Cracks Are Forming With The Rent Caps
The Saturday Huddle is a weekly column that features opinion, analysis and reflections on Huddle stories, podcasts and business news in the region. Derek Montague is a Huddle reporter based in Halifax.
If you’re a landlord, you have not received a lot of sympathy or support in the last couple of years. Prior to Nova Scotia and New Brunswick implementing rent control, there were stories about renters receiving outrageous rent increases – sometimes over 100 percent. Then there were the instances of “renovictions,” which left people scrambling for a new home in cities with extremely low vacancy rates.
Putting in a rent cap was needed to stop the bleeding, and to stop the uncertainty for renters. But the inflexibility of the cap will produce unintended consequences that may further hurt the rental landscape.
Last year, Tim Houston himself admitted he had fears that the two percent rent cap could price out smaller landlords. His government still went ahead with extending the cap anyway, with no wiggle room for rising operating costs and inflation.
And whether you love or despise your landlord, the fact is inflation has hit property owners extremely hard. Insurance companies have hiked their rates on commercial buildings. Some landlords in Nova Scotia are reporting 50 percent increases in insurance rates. Then there is the cost of heating, utilities, snow clearing, and interest rates going up on mortgages.
Houston was right, as smaller landlords are starting to sell or considering selling. This is coming at a time when the biggest weapon we have against sky-rocketing rent is increasing the supply of units.
In Nova Scotia, it’s easy to fall into the trap of viewing everything from a Halifax perspective, much like in Ontario everything seems to come from a Torontonian’s point of view. Rents were too high in Halifax before there was a rent cap. But outside the city, there were rural areas where landlords were renting below market value.
Last December I spoke with Kim Newsome, a Digby landlord who was renting one-bedroom apartments for as low as $400. Some two bedrooms were going for just $550. To find such rates in Halifax, you’d need a time machine.
RELATED: N.S. Landlord Sells Buildings Because Of Rent Cap
Like many independent landlords, Newsome was just trying to break even on her rental units. Then, years down the road when all the mortgages were paid off, she would sell the buildings and use the lump sum from the sale for a good retirement.
Newsome was about to increase some rents on tenants to make up for inflation, but then the rent cap was extended. When she spoke to Huddle last year, she had already sold three duplexes because of the rent cap.
This is where people should be worried. If a landlord sells a large apartment building, it’s unlikely for those units to be converted for private use. But rental units come in all forms. Many people (this writer included) rent townhouses and duplexes and other single dwellings. When these are sold by the landlord, the new property owner has every right to move in themselves, taking valuable housing off the market.
Back in May, Pictou County landlord Amanda Knight shed light on how difficult it is to make ends meet when a landlord provides utilities with rent.
Knight said power bills are up 25 percent from 2021 and heating oil is up 55 percent. In 2021, she was paying 85 cents per litre on heating oil, now that has skyrocketed to $1.97.
“On one property alone, that’s a $4,400 increase,” she claimed. “On top of that, I pay the power, I pay the water.”
RELATED: Landlords Worried About Rising Costs
Knight also had a unique insight into how another popular pandemic trend has made apartment units less efficient. Once upon a time (like 2019) an apartment used barely any water or power for eight hours a day. But now, with so many people working from home, that’s no longer the case. Yet another reason why more landlords are unlikely to continue including utilities with rent.
Another unintended consequence of long-term rent control is deferred maintenance. Since they can’t recoup costs through upping rent (beyond the cap) landlords in many rent-controlled cities have been shown to do the minimum maintenance necessary on units.
Knight said she was discussing doing upgrades with one of her tenants before the rent cap put a damper on the idea.
Kevin Russell, the director at IPOANS, which represents Nova Scotian landlords, is calling on the provincial government for help. Russell said he knows the government won’t lift the controversial rent cap, so he’s hoping to explore other ideas, such as tax relief.
Another possibility Russell brings forth is allowing rental unit buildings to be protected by the Capped Assessment Program, which protects private homeowners from sudden tax increases from new assessments.
The logical thing for the Houston government to do is have a flexible rent cap where landlords can apply for a higher rent increase due to higher operating costs. But this is unlikely since it would require much more government staff dealing with rental issues than they currently employ.
Right now, a cap of some sort is needed while vacancy rates are low, especially in urban areas. But the rent cap cannot be a long-term solution either. The best defense against unfair rent is a large vacancy rate. So we need to prioritize increasing the rental stock. This includes the provincial government doing WAY more to increase public ownership of housing units.
If we continue to rely on a rent cap for fairness, we may continue to lose units by landlords selling off their assets.