B.C. landlords big and small dread ‘knockout punch’ of potential rent increase cap

With the B.C. government telling CityNews it will consider capping the allowable rent increase for 2023 at a rate below inflation, landlords big and small are voicing their concerns.

Jon Stovell is the president of Reliance Properties and the chair of the Urban Development Institute. He calls the prospect of the formula changing to an allowable increase lower than the Consumer Price Index a “knockout punch.”

He points out the development industry is facing headwinds as it is, between rising interest rates and surging construction costs — even without a more restrictive formula for allowable rent increases.

“We know there’s a dire shortage of rental housing in the Lower Mainland and south Vancouver Island,” Stovell told CityNews. “The vacancy rate is probably well under two per cent and rents have been going up. The provincial government and Minister [David] Eby, the housing minister, has been very vocal on the need and the urgency to have additional rental housing built, and full recognition that the private sector needs to be the main deliverer of new rental housing in the region.

“And also [the government is] very keenly interested in reinvestment in existing rental housing, maintaining standards, adding air conditioning [after] heat dome issues, and so on, and yet at the same time, the rental sector, whether it’s existing rental or new construction, has been under tremendous pressure.”

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Read more: 

• With allowable rent increases tied to inflation, B.C. tenants fear big spike in 2023

• BC government to consider capping allowable rent increase, given soaring inflation

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Stovell went on to reference the pandemic freeze on rent increases, saying landlords were supportive of the freeze — with the understanding they would be able to recover some of those costs once the government ended that pause on rent hikes.

In terms of Stovell’s own company, he says there are 2,000 units in what he calls “the development pipeline” in Vancouver and Victoria, but says a cap on the rental increase, in combination with rising interest rates and construction costs, puts about half of those units in peril.

“On the new construction side, permit approval times, construction costs, interest rates, are putting a lot of rental projects in peril of moving ahead, but this lack of confidence in the regulatory regime caused by the province considering changing the rules and having rental subsidized by the private sector is going to be the knockout punch for dozens and dozens of rental projects, thousands of units,” he said.

The prospective cap on the allowable rent increase is also causing stress for small-scale landlords.

Demetri Zambus manages a rental property in Vancouver for his 80-year-old mother and says her costs have been rising — even as the ability to increase rents was put on hold with the pandemic rent freeze.

“Property taxes are going up crazy, the city water fees, the city sewer fees, BC Hydro, [Fortis BC], and those are just government or quasi-government entities, let alone property insurance, garbage collection — all of those fees that are astronomically up just the past five years,” Zambus told CityNews.

“When my widowed mother is making less now than when her husband passed away more than 10 years ago, in today’s dollars — forget about inflation-adjusted — there’s something really wrong.”

But even as the province contemplates adjusting the formula, Attorney General Eby, the minister responsible for housing, stressed to CityNews during an interview last week that the province is being mindful of the potential impact on landlords.

“We’re certainly concerned about the issue of landlords divesting from their properties, essentially by limiting rent increases, saying ‘well, there’s no point in doing improvements to my building,’ letting things run down, letting conditions get worse, so we created an incentive program,” Eby told CityNews.

Eby pointed to the province’s incentive program that allows landlords to increase rents beyond the CPI if they can demonstrate that a building has been upgraded.

“They are allowed to do increases beyond the maximum for a limited set of circumstances, and there are limits on that of course,” Eby said. “But we’re trying to encourage them to do the right thing. Invest in their buildings, provide safe housing, and not just reward landlords with annual rent increase if they let their properties run down.”

As for the rising interest rate environment and if the province is concerned about whether that could reduce new rental construction, Eby is encouraging municipalities to speed up project approvals, stressing “the window is closing” as rates rise.