Why Rent Control Isn’t The Answer To Rising Housing Costs In N.S.
HALIFAX – Rent control has been one of the hottest issues in Halifax, and across the province, for quite a while now. Vacancy rates are low, and rental prices seem to be skyrocketing in many markets. Some tenants have gone public with massive rental increase notices, with landlords assuming the two percent cap will soon be lifted under the new PC government.
But what do studies have to say about rent control? So far it hasn’t been in favour. Earlier this year, the Nova Scotia Affordable Housing Commission recommended against it. And now, another report, commissioned by the Investment Property Owners Association of Nova Scotia, also recommends strongly against it.
The Gardner Pinfold report was presented to IPOANS in March of 2021 but only made available to the public back in July.
The consultants made five recommendations to combat the housing crisis in Nova Scotia:
- Annual property tax rebates
- Rebate on PST up to $24,000 maximum per affordable unit
- Making free land or cash in lieu available
- A provincial subsidy that works in higher cost HRM locations
- Waiving development charges
Huddle examined the 45-page report and picked out some of the most interesting statistics and analyses made by Gardner Pinfold.
The vast majority of landlords in Nova Scotia are small business owners
As of June of 2020, 91 percent of landlords in the province ran small operations, just renting out a few units each. That means only 9 percent are bigger companies that hire employees to run the properties. As of 2020, there were 6,289 landlords in Nova Scotia.
The report argues that, because most landlords run small operations, any policy that restricts profitability will have a larger impact on people operating on tight margins.
“Smaller rental operators are particularly vulnerable, and policies that squeeze revenues such as rent control undermine their chances of success. Incentives rather than deterrents for investment are critical as more affordable rental developments are urgently needed.”
Killam owns 10 percent of rental units in Nova Scotia
This is a stunning stat but, at the same time, not surprising for anyone who has ever been a renter in Nova Scotia. If it ever seems like you know a lot of people who have rented an apartment with Killam Apartment REIT, it’s because it’s likely true.
In total, the company manages more than 6,000 units throughout the province. Given the above stat on small-business landlords, this means a small group of large companies own a relatively large number of apartments.
The report compared Killam’s rent increases on tenants who renew a lease, versus increases when an apartment is turned over to new renters. Between 2017-2020, the average increase on renewals hovered around 2 percent, while turnovers have averaged between 3-5 percent. In most recent years, the turnover rental increases hovered between 4-5 percent.
Rent has gone up 22.8 percent Since 2000
At first glance, this may seem like a very large number. But spread out over 20 years, it’s an average of 1.14 percent per year. The report points out that the Canadian average during his time was a 31.6 percent increase in rent (1.58 percent per year).
The report points out that Nova Scotia’s average rental increases over the past 20 years are lower than in Manitoba, Ontario, PEI, and B.C., which all have rent control measures in place.
The report also looked at the compound average on N.S. rent increases versus the compound increases of other essentials. It found rent (1.1 percent compound average) has risen slower than transportation (1.7 percent), and much lower than the highest-rising cost in the province (and nationally), which is food (2.5 percent). Clothing, in a jaw-dropping stat, has gone up zero percent in the same timeframe.
The vacancy rate in Nova Scotia is abysmally low
This is another stat that will come as no surprise to those looking for apartments in the HRM. A low vacancy rate means there is too much demand for the apartments available. When demand grows in the marketplace, prices rise.
By the Fall of 2019, the vacancy rate in Nova Scotia was a mere 1 percent. It is widely agreed that to keep rental prices competitive, a vacancy rate of 3 percent or higher is needed. Ever since 2016, vacancy rates in Nova Scotia have been below the 3 percent threshold.
The report notes this has led to many renters paying more than 30 percent of their income on rent.
“The median rent for 2 bedroom apartments in many of the Halifax… submarkets are above the threshold for 30 percent of the median household income in those areas. The Peninsula, Bedford, and some areas outside the urban centre have an increasing number of households (in that category),” it reads.
Halifax has led the country in building rental apartments
Despite the terrible vacancy rate, Halifax developers have been rushing to build new apartments to meet the demand. In 2019, 4,020 new rental units were constructed in the city of Halifax.
According to the report, Halifax leads all major Canadian cities in constructing “purpose-built” rental apartments per capita.
“In 2019, nearly $800-million was invested in Nova Scotia apartments, and almost $700-million (87 percent) of this was in HRM,” reads the report.
“Although this would seem promising, it does take time for the units to reach the market, and they are not all directly targeting the affordability problem. Many of the new units will attract households to move from lower rent to higher rent units, and this will leave affordable units available for others…”
The report notes that while Vancouver and Toronto are hot cities for new development, there is a major trend towards condos rather than apartments. Condos, the reports note, does little to fill the apartment affordability void.
It is much more expensive to build housing in urban Halifax than in rural N.S.
Once again, this stat isn’t overly surprising. However, the price difference between developing a building in Halifax versus the rest of the province may surprise you.
“…low-medium priced 1,200 square foot apartments are about $116,000 more expensive to build in HRM,” concludes Gardner Pinfold.
In the “urban core” of Halifax, the average cost of building such a low-to-medium-priced apartment is $276,048, compared to $159,304 for a medium-sized town in Nova Scotia.
The biggest difference between the two markets is the cost of land. According to the report, 16 percent of the total budget to build an apartment in HRM has to go to the cost of land, compared to only 6 percent in rural areas.
In the HRM, three percent of total costs go to additional charges like legal fees, permits, and density bonuses. These costs in rural areas, however, aren’t even factored into rural development in the Gardner Pinfold report.
Rent control has more drawbacks than benefits
This conclusion is sure to get a lot of heat, and disagreement, given the amount of support there is for rent control in Halifax right now – and understandable so.
But it’s also not a shocking conclusion. Most economic reports into rent control conclude it doesn’t work, at least not in the long run.
Gardner Pinfold does concede, however, that rent control often helps those who are able to obtain it. And it encourages people to stay in a unit over a long period of time.
“…those living in controlled units pay lower rent than those who live in units without rent control. They also tend to stay in their unit longer (permanence), and this is generally viewed as an advantage in terms of stability,” concludes the report.
“Also, those under rent control stay in place more often because they don’t want to lose their rent-controlled unit, when they would otherwise move to a better location for proximity to work or other social benefits. However, the overall consensus is that rent control is beneficial for those who can access it.”
However, the consultants clearly believe there are more unintended pitfalls in the market when rent control is applied. One trend noticed in other rent-controlled jurisdictions is landlords automatically raising the rent every year by the maximum allowable amount.
“There are some caveats in cases where landlords raise rents by the rent control maximum each year as a safeguard when they would otherwise have only raised rent occasionally.”
Another conclusion made in the report is a noted lack of maintenance on rent-controlled buildings. This has been a concern long echoed by landlords and building owners in Nova Scotia. If there’s less profit to be made, the argument goes, then landlords are less likely to improve the quality of the building.
“Maintenance may be deferred under rent control – where property owners have less incentive or financial means to improve units,” reads the report. “Maintenance to minimum standards is afforded by annual rate increases and often required by law, but more substantial improvements tend to be delayed or foregone.”
And finally, the biggest drawback is that rent control curbs new construction, as developers don’t want to be told how much they can charge for an apartment. Developers are more likely to build condos or other units not subject to such regulations.
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