rental housing

Rebuilding the rental housing industry

Apartment professionals ponder the uncertainties of a challenging sector
Tuesday, May 8, 2018
by Erin Ruddy

Despite the silent majority of satisfied tenants living in quality accommodations across Canada, often it’s the ugly side of the rental housing industry that fills our news feeds. Unforeseen rent hikes, squalid conditions, lax security, wrongful evictions, gentrification, and the tyranny of money-hungry management.

The real story, of course, is the lack of available rental stock and the demand that just keeps growing. With vacancy rates at all-time lows and Urbanation reporting a shortfall of 6,000 rental units in Ontario annually, it’s no wonder prospective renters are disgruntled.

Arguably, all sides are vying for the same outcomes: more supply to fill the demand; a healthy, thriving rental industry run by capable professionals; and a steady, satisfied tenant base. So what’s causing the slow-down, and what can be done to stimulate an industry caught up in red-tape and tarnished with a bad reputation?

“In most provinces, the lack of rental housing is hindering the ability of tenants to have a broad range of choice, services, and well-maintained rental units at a fair cost,” says Joe Hoffer, Partner at Cohen Highley LLP Lawyers. “This means that market rents are driven higher and deficiencies in service are overlooked by tenants who are afraid to move out, especially in Ontario and other provinces where rent controls restrict rent increases.”

Hoffer suggests that municipal fees and development charges inadvertently deter new construction, contributing to this supply shortage. “In Ontario, the recent removal of the new construction exemption from rent controls has increased the cost of lease-up—meaning, apartment building owners have to go straight to the top of the market with rental pricing in order to fill the building and make it financially viable. Because of the cost to build, risk and rent uncertainty, there is simply not much incentive to build new rental.”

David Hutniak, CEO at LandlordBC, sees similar stagnation on the west coast where the risk/reward imbalance in the multi-res sector continues to favour condos over rental housing, particularly in Vancouver. “This imbalance, combined with zoning and excessively long timelines for purpose-built rental approvals in many jurisdictions further exacerbates the problem,” he notes. “We need more rental in medium and lower density neighbourhoods, but the economics generally don’t work, and then you add in zoning issues and NIMBYs, and those projects are dead in the water.”

Politicians reacting to “hot-button” issues also complicate the process. When new regulations are hastily implemented to solve one problem and/or appease a wide demographic, they often create other unforeseen and unfavourable outcomes—and no one has been more rankled by the negative effects of new legislation than those in the business of rental housing.

Last spring in Ontario, the Wynne government announced its new Fair Housing Plan—a set of 16 measures intended to bolster affordable rental housing development and protect tenants from exorbitant rent hikes. But reportedly those measures have served less to bolster and more to waylay new development, with FRPO reporting upwards of 1,000 cancelled or postponed rental units since Bill 124 was introduced.

“For the vast majority of landlords in Ontario, the loss of the new construction exemption from rent controls will badly affect development,” asserts Hoffer. “It means the loss of the ability to pass on ‘extraordinary operating cost increases’ for vital services, such as electricity, heat, water (the pricing of which is beyond the landlord’s control) as those costs continue to escalate.  In addition, the carbon taxes that are being introduced are specifically excluded from recovery as a cost. The result is that cuts must occur in other budget lines if the business is to operate and generate a modest return. These limitations are another reason why investors are wary of investing in new purpose-built rentals.”

Randy Daiter, Vice President, Residential Properties at M&R Property Management adds that the Promoting Affordable Housing Act of 2016, aimed at increasing access to mandatory affordable housing through inclusionary zoning, will likely undermine the feasibility of building new housing stock. “Then there’s Bill 139, which significantly overhauls the way local planning decisions are reviewed in Ontario,” he says. “With the Local Planning Appeal Tribunal (LPAT) to replace the Ontario Municipal Board (OMB), it will ultimately put greater decision-making and authority in the hands of elected municipal councils, creating more unknown consequences.”

Meanwhile, Hutniak believes anything that adds costs to an already prohibitive process is a deterrent:  “We need more supports and incentives to make the numbers work. For instance, it would be great if the federal government waived GST. If you’re a landlord who’s intending to build a rental property to own and manage forever, you are essentially stuck paying GST on an “artificial transaction” that will not occur. Landlords in this situation will need to recoup that cost in higher rent. If all levels of government are truly serious about affordable rental housing, then they need to find ways to help, not hinder, new apartment construction.”

The landlord-tenant rapport

Aside from the supply shortage, there’s also the reputation of the landlords themselves—people often characterized as unfeeling tyrants who are poised and ready to evict vulnerable renters without just cause. While friction is natural in a “vertical community”, most professional property managers favour conflict resolution ahead of extreme action.

Daiter, who has been in the business of rental housing long enough to have witnessed every type of squabble imaginable, maintains that the landlord-tenant relationship will be more harmonious if rules are clearly defined and communication channels are open.

“Noise complaints are a common operational issue in high-rise residential buildings,” he says. “They usually stem from one or two tenants living above or below each other. Mitigation measures can be simple, like installing area rugs with a rubber under-padding, or advising tenants to wear slippers in lieu of loud shoes when walking on hardwood floors.”

Odours, he says, can also be cause for bickering. But by all accounts, the number one trigger for conflict leading to litigation, is missed rent payment.

“For most professional landlords, real conflict comes when a tenant doesn’t pay rent,” says Hoffer. “Then that tenant, in an effort to defend against non-payment proceedings, alleges the landlord failed to maintain the property. Tenants are less likely to raise issues, such as lack of maintenance, if the landlord uses a professional lease document compliant with applicable provincial legislation.”

Of course, with the new standard lease now mandatory in Ontario, all landlords will be bound to the same template. However additional clauses pertaining to each unique rental agreement will be at the discretion of the individual landlord.

Hoffer maintains care and due-diligence during the screening process is the single best thing landlords can do to reduce this type of conflict with tenants. “Many small landlords, in particular, are so anxious to fill a vacant unit that they often overlook red flags, such as the unexplained need for the tenant to have a quick move-in date, a bad credit history, or questionable references. By spotting inconsistencies, or adhering to a “bad vibe” from an interview, a lot of future suffering can be avoided.”

The knowledge gap: mitigating risk through education

Second to poor screening tactics, landlords who aren’t familiar with the law are only setting themselves up for conflict. Hoffer warns: “Tenants who know how to manipulate the system will have the upper hand. It puts them in the position where they can challenge any missteps taken by the landlord, and unless the landlord knows the law, the tenant will succeed, and animosity will flow unabated between the parties for the balance of the tenancy.”

In British Columbia where small landlords make up a disproportionate share of the industry, Hutniak also recommends rental housing providers educate themselves to the best of their ability. In fact, in January 2017, LandordBC launched the Landlord Registry to address the knowledge gap and give landlords and tenants a tool to mitigate risk.

“In B.C. we have a bureaucracy that is struggling to provide landlords and renters with access to timely justice,” he says. “The new government has provided meaningful funding, but it will take time.  Unfortunately, with the near-zero vacancy rate, a cohort of our industry took advantage of the situation by acting irresponsibly. LandlordBC supported the government with some legislative changes and, now, through the very positive relationship we have with the provincial government and other stakeholders, we are working hard to prevent that behaviour from happening again.”

Conflict prevention strategies for small landlords:

  • Ensure your lease includes any additional clauses pertaining to your unique rental agreement
  • Know the law (i.e. your rights and your tenants’ rights)
  • Thoroughly screen prospective tenants
  •  Communicate often and respond rapidly
  • Follow-through
  • Be knowledgeable, professional and deliver top-quality housing backed by a strong service model

2 thoughts on “Rebuilding the rental housing industry

  1. Actually, there is a lot of rental housing available. Call me and
    I will get you one the same day. In reality what you are saying is that there is not enough CHEAP rental and
    what is happening in Vancouver is that cheap rental is being torn down and being replaced by expensive new
    condo or rental as developers maximize the building potential.
    Solutions; remove ability to restrict rentals in condo buildings
    – restrict demolitions of older units
    – zone for rental

  2. nice article. less affordable new rental apts because of cmhc and municipalties not working with or supporting small developers who want to build new rentals. All funds by federal and provincial govts go to so called non profit – whose building costs are very high.

    somebody should ask small developers about the above problems

    thank you

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