Are You a Landlord?
If you own property and you are renting it out, the Residential Tenancy Act allowed you to increase rent according to a formula of 2 per cent plus CPI (consumer price index). In 2019, that would have equated to a 4.5 per cent increase.
Until only recently, that is.
The BC government brought together three-member panel led by New Democrat Spencer Chandra Herbert along with two other MLAs, and they recommended the government eliminate the automatic 2-per-cent increase and limit increases to inflation, while also allowing landlords to apply for higher amounts.
That now means landlords may only raise their rent by 2 per cent in 2019.
Mr. Chandra Herbert and his team thought that was a good middle-of-the-road approach to help solve the rental crisis, but their decision may put a chill on rental construction. David Hutniak, chief executive of Landlord B.C.
“We are acutely aware of the challenges [renters face], but the harsh reality is, we are operating in the same high-cost environment,” said David Hutnaik, Chief Executive of Landlord BC. The organization recommended the task force keep the existing formula to build in some profitability for lenders and developer.
“Landlords’ costs, such as maintenance, insurance and taxes, have outpaced rental increases over the past decade.” He said.
Indeed, scaling back the formula will impact a landlord’s ability to stay ahead of costs. When you compound what that formula allowed for rent increases over a 10-year period, it equates to an average of 3.5%. During that same period, operating costs increased by 7.5 per cent.
The compound annual growth rate per annum for insurance went up 8.6 per cent over a 10-year period, the sewer rate was 7 per cent per annum and the compound annual growth rate for water went up 9.4 per cent for the last 10 years. The cost of repairs and maintenance have gone up considerably as well.
The vacancy rate – that is the percentage of all available units that are vacant or unoccupied at a particular time – is at 1 per cent in Victoria BC. That translates into a paucity of available rental spaces, leaving only the poorest rental alternative available to potential tenants.
With the government scaling back on the formula that allows landlords to increase rent and meet costs, the only remaining method to reset rental prices will be when their current tenants decide to move. That’s a bit of a handicap when you consider that a low vacancy rate makes it very difficult for tenants to find another decent place to live, which means current renters will stay put for longer periods of time, and a landlord will watch any profits erode as deficits grow year-over-year.
At a time when the city of Victoria is doing everything they can to increase the rental pool, it’s unfortunate the provincial government’s decision may undercut any potential profits for landlords.