Taxes and Price Increases from Heaven

By Jeff Hayes LL.M, Lantern Properties Ltd.

The first verse of the 1936 classic song “Pennies from Heaven” goes like this:

Oh, every time it rains
It rains pennies from heaven
Don’t you know each cloud contains
Pennies from heaven

The song was about unexpected good fortune that people were hoping for as the Depression lingered on and unemployment was still high. Vacancy rates in the USA were around 25% and the government became prominent in building affordable housing.

To be sure, we are much better off now than in post-Depression America, but rental housing providers now are singing the same tune with different words. You could probably replace the word “pennies” with “taxes” or “increasing expenses”.

Oh, every time it rains
It rains taxes from heaven
Don’t you know each cloud contains
Taxes and price increases from heaven

After years of successive governments (both federal and provincial) presiding over policies that discourage rental housing construction, the promises of new housing have come fast and furious from our current Federal Liberal and Provincial NDP administrations.

Our Provincial Government recently promised 4,900 new affordable rental homes under the Community Housing Fund with 14,000 planned over the next 10 years (with an overall goal of 114,000 units of all forms of housing, mostly rental, also over that same time period). The funding is to be spread across approximately 42 communities across BC. These communities, various agencies and others can apply for the funding. Remember, they are elected for four years. The initiative does not seem to be particularly targeted at the communities which need it the most, and it depends entirely on the partner agencies undertaking the construction and local government to issue the building permits. Based on my own recent experience, if you started today with a tailwind and good luck, you would be fortunate to put a shovel in the ground two years from now.

Another of the Government’s solutions was to make housing affordable to tenants by making it unaffordable for folks like us [landlords] who provide housing. The Government recently cut back our annual allowable increase by 2%. It might be that the old formula was an attempt to strike a balance between community needs and housing provider financial reality. The CPI + 2% not only incorporated the rate of inflation for consumers but by adding 2% it left something on the table for the housing providers to be used to chip away at repairs and maintenance for older rental stock. With the 2% gone, the focus now seems to be purely political and singular – the ability of renters to pay rent but completely at the expense of the housing providers. The government gave away our money not theirs.

But hang on a second and let’s look at our expenses. While the government removed the 2%, BC Hydro rates have increased 35% in the last 4 years. Every other utility and agency is increasing fees as well. Not to mention, that for larger employers they are imposing an Employer’s Health Tax of 1.95%. The list continues:

  • Tipping fees for waste disposal in the Lower Mainland are going up 3%.
  • The City of Vancouver is proposing to increase property taxes by 4.9% for 2019 (3.9% last year).
  • Starting January 1st, Fortis BC will increase natural gas prices by 9%, pending BCUC’s approval of their application.
  • During the drier months in Vancouver, metered water utility rates will rise 25% in 2019. Interest rates have risen steadily over the past 15 months.

While the Consumer Price Index (CPI) for BC, on which the annual allowable increase is based, incorporates “shelter” in its basket, it is weighted equally with other items such as food, clothing, health/personal care, recreation, and alcohol/tobacco. It’s arguable that the CPI as a metric is based only on ability to pay and is skewed against the housing provider industry.

Where does that leave us as housing providers for the next few years?

Limiting our annual general increase to 2% means we will likely be trailing behind in our expenses for the foreseeable future. The Rental Housing Task Force recommended that a modest increase be permitted, and a framework be created in which housing providers can apply for increases based on expenditures for capital improvements. This is welcome and helpful if it can be implemented in a way that improves the current labyrinth that is Section 43 of the Residential Tenancy Act Regulation.

The Task Force also recommended having rents tied to the renter, not to the rental unit, unlike the City of Vancouver’s newest motion which seems to have been driven by emotions rather than economics or fairness. It’s quite simple—if you take away a housing provider’s ability to earn a living by further limiting rental increases and refusing to allow a pass through of capital improvement expenses, the rental stock will deteriorate, and nobody will want to get into this business.

Canadian society needs a meaningful supply of affordable housing in all communities without question. However, “affordable” is a two-edged sword – it might also mean that rents are reasonable and that salaries in the Lower Mainland have not kept pace. We live in a free and democratic society with few or no barriers to mobility. We must ensure that we have a strong economy and a viable private sector rental housing market to support that economy.  Canadians must always feel confident that they can move across Canada in response to the availability of employment knowing that they have housing options including safe, secure and sustainable rental housing.  What is concerning to me as a private sector rental housing provider is that we are increasingly expected to undertake what is a broader societal responsibility.