A new provincial initiative designed to protect renters could actually put greater pressure on the apartment market, industry observers say.
Billed a “rental protection fund,” $500 million was announced by Premier David Eby on Jan. 12 to assist not-for-profits buy older purpose-built rental properties that might otherwise be redeveloped.
“This fund will allow non-profits to secure older rental buildings and protect vulnerable renters from speculators who can drive up rents and evict tenants who have lived there for years,” Eby said.
The fund will be managed by an external entity, the Housing Protection Fund Society, consisting of the B.C. Non-Profit Housing Association, Co-operative Housing Federation B.C., and the Aboriginal Housing Management Association.
The funding will help not-for-profits purchase buildings listed for sale as well as fund improvements in partnership with tenants.
With multifamily transactions at low levels versus recent years, some multifamily owners may leap at the opportunity to sell to purchasers backed by provincial funding. Government has also shown a willingness to pay well over assessed value to secure older properties to meet its housing objectives.
But the inflationary effect could have unintended consequences, says Mark Goodman, principal of Goodman Commercial, which specializes in multifamily properties.
With much of Metro Vancouver’s purpose-built rental stock near the end of its useful life, the fund will protect older, inefficient buildings.
The province claims that a record number of new rental units are underway in the province, with 14,546 registered with BC Housing in 2022. Canada Mortgage and Housing Corp. data indicates that less than 10,000 rental units were completed in the province last year, and the number of purpose-built rental units in B.C. is largely unchanged since the early 1990s despite a 50% increase in the province’s population over the same period.
Goodman says the province’s infusion of cash is likely to boost competition for older properties, inflating their value beyond what the market would normally pay and limiting redevelopment.
“This could very well result in more competition for buying rental buildings which will further increase pricing resulting in multifamily rental being even more unaffordable,” Goodman said.
With older properties being taken over by not-for-profits, the stock of market housing risks being further diminished.
“This policy will remove supply from the already chronically low stock of market rental housing,” Goodman said. “The result will further fuel speculation, accomplishing the exact opposite of the stated goal. Rental rates will continue to go up, and vacancies rates will continue to go down.”
Goodman believes the province would be better to focus its efforts on expanding the supply of rental housing, rather than protecting it for one segment of the market.
But building and maintaining units is expensive. While full details of how the new fund will be deployed have yet to be announced, the province says it will help not-for-profits obtain private financing to minimize provincial involvement. It believes income generated by current rents will sustain property financing and operating costs.
But many multifamily owners are feeling the squeeze from rising operating costs and a 2 per cent provincial cap on rent increases for 2023 that falls well short of the inflation rate.
Not-for-profits are in the same plight as private owners when it comes to repair, maintenance and upkeep, says Dave Hutniak, CEO of LandlordBC, which represents private apartment owners in the province.
“These are old buildings. To make them healthy and safe and energy-efficient requires a lot of investment,” he said. “This is an acquisition fund only, so they’re going to have those expenses presumably that they’re going to have to finance. The maintenance of these buildings is higher than a brand-new building, so just because it’s a non-profit, those realities don’t just evaporate.”
Hutniak also took issue with the province’s demonization of private owners, noting that many of the big institutional owners are backed with public pension monies and have the means to do what smaller landlords can’t.
“They are important,” he said. “They have the financial wherewithal to invest in those old properties. They have the capital to improve them and make them energy-efficient and keep them in the system.”
Moreover, since pension money is involved, institutional investment gives a broad swathe of society a stake in the success of the multifamily sector. BC Investment Management Corp, for example, owns QuadReal Property Group, which manages approximately 10,000 rental units across Canada.
“A lot of the money that’s ultimately invested in these older buildings – the acquisition of them and the improvement of them is pension funds, the public sector pension funds,” Hutniak said. “Your RRSPs, my RRSPs.”
