The battle between affordability and economic feasibility is reaching a climax as landlords are being demonized by tenants and the city continually deflects blame onto property owners. Tenants who do not want to pay market rent for their rental units are crying Wolf in an unjust world that does not allow them to live in the places their parents grew up with the same or better lifestyle. Landlords are becoming increasingly agitated that they are being vilified for trying to achieve market rent for their units while attempting to manage soaring expenses with controlled income. However, all this resentment from both sides is misguided as the silent culprit is playing politics instead of taking responsibility and implementing a policy to manage the conflict. Instead, the third party that is entirely left out of the discussion, is the main reason the problems are getting worse.
We have all heard the plight of the Vancouver tenant that wages have not kept up with cost of living. Thus far they have assumed that it is greedy landlords trying to turn profits instead of homes. What advocacy groups have failed to acknowledge until now is what factors are affecting property owners growing urgency to make market rents. Is it possible that property owners have the same affordability crunch as the tenants and this is not all their fault?
BC Assessment (BCA) charges market rent. When they evaluate an income property, they do not take into consideration rent controls. Recent appeals with landlords have had responses “we don’t care” from BCA when making this case. Consequently, the highest possible assessment for a rental property in turn results in the city charging a higher property tax. So the city is charging full market rent on property tax, so what? They are also charging market utilities such as gas, water, hydro, etc. Capital expenses, repairs and maintenance do not get subsidized and are borne at full market cost. Insurance is not discounted with controlled income. On average, a landlord’s expenses have gone up 7.6% while the allowable rent increase has averaged 4.5% over the last ten years according to LandlordBC. The NDP government has taken this discrepancy a step further and manipulated the previous formula to only allow for an increase matching inflation of the entire economy. What the formula should match are the expenses the government participates in raising. Nothing is discounted but rent. Expenses continue to soar, why should the income side be controlled?
It shouldn’t… unless the city who is charging landlords all these market expenses starts taking responsibility. Tenants should be fighting alongside property owners since they both want the same ends. Both groups have their anger misdirected at each other when the reality is that the city is also guilty of driving up costs that lead to the affordability crunch. The major cause is the municipalities are trying to impose maximum profits through property taxes, utilities, and other expenses when deeming these investment properties as affordable housing. The city has been playing along because they get to maximize taxes while maintaining below-market housing. For too long they have been getting their cake and eating it too.
“municipalities are trying to impose maximum profits through property taxes, utilities, and other expenses when deeming these investment properties as affordable housing”
Now is the time for real change. Rent controls need to become a two-way street. With controlled income, there should be controlled expenses. Governments should have caps on how much they can raise property taxes and utilities on purpose-built rental properties to match the current allowable rent increase each year.
They should also recognize another problem with controlled income is financing. Trying to invest in a purpose-built rental that has low rents requires a hefty downpayment, on the west side up to 70%. So when an owner is ready to retire the potential purchasers have a difficulty financing the deal if the rents are very low through current rent controls. This adds additional incentive for the new owner to raise rents on the property so they can get better financing and make the investment more feasible. Most loans are insured by the Canadian Mortgage and Housing Corporation (CMHC) and they underwrite at very low loan amounts to reduce risk. The government should offer finance programs that increase loan amounts and lower interest rates for older rental stock with low rents to make these properties more feasible.
Having an unbalanced economic outlook will not maintain longer-term stability. If tenants want cheaper rents, and the city wants more affordable housing, then they should work with landlords not against them. Controlled expenses and new financing policies would go a long way towards housing harmony.