GUEST COLUMN: The battle between housing affordability and economic feasibility is reaching a climax as landlords are 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 cry wolf in an unjust world that prevents them from living in places their parents grew up, with the same or better lifestyle. Landlords are becoming increasingly agitated at being vilified for trying to achieve market rent for their units, all the while managing soaring expenses with controlled incomes.
The resentment on both sides, however, is misguided; the silent culprit is playing politics instead of taking responsibility and implementing policy to manage the conflict. This third party, which is completely left out of the discussion, is the main reason the problems are getting worse.
We know the plight of many Vancouver tenants, for whom wages have not kept up with costs of living. Thus far, their assumption has been this is greedy landlords trying to turn profits.
What advocacy groups have failed to acknowledge are factors affecting property owners and creating a growing urgency to make market rents. Is it possible property owners face the same affordability crunch as the tenants — and this is not all their fault?
BC Assessment’s approach to housing
BC Assessment (BCA) charges market rent.
When it evaluates an income property it does not take rent controls into consideration. Recent appeals by landlords have led to responses of, “We don’t care,” from BCA when the owners have made this case. This results in the highest possible assessment for a rental property, which in turn results in the city charging a higher property tax.
So the city is charging full market rates on property tax? So what?
It also charges market rates for utilities such as gas, water, hydro, etc. Capital expenses, repairs and maintenance are borne at full market cost. Insurance is not discounted just because income is controlled.
On average the expenses borne by landlords have gone up 7.6 per cent while the allowable rent increase has averaged 4.5 per cent during the past 10 years according to LandlordBC.
The NDP government has taken this discrepancy a step further, manipulating the previous formula to only allow increases matching inflation across the entire economy. What the formula should match are the expenses the government participates in raising.
Nothing is discounted but rent.
Tenants, owners share same grief
Expenses continue to soar, so why should the income side be controlled?
It shouldn’t . . . unless the city which is charging landlords all these market expenses starts taking responsibility.
Tenants should be fighting alongside property owners since they both want the same results.
Both groups misdirect their anger at each other when the reality is the city is also guilty of driving up costs leading to the affordability crunch.
The major cause is that municipalities are trying to raise maximum “profits” through property taxes, utilities, and other expenses when deeming these investment properties as affordable housing.
The city has been playing along because it gets to maximize taxes while maintaining below-market housing.
For too long municipalities have been getting their cake and eating it, too.
Now is the time for real change. Rent controls need to become a two-way street.
With controlled income should come controlled expenses. Governments should cap property tax and utility increases on purpose-built rental properties to match the current allowable annual rent increase.
And another thing . . . financing
They should also recognize another problem with controlled income, namely financing.
Trying to invest in purpose-built rental with low rents requires a hefty downpayment, on Vancouver’s West Side up to 70 per cent. So when an owner is ready to retire, potential purchasers have difficulty financing the deal if rents are very low due to controls.
This adds additional incentive for the new owner to raise rents on the property to get better financing and make the investment more feasible.
Most loans are insured by the Canadian Mortgage and Housing Corporation (CMHC), underwritten at very low loan amounts to reduce risk. The government should offer finance programs to 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 long-term stability. If tenants want cheaper rents, and the city wants more affordable housing, they should work with landlords not against them.
Controlled expenses and new financing policies would go a long way toward housing harmony.