challenging rental market, particularly for young and new Canadians who don’t have the credit history …. We started Cios, and built the Cios Verify product with the mission of making it easier for anyone and everyone to rent,” said co-founder and CEO Terry Wang in a press release.
In addition to helping renters with little credit history, the tool is also designed to help renters who face challenges due to income earned from freelancing, contracting, self-employment and gig work rather than full-time employment, Wang said.
The tool is being launched at a critical moment in the rental market. Due to low supply and high demand, major cities are seeing bidding wars when it comes to rentals. Many people are also feeling completely priced out.
Wang, 24, said he experienced difficulties securing a lease himself when working at a startup because his yearly salary was $40,000 on paper but he was making an additional $30,000 through alternative sources of income, including stock options and commission. Showing his last two paycheques didn’t suffice, so he had to share bank statements. He said the challenge of demonstrating financial security without a consistent paycheque is especially common among those 18 to 35.
Wang now owns two rental proprieties and said from a landlord’s perspective, Cios Verify “helps to expedite the process of tenant screening, in a tenant-friendly and accessible way.”
The tool creates a pre-approval report by analyzing the past 24 months of a rental seeker’s income and expenses from a user’s bank account. The tool then calculates what a tenant can reasonably afford in monthly rent, which typically falls between 30 and 45 per cent of their net income, Wang said.
For students not yet earning income, the report will show they’ve paid their tuition, which Wang’s research suggests they’d also likely pay rent, he said. Students are also able to connect with a guarantor through the tool.
Tenants can then share the report digitally with a landlord through the Cios system or connect with landlords already using the Cios platform to match with tenants. People can also print off the report to take with them when apartment-hunting.
The pre-authorization reporting tool will remain free, but Cios’s larger focus is a matching service for landlords and tenants, which Tang sees as the future of renting.
The product has been piloted with over 800 rental properties in the Greater Toronto Area and Ottawa so far, he said, and was made in consultation with landlord and tenancy associations.
Nathaniel Baum-Snow, professor of economic analysis and policy at the University of Toronto’s Rotman School of Management, said he sees the potential for a product like this to be valuable for both tenants and landlords.
“As landlords do not have a great way of assessing the riskiness of potential tenants who are self-employed and have little or no credit, any product that helps them with this would be valuable to them,” Baum-Snow said, noting that standard credit reports can be imperfect predictors of a tenant’s default risk.
“The credit agency oligopoly also means that it is difficult to correct inaccurate and/or incomplete information. More competition in the provision of credit ratings is only a good thing, especially if it is more accurately targeted and credible for landlords,” Baum-Snow said.
“As long as the new information provided to landlords credibly identifies low-risk tenants, that is a win for everyone — except the entrenched credit rating oligopoly,” he said.
Douglas Kwan, director of advocacy and legal services at the Advocacy Centre for Tenants Ontario, has doubts about the tool’s effectiveness in helping renters.
“It does not actually solve the roots of the rental housing crisis, and further, puts the onus on renters to prove their worthiness,” he said.
“Landlords feel very comfortable requesting personal financial details from prospective tenants and there are channels for tenants to provide that information already,” he said. He cites existing credit report companies that are vetted by big banks, official bank statements and a proof-of-income letter from an employer as an example.
Kwan also notes that it’s hard for recipients of social assistance and low-wage earners to find housing they can afford. Some low-income renters may not have earnings go into a bank account because of fees. Others rely on Money Mart and other cash-advance businesses.
“These renters would not have the transaction history to boost their ratings in the app, despite being able to pay the rent.”
Likewise, low-income tenants may not have smartphones, computers or Wi-Fi, making it difficult to sign up for this digital tool and use it to find a rental.
“For these reasons, this type of app would have the potential to be discriminatory against them, further entrenching the structural difficulties they already face with finding housing.”
This report by The Canadian Press was first published Oct. 11, 2022.