Further to the op ed in the Sunday WFP written by Avrom Charach on Manitoba's rent control regime, it is important to impress upon not just renters, but homeowners, the implications of Winnipeg's extremely tight rental market ( i.e. a 1.1 per cent vacancy rate).
The Winnipeg Real Estate Board has supported the Professional Property Managers Association in its efforts to get the Manitoba government to at minimum introduce a voluntary vacancy leave program whereby when a renter voluntary vacates a rental unit, the landlord becomes exempt from the rent control guidelines until the unit is re-rented. This provides incentive for the landlord to make improvements to the unit since they have a better chance of recouping their costs by charging a rent above what the restrictive rent control guidelines allow. Ontario and British Columbia have vacancy decontrol programs for this very reason and it has resulted in more investment in rehabilitating existing rental units and new ones. Saskatchewan and Alberta already have a total market driven system and are experiencing investment in both new and rehabilitated rental units.
In Ontario, where the voluntary vacancy decontrol program was introduced in the late 90's, Toronto's vacancy rate was only .9 per cent. It has gone up significantly ever since. Canada Mortgage and Housing Corporation (CMHC) reported at the end of 2004 Toronto's vacancy rate was 4.3%. There are some other indicators CMHC has tracked to show the improvement in Ontario's rental market. A chart showing changes in Toronto vacancy rates from 1998 to 2003 indicates vacancy rates have risen sharply at the lower end of the market, not just upper end units. Another one shows Toronto average rent increases over many years and confirms for the first time since 1975, the rents actually fell in 2003.
Rental housing starts in Ontario went up 500% from 1997 to 2002 and part and parcel of this increase is the fact institutional investors like Great West Life and OMERS are back into rental housing in Ontario. Rehabilitation of existing units is notably up too. A survey of apartment owners in 2001 by the Fair Rental Policy Organization revealed capital expenditures on aging rental stock in Ontario nearly doubled when comparing 2000 to 1997.
To the Manitoba government's credit, it has started down the road to allowing rent increases above the rent control guidelines when a rental unit is voluntarily vacated. New legislation was introduced this spring to The Residential Tenancies Act. Although there are a number of strings attached and the province has already stated it will limit the number of units per year. Regulations for implementation are currently under development.
Another side effect of Manitoba's long running rent control regime is it has reduced the overall assessment base of Winnipeg's rental universe due to limited new construction activity, loss of assessment value in existing units because of lack of maintenance and neglect and the absolute loss of units since a number of apartment blocks are no longer inhabitable. Conversions of some of the lost apartment units to condominiums do not come close to making up the loss in apartment assessment values. As a result, other property classes such as homeowners, are required to pick up the slack and are having to pay more property taxes to make up for the loss in rental assessment. One Manitoba study done by a property expert in 1996 went to considerable length and detail to chronicle the loss in apartment assessment value and how it resulted in increasing the homeowner's property tax burden.
For the relatively modest amount of new units being constructed today, they are not addressing the needs of those most vulnerable at the lowest income level. In fact, some of the units that were previously available for low income renters have either been acquired by investors to convert to condominiums or removed from rent controls altogether and rehabilitated to be brought back onto the market at higher rents. As Avrom Charach pointed out in his op ed, there has actually been a net loss in the total number of rental units.
When looking at the entire real estate market, whether it is new, existing or rental, you often here housing analysts and experts speak of the need for a balanced market. Clayton Research, a firm known nationwide for its analysis of Canada's major housing markets, produces a monthly housing report that includes a chart showing how local markets are faring in respect to resale housing market indicators. This chart indicates that a balanced or normal market should have a 5 months inventory of resale product. Note: With respect to the rental market, CMHC considers 3 per cent to be a reasonable vacancy rate. Winnipeg's rate has been hovering around 1 per cent for some time now.
In the case of Winnipeg, its inventory for resale housing has been at a uncomfortably low level for a few years. It only had a two month supply in July. While it would be simplistic and wrong to say the lowest rental vacancy rate of any major city in Canada is the reason why Winnipeg is showing the lowest resale inventories in comparison to other major markets across the country, it is not unreasonable to infer the lack of supply of rental accommodations (nonexistent in some areas of the city) is clearly exerting more pressure on existing homes for sale since alternative options are not available. New home options are limited as well due to the well documented lot shortages in Winnipeg.
It should therefore come as no surprise that in the April 2005 Clayton Housing Forecast Report, it had Winnipeg not only having the lowest resale inventory at 1.6 months for March 2005 but based on year-over year changes, Winnipeg was the only major market to have three consecutive years of double-digit resale price increases; it had the highest new house price increase for both 2004 and 2005; and with the exception of Regina, the lowest apartment rental start forecast of any major market.
Going forward, Winnipeggers need to be provided with more housing options and ones that will remain affordable. With continued escalation in house prices coupled with some of the highest property tax levels in the country and a real possibility they may go even higher next year based on a new reassessment, it becomes patently clear the provincial government as well as the other two levels of government must take the issue of housing supply more seriously.
There is no quick fix, one size fits all solution. However, if we do not deal with some of these issues like lack of rental accommodations more effectively; ambitious programs to attract more immigrants to help fill much needed job market deficits and grow the economy for the benefit of all will fall short. Our youth will also find Winnipeg a less desirable place to stay and raise a family since housing is becoming more of an issue in terms of availability and cost of homeownership.
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