Rent increases being debated
Neil Sharma
Canadian Real Estate Wealth
Amid consultations over rental housing initiated by the British Columbia government, landlords worry that the current formula used for maximum allowable rent increases could be rescinded.
Under the Residential Tenancy Act, the formula is 2% plus CPI—which, for 2019, will be 4.5%—however, according to LandlordBC, operating costs have vastly outpaced rental income and scaling back the formula could have dire ramifications.
“The main cost drivers are property taxes, utilities, insurance, basic repair, and maintenance,” said David Hutniak, CEO of LandlordBC, which petitioned the government with a report. “We compound what that formula allows us to do over a 10-year period, and that equates about a rent increase of 3.5%. During that same period, our operating costs have increased 7.5%.”
The rent control regime in B.C. is hitting landlords where it hurts, and Hutniak sees a direct correlation to the dearth of purpose-built rental buildings, which became causalities of government avarice.
“We were begging for support to build purpose-built rentals when the city was taking all this money from developers to build condos,” he said. “We’re very sensitive to renters’ challenges, and our costs are going up in excess of what we can charge.”
Hutniak credits B.C.’s Minister of Municipal Affairs and Housing Selina Robinson for championing purpose-built rental construction, but he acknowledges that her hands may be tied. Ultimately, the supply crunch is hurting renters, he says.
“The worst thing we can do is turn off that tap because the pension funds, which fund purpose-built rentals, will take their money to where it’s less risky to build,” he said. “Our rental housing industry here is disproportionately represented by the secondary market, meaning basement suites and investor condos.”
Using Census data, Aly Jiwan, CEO of Redbrick Properties, notes that the proportion of new rental households increased from 32% in 2006 to 59% a decade later, elucidating how imperative rental housing stock is for B.C. However, it could be imperilled if the business model collapses.
“The compound annual growth rate per annum for insurance went up 8.6% over a 10-year period,” he said. “The sewer rate was 7% per annum and the compound annual growth rate for water went up 9.4% for the last 10 years.
“Repairs and maintenance have gone way up. From our experience in our buildings and existing buildings—and you have to remember existing buildings are 50 years old—they’re aging and coming to the end of their lives. We try to maintain buildings and reinvest in them because we want to maintain safe, secure, well-maintained rental housing stock for our tenants, but it’s becoming more expensive.”
Rent control is exacerbating the problem. While landlords can charge new tenants market rents, the paucity of vacancies combined with paying less money to remain in place have created low turnover.
“In an undersupplied rental market, the turnover rate plunges because tenants have a hard time finding new places,” said Jiwan. “And because of the low supply, rent prices are going up, so they tend to stay in place at the rent control rate and the opportunities for market-rate rents are much fewer. It’s a negative spiral caused by the bad government policy of rent control. It discourages supply and turnover.”
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