On Monday September 24, 2018 BC’s Rental Housing Task Force announced that it was pre-empting its report to the Premier and Housing Minister to provide recommendations to the Government, for its consideration, specific to the maximum annual allowable increase formula under the Residential Tenancy Act. It will now be up to the Premier and Municipal Affairs & Housing Minister Selina Robinson to decide how they proceed. The Task Force was not scheduled to file its recommendations to the Premier and Minister until November 2018. They however indicated that because of the impending 4.5% maximum allowable increase scheduled for 2019, they felt compelled to release their recommendations specific to this issue today so that the Government could consider implementing their recommendations for 2019.
The Task Force’s recommendations to the Government include:
- changing the maximum rent increase formula, from the current formula of inflation plus 2%, to inflation only (2.5% for 2019), which would remove the automatic 2% yearly increase.
- giving landlords the ability to apply for an additional increase if they can show the formula would not cover maintenance and other costs incurred.
The task force recommends the Ministry of Municipal Affairs and Housing do further work with landlord and tenant groups to determine the criteria for reviewing landlord applications for increases above the inflation rate.
They noted that their recommendations follow the approach of Ontario and Manitoba.
They propose that a decision be made on these early recommendations from the Rental Housing Task Force before Oct. 1, 2018.
LandlordBC had communicated to the task force during the consultative process, and more recently directly to the Housing Minister, that CPI is a poor measure of building maintenance cost inflation, particularly given the age and condition of existing rental housing stock in BC. Furthermore, it is not simply repair and maintenance costs that are experiencing exponential growth in our industry, our core operating expenses, many of which we cannot control, have also been increasing exponentially too. We are of course referring to property taxes, increases to utility rates, and insurance costs, to name a few. There is no “money tree” in the back yard.
Furthermore, it is important to remind everyone that the rental market in BC is served by a broad constituency of responsible, long-term rental housing providers with a disproportionate number of them in the secondary market. All landlords are invested in their communities and genuinely committed to the provision of safe and secure rental housing for BC families. This critical service can only continue if landlords are able to recover the costs associated with the risks of providing rental homes.
We understand that renters across the province are frustrated by cost of housing and record low vacancy rates. In the face of increasing maintenance cost, property taxes, utilities and insurance, landlords are similarly frustrated with the pressures to keep up with ever-increasing costs to maintain, safe, high-quality homes. An analysis from LandlordBC confirmed that a typical apartment building had an annual operating cost increase of 7.6%. (https://landlordbc.ca/10-year-analysis-rental-building-expenses-vs-rta-maximum-allowable-rent-increase/). This is not sustainable.
The task force suggested that an “Above Guideline Increase” (AGI) regime be implemented, giving landlords the ability to apply for an additional increase if they can show the formula would not cover maintenance and other costs incurred. While no details were provided, they point to Ontario and Manitoba as two jurisdictions utilizing this approach. LandlordBC is concerned that by limiting a landlord’s ability to recover these costs through rents, it may delay or prohibit important renovations to rental properties. Again, landlords would have to “apply” for any additional increase beyond CPI. With all due respect, this will be an onerous, bureaucratic process. We expect this new requirement will significantly deter plans to undertake major building improvements and renovations in the future. The other question that begs asking is how in the world will the Residential Tenancy Branch possibly administer this process? Think about it.
LandlordBC spoke recently to a major rental housing provider in Winnipeg who has been developing and managing residential rental properties in that city for over 60 years. They indicated that because of rent controls in their province and the unabated increase in their operating costs, they are forced to apply for AGI increases in 70% to 100% of their units annually. They have had to hire more staff and the cost to administer and manage this process is considerable. They added that because they have a certain critical mass in terms of buildings and units they own and manage, they have the wherewithal to navigate this hugely bureaucratic process however, smaller landlords are left on the sidelines. Smaller landlords simply do not have the capacity or financial resources to apply for AGI increases in Manitoba so ever year they fall further and further behind in their repairs and maintenance, and the quality of the rental housing they provide continues to deteriorate. Note: British Columbia has a lot of smaller landlords. This Manitoba landlord also stated that if they do not apply it is either because the formula would not justify the increase or, more often, they would only gain 0.5% or less more than guideline so it was not worth going through the process. So, this is how AGI “works” in Manitoba.
But what about new construction of purpose-built rental? It’ll be ok, right. Well actually it won’t. We are already hearing that this recommendation means some of the purpose-built rental projects that were in the planning stages will either be delayed or shelved entirely, jeopardizing the government’s goal of building 114,000 units over the next ten years. What is concerning to LandlordBC, and should be especially concerning to the provincial government, cities & municipalities and affordable housing advocates alike, is that that many of the purpose-built rental buildings in the pipeline that integrated below-market or social housing, are dependent upon market rents subsidizing the social housing units. If market rental rates are reduced to a 2.5% maximum in 2019, this will likely jeopardize many of these projects as they will no longer be financially viable.
So, as you can see, the stakes are very high. In closing, we urge the Premier and Minister Robinson to NOT adopt the task force’s recommendation as it pertains to the maximum allowable maximum. Our concern is that the government has not undertaken the necessary time to study the economic impact of such a change and the unintended consequences that lie therein. In our view there’s much more work that needs to be done before a decision of this magnitude proposed by the task force is taken.