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The 2004 Tweak that Accelerated BC’s Rent Spiral

Tenants, landlords debate whether province should abandon allowing rents to rise above inflation rate.

By Andrew MacLeod 12 Sep 2018 | TheTyee.ca

Andrew MacLeod is The Tyee’s Legislative Bureau Chief in Victoria and the author of All Together Healthy (Douglas & McIntyre, 2018). Find him on Twitter or reach him at .

Rents in British Columbia are nearly 40 per cent higher than they would have been had increases been capped at the rate of inflation for the past 15 years.

Instead rent caps have risen at the rate of inflation plus two per cent each year under a formula the former BC Liberal government set in 2004.

The current NDP government — which promised during last year’s campaign to make life more affordable for renters — has so far stuck with the formula, resulting in an allowable rent increase announced Friday for 2019 of 4.5 per cent.

Had increases been allowed at just the rate of inflation without the extra two per cent, a home that rented for $800 a month in 2004 would by next year have rented for $1,027.

Instead, under the government’s formula with the extra two per cent compounding over a decade and a half, that same home could cost $1,402. That’s nearly 40 per cent more expensive than if rent caps had risen at the rate of inflation.

“I don’t think this rate of increase is sustainable for tenants,” said Karen Sawatzky, the chair of the City of Vancouver’s Renters Advisory Committee.

She said she’s sympathetic to property owners who may face a choice between building much-needed new rentals or building condos. “I worry about disincentives to new purpose-built rentals.”

Freezing rents, as some advocates have called for, would squash rental construction, she said.

But with rising homelessness suggesting many people are already having a hard time affording rent and businesses struggling to attract workers to a province where it’s hard to find affordable housing, more needs to be done, Sawatzky said.

“I’m sorry the provincial government is in this difficult position,” she said. “This is a difficult situation and I don’t think it should be solved on the backs of tenants.”

B.C.’s Municipal Affairs and Housing Minister Selina Robinson was unavailable for an interview.

A background statement from the ministry said, “The formula was designed to allow for an increase to cover inflation as well as an amount for upkeep and maintenance.”

The Rental Housing Task Force is in the middle of a review that has included hearing from renters and landlords as well as comparing B.C.’s policies with those in other jurisdictions. “This will help us to determine the next steps government will take to further improve fairness, security and affordability in the rental housing market.”

The task force’s recommendations are to be released before the end of the year.

From the perspective of landowners, the formula hasn’t allowed rents to rise fast enough to keep up with actual costs, said Landlord BC CEO David Hutniak.

The province uses the consumer price index from Statistics Canada to calculate inflation. “If you look at the basket of goods and services in CPI, only about 10 per cent of the basket apply to our industry,” Hutniak said.

The main expenses for landowners — property taxes, utility rates and insurance — have risen faster than other parts of the CPI, he said. “Over the last couple years it’s been double digits.”

Tighter controls on rent might discourage developers from creating new rentals, Hutniak said. “As long as it’s more lucrative and less risky to build condos, condos are going to be the dominant form.”

Sawatzky said it’s interesting that the government says the formula allows for upkeep. “There’s no guarantee the extra rent actually goes to maintain buildings.”

The government’s task force is hearing a lot about the formula, including how similar policy is set in Manitoba, she said.

In that province rent increases are tied to the average annual change in the consumer price index for Manitoba (with some exceptions). Unlike in B.C., most landowners manage to make do with increases capped at the rate of inflation, not more.*

And if inflation rises, Manitoba renters are protected from it. According to the province’s website, “the maximum permitted rent increase must be within the inflation-control target range that is adopted by the Bank of Canada, which is currently between 1 [per cent] and 3 [per cent].”

The B.C. government has done good things for renters since getting in, including closing the fixed-term lease loophole that let landlords impose increases greater than the amount allowed by the law, but the formula for increases remains a major issue, Sawatzky said.

*Story clarified Sept. 13 at 1:20 p.m.  [Tyee]

Read more: BC Politics, Housing

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