Posted by: Daryl & Wendy Ashby | February 24, 2010

Rent Controls Are Not Wroking

We’ve had rent controls in British Columbia for the past six years and while they are less draconian than those in Manitoba and Ontario, they do make it difficult for landlords to cover their costs.

For the first few years they were in force, the rental industry could cope with the limitations of 3.7 to 4.6% increase per year. Then the energy spike hit, causing prices of almost everything to increase, particularly heating and hydro costs. Property taxes also exceeded inflation to which the index is tied.

For 2010, the approved rate of increase is 3.2%. That number is linked to the average annual consumer price index, so it could be argued that if our rent increases are tied to inflation, it must equal out.

It doesn’t. The Consumer Price Index (CPI) measures the cost of living for a typical Canadian household, including items such as food, clothing, tobacco, alcohol, transportation and recreation. None of those items are relevant to the costs of operating a rental property, whether it be a basement suite or a 500 unit apartment complex.

The CPI is simply not a relevant linkage. Less than 9% of the value of those components relate to the cost of operating a rental unit. The major cost components in the rental industry are property taxes, insurance, utilities and maintenance – all of which have been rising over the past several years at a much greater rate than the CPI.

The average annual increase in the CPI since rent controls were imposed has been 2.0%, but the following highlights the average annual increases in the major expenses related to rentals:

Fuel oil and other fuels  6.5%

Natural gas                          6.0%

Insurance                             5.1%

Electricity                             4.9%

Maintenance and repairs 2.3%

That is the financial problem facing landlords today. July 1st will see the imposition of the Harmonized Sales Tax, essentially a 7% increase in many of the goods and services mentioned above.

The solution is to repeal rent controls and let the market work as it always had.

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