On the recent maximum allowable rental increase of 4.5%

Many constituents and other residents of British Columbia have contacted me about the September 7 announcement that this year, BC would allow a maximum rent increase starting January 1, 2019 of 4.5%. This is the largest allowable increase since 2004 and follows on the heels of a 4% increase in 2018. In fact, during the four years under the BC Liberals, the compounded maximum allowable rental increase was 11.8%. In just two years, the BC NDP have allowed an 8.7% compounded increase.

As renters struggle amidst the affordability crisis, this has raised renewed calls regarding why our caucus does not support giving all renters, regardless of their income, a $400 annual rebate. In this piece I provide more insight.

1. Where we are today

British Columbia already has two very successful rental subsidy programs targeting low-income residents:

1. Shelter aid for elderly renters (SAFER) which “helps make rents affordable for BC seniors with low to moderate incomes. “
2. Rental assistance program which “provides eligible low-income, working families with cash assistance to help with their monthly rent payments.”

The BC Greens argued that these critical programs needed to be better funded and were pleased that we were listened to when Budget 2018 was announced and increased funding was delivered. Nevertheless, these programs still require additional support.

The NDP’s campaign promise of a $400 renter’s rebate would cost $200 million and would flow through renters into the pockets of landlords. It is our position that there are cheaper, more effective ways to support renters while also enabling government to put that $200 million into other affordable housing initiatives that won’t simply be absorbed by the market.

Affordability was the number one issue we heard from voters and alleviating some of the pressure British Columbians are feeling is a key shared commitment of our Confidence and Supply Agreement with the BC NDP. We have already implemented a number of policies that we both agree on, and in this case we simply have a disagreement about the effectiveness of giving a blanket rebate to all renters. Our Caucuses continue to work closely every day to develop policies to address the affordability crisis that we can both support.

In our view, the most obvious is the formula that is used to calculate the maximum allowable rental increase: 2% plus the rate of inflation.

So while BC will allow a 4.5% rent increase in 2019, Ontario (which has faced its own housing crisis in Toronto) has only allowed 1.8%. This is the same as what is allowed in Quebéc for 2019. Manitoba permitted a 1.3% increase in 2018, compared to BC’s 4.0% (the 2019 rate for Manitoba was not available at the time of writing, but based on the way it is calculated, it’s pretty obvious it will be well below BC’s).

My colleague Adam Olsen is working hard on the Rental Housing Task Force with NDP MLAs Spencer Chandra-Herbert and Ronna-Rae Leonard. They have completed their province-wide consultations and are preparing their recommendations. Their report will include a review of the allowable rental increase. I have expressed to government that the report should be released as soon as possible so we can implement a comprehensive suite of measures to support renters, ideally before the 90 days’ notice required for a January 1 rent increase kicks in.

This Task Force is an example of the unique benefits of a minority government: MLAs from different parties and perspectives are listening to British Columbians and bring forth collaborative, evidence-based recommendations. I believe this will lead to better policies that get the most out of our provincial budget and I am looking very forward to their report.

2. Delving into the numbers

Let me give a specific example as to why we have been pushing government to take a good hard look at this formula.

Let’s suppose that in December 2017 you were paying 1,500$ a month rent and that you had been given notice that your rent was going up the maximum allowable amount in January 2018. The same thing happens in December 2018.

Well we know that the maximum allowable amount is 2% plus the rate of inflation: in 2018 that was 4% and in 2019 it is (as of today) 4.5%.

So in 2018 your rent would be $1,560 per month. In 2019 your rent would be $1,630 per month.

In 2018 you would pay in total $720 more than you did in 2017. In 2019 you would pay in total $840 more than you did 2018. In just two years, you are now paying $1,560 more a year for rent.

Let’s be quite clear: 100% of the rent increase goes to the landlord (a portion of which flows through to their increasing expenses).

Let’s suppose the government gave every renter $400 a year whether they need it or not. In the example above, you would now only be paying $320 more in 2018 than you did in 2017 and $440 more in 2019 than in 2018. Your net increase would only be $760 over two years. Obviously at first glance, this might look good.

The BC NDP promise to give renters $400 a year would cost the taxpayer $200 million per year and that money would essentially flow through renters to landlords. In essence, it is a landlord subsidy.

What the BC Greens have been pushing for is taking a hard look at the allowable rental increase formula. What if, for example, rate increases were only allowed to be 2% in each year (still above the Ontario, Quebec and Manitoba rates).

We can redo everything above.

Your rent would be $1,530 a month in 2018 and $1,561 a month in 2019. You would pay $360 more a year in 2018 compared to 2017 and $372 more in 2019 compared to 2018. That makes a $732 increase over the two years (compared to $760 under the NDP handout plan).

What’s more, this change costs the taxpayer nothing.

3. The way forward

The example above shows that compounding interest adds up quickly and that a renter is better off when government address annual allowable rent increases instead of handing out $400 cheques to every renter.

What’s more, $200 million has been saved. And that money could, and should, go into building affordable housing.

Finally, as I outlined above, there are other tools available to government. One I believe we need to give serious attention to is the fact that in BC, stratas are allowed to prohibit all or some fraction of their units from being rented out. This is not the case in Ontario, for example. There would certainly be substantive downward pressure on rental markets (and increased value in some cases for strata units) were this restriction to be lifted. But in doing so, one would have to be careful to ensure that Strata is given a copy of the lease and granted the power of eviction, that short term (vacation rental) restrictions would still be allowed,  and the unit owner retained liability for the tenant. Adam tells me there are additional measures that the task force is working on, and I am looking forward to seeing those recommendations. I’d be interested in reading any feedback readers wish to provide me on this topic.