The 4.5% problem

Last week, the B.C. Residential Tenancy Branch announced the annual rental increase for 2019 would be 4.5%. Coincidentally, the announcement came the day after my landlord let me know that our rent would be going up the maximum 4% allowed for increases in 2018. We can assume that next September we’ll receive notification of a 4.5% rental increase. This news has, justifiably, gotten a good deal of people up in arms.

Many on Twitter are pointing out that 44% of City of Vancouver renters are paying greater than 30% of their incomes on shelter already, and this pushes that number higher. It will likely result in displacing people, and those that it doesn’t displace will cause limited budgets that will have repercussions throughout the region as further cutbacks in household budgets on goods and services hit.

To be clear, the province can stop this without legislation. The Residential Tenancy Act sets out the limitations on rent increases. Part 3 outlines the rent increases allowed and section 43(1)(a) establishes that the annual rent increase cap will be calculated in accordance with regulations established by the Ministry. The established annual calculation is inflation plus two percent, and so inflation has been calculated as having been 2.5%. The Ministry simply needs to recommend a change in regulations to the Lieutenant Governor and could, in theory, reduce that cap to inflation plus one percent, or go so far as to place a one year freeze.

Before going forward, I want to note that I am largely in favour of the Ministry taking some form of proactive action here, presumably reducing the amount to inflation plus 1%, but that as we all know, the issue is far larger.

The rents that people in Metro Vancouver pay today are no longer linked to income the way a fluid city with reasonable vacancy rates and lower rental rates would be. Tenure is now the best indicator of how much someone pays in rent. This means that those that have had stable jobs for a number of years are likely to be as close as a renter can come to being comfortable in Vancouver, while someone with unstable income, or someone who had to leave the region and recently came back, is forced to pay through the nose regardless of income. Did you move into your apartment greater than 3 years ago? You’re probably getting a steal of a deal compared to what it could rent for today. Forced to move, for any reason? Say goodbye to that sweetheart deal.

There are winners and losers in any government policy change, and a reduced annual cap for 2019 would have one set of clear winners: current renters who will not move in 2019. The losers would be the landlords, though I’m sure few will shed tears, but also potentially those that have to move, in the event that a change in regulation puts a chill on new rental coming into the market.

If the province drops the rental increase cap from 4.5% to 2.5%, it’s probably unlikely to meaningfully change whether someone creates new rental housing, but it could present a chill to the market. Just as changing the rent cap does nothing to help the person that has to move or comes into the region seeking work, they will be saddled with whatever rental rate landlords can get away with.

The meaningful change that will help all renters is ample supply of rental, whether through private investment and building or comprehensive public investment, as well as improvements to rental regulations.

There are strides being made to that end. AirBnB regulatory enforcement has come into effect and seems to be increasing supply, though it remains to be seen how much. Empty homes tax may not necessarily be forcing rental conversion, but it’s putting a lot of money in the city’s pocket to use for various social housing initiatives, and already we have mayoral candidates calling for the tripling of the tax, less than one year into its existence. The rental incentives program in the city has significantly expanded the rate of purpose built rental growth, from near or at zero per year to a few thousand per year. There are over 40,000 units of housing under construction in Metro Vancouver, presumably a significant amount of that will be converted into investor owned rental, or see people leave the rental market to move into condos that they have bought, freeing up space. The universities are gearing up to do their part, there could be as more than 5,000 new student housing spaces in Metro Van within five years, freeing up rental supply for others. There is some hope on the horizon.

The 4.5% increase cap is only truly a cap if, in its absence, landlords would be able to freely raise rents further. If market rental rates continue to hover around the same level, or drop, landlords that opt for a 4.5% increase will simply see their tenants move elsewhere for lower rent. This is a necessary protection, but also one that only applies where the market is continuing to rise. Even in my own personal case, where we are now going to pay an additional $75 per month starting in November, we’re already looking at other rental options because it’s risen above where we want to pay. If rental rates start to fall because of all of the impacts above, landlords would simply not be able to raise to the cap due to market forces.

It is possible that the 4.5% cap can be reduced, and that advocacy and letter writing can do that. It’s also possible, if not probable, that dropping it won’t have a significant impact on the business metrics of bringing more rental on the market. So do advocate for this if it’s your jam, but don’t lose sight of the important things that will help all renters.

We’re in the big stretch of a municipal election, and this issue can be part of an argument for comprehensive changes at city hall. Parties are vying for your vote, and each have different ways to help.

COPE would give rental tenure to the unit not the renter, meaning rent couldn’t substantially change between tenants, and then go one step further and freeze that rental rate in place. This may have the effect of freezing the introduction of new rental units, but it would certainly help current renters.

OneCity wants to tax the profits on housing speculation and use the money gained to build affordable housing, while at the same time undertaking a comprehensive rezoning of the city to allow mid-rise buildings in most of the city. This windfall could build substantial below market housing options owned by the city, while also enabling the private sector to build plenty of housing.

Yes Vancouver wants to do what OneCity says, except without the taxation lever. There would certainly be a substantial growth in supply, albeit privately owned. This could be considered the “pure market solution” and would likely have a substantial benefit over the long term.

Vision’s mayoral candidate has pledged to triple the empty homes tax, creating a windfall that could help the city build a substantial amount of below market housing. They’re also proposing city wide rezoning to allow for duplexes and other single family + housing types. Not as ambitious as OneCity, but all within the city’s powers, unlike OneCity’s windfall tax which would require provincial support.

Shauna Sylvester wants to use city owned land to substantially build city run housing, some at market and some below market. The basket of market housing would cover the costs of building the below market housing, while fast tracking approvals for purpose built rental buildings.

Ken Sim has said that the NPA would enable two secondary suites instead of one. This would legalize a number of suites while also potentially enable a small amount of rental to come on market very quickly as some buildings wouldn’t require substantial renovation to open a new door. While not ambitious in the long term, it could create a short term jolt of new rental.

More platforms are coming and even those listed above will evolve and build on their platforms over time.

My advice to those up in arms about the 4.5% increase? Take the anger, send an email to Minister Selina Robinson’s office, [email protected], and then keep that anger going and write municipal parties about what you want to see from Vancouver to keep pushing the conversation in this municipal election.