Call for ‘vacancy control’ to curb Vancouver rental rates

If the average renter in Metro Vancouver were to give up their apartment and move into the exact same unit next door, they’d be looking at an average rent increase of 20.8 per cent.

That is the takeaway from an annual Canada Mortgage and Housing Corporation (CMHC) rental market report released recently. In October, 2019, the CMHC looked at the rents for purpose-built rental units that were occupied versus ones that were vacant, as a snapshot survey of about 85 per cent of rental buildings in the Vancouver region. Only rental buildings of more than 30 units were included in the survey. Rental units in Metro Vancouver that were sitting vacant were an average 20.8 per cent higher than rentals that were occupied. Rental rates for vacant units averaged $1,771 a month, while occupied unit rents averaged $1,466. The survey did not include empty units undergoing renovation.

The study results speak to the demand for more rentals and the ability to raise rents because of the low vacancy rate, says CMHC economist Eric Bond, principal market analyst for Vancouver and author of the report.

“As the units turn over, [landlords] are able to reset those units to the market level.”

The units include new ones and old ones, but Mr. Bond says even the older units were raised to a market level upon turnover. As a sign of the times, in 2015 there was no difference between the rent charged for an occupied unit and the rent charged for a vacant one, according to the report.

North Vancouver, B.C., saw the biggest gap in occupied/vacant unit rents, with a 33.5-per-cent increase. Burnaby, B.C., had a 28.3-per-cent increase; New Westminster, B.C., was at 24 per cent and Vancouver was at 19.7 per cent.

Reasons for the jump in rent would include the higher price of new units that have come onto the market. As well, a suite vacated by a tenant who’d been there for 20 years would see a big jump in rent.

Housing advocates are concerned that the trend toward jacking up rents once units vacate will result in further displacement. Current rent controls only protect a tenant from an increase of more than 2.5 per cent a year. Because rents can be increased to the market rate once a unit becomes vacant, some are calling for full rent control, where the rent increase is limited even when the unit empties. In Metro Vancouver, this is referred to as “vacancy control.”

The issue of high rents will only gain traction as the region sees more technology workers flock to work in downtown Vancouver, where it’s estimated thousands of new tech jobs will open up in the next few years. Those workers will need housing and they’ll be making better than average incomes, so the pressure will be on, says Tsur Somerville, associate professor in the University of B.C.’s Sauder School of Business.

“We have a really big problem coming down the road on the rental side because of all the tech spaces going in downtown, and a lot of the people working in tech will be higher income, and a lot of them are going to be renting,” Prof. Somerville says. “They are looking for housing, period. But particularly if it’s folks who are here on two- or three-year contracts, they are going to be renting. That’s going to put a lot of pressure on the rental market. If you don’t have additional housing supply, giving people a whole bunch of income just pushes up rents and prices.”

Renters currently make up about half of residents in Vancouver, but over time, they are expected to outnumber homeowners. Between 2011 and 2016, three-quarters of new households to the city of Vancouver were renter households. In the census period prior, from 2006 to 2011, renters made up only 40 per cent of new households.

“One way to look at it is the share of home ownership is falling in the city of Vancouver, and that’s already in the municipality where the share of renter households is the highest,” Mr. Bond says.

David Hutniak, chief executive officer of LandlordBC, represents landlords throughout the province. He takes issue with statistics that can be read any number of ways, he says, and which too often end up making landlords look bad. Contrary to reports of rising rents, Mr. Hutniak says that he is seeing them falling. He recently met with a group of property managers to discuss the softening market and increased vacancies, partly due to the increase of rental condos coming online due to new city and provincial taxes on empty homes.

“I was just in a meeting with about 15 folks from our sector who represent the large landlords – from big property managers to medium-size owners – about what is going on in the market. … These folks represent a significant number of the units in the market, and not just Vancouver, but Richmond, Burnaby and some units in North Vancouver.

“I was hearing that we are seeing a softening of rent and vacancy rates are loosening up. It’s taking longer to actually fill vacant units. The West End is probably the most pronounced – the rents are starting to fall. Vacancy rates are increasing in the existing stock and it’s taking longer to fill the units. You just have to go along Davie Street to see what’s happening there. A year ago when I was asked if the vacant homes tax would have an impact on long-term rental, at that time I said, ‘absolutely not.’ But in talking to these folks, they are saying it absolutely is happening now.

“I think everybody recognizes that paying this [Empty Homes Tax] tax has cost people a few bucks, and so we are seeing more condos being rented because of the vacant home tax.

“Depending on your situation some landlords clearly aren’t happy about that, but in terms of a broader market, from an organizational perspective, we are huge advocates of building rental and we want to see the persistently low vacancy rates improve as opposed to continue to sit at one or less per cent.”

For those at the lowest end of the income scale, rent hikes are a major reason for increased homelessness, says Wendy Pedersen, housing activist with the Downtown Eastside SRO Collaborative. Ms. Pedersen says increased rents at privately owned single-room occupancy (SRO) hotel units have pushed people onto the street, contributing to a crisis situation that anyone can witness by walking through the downtown eastside. She says rents are averaging around $600 a month for an SRO room, which is almost impossible for someone on welfare. In December, Vancouver City Councillor Jean Swanson proposed vacancy control for SROs in the downtown eastside, in order to protect vulnerable residents, including seniors and welfare recipients. Those groups are especially vulnerable because several SRO hotels are currently for sale and new owners often bring increased rents to a building. Ms. Pedersen would like to see the provincial government get behind the proposal to bring vacancy control to the SROs.

“Right now the main thing they need to understand is why this is so important and why it’s connected to homelessness.”

Ms. Pedersen is also in favour of blanket vacancy control for all apartment buildings. She believes the development industry wants to keep rents high in order to keep property prices high.

“Because if you cool down the rents on properties in high rent areas, then the property values will decrease.”

She says that with vacancy control, landlords would still be able to raise rents, but only at the permitted amount.

“Landlords can still make repairs and raise the rent – they just can’t go two or three times higher, and that will make tenants more safe. Landlords won’t have as much incentive to try to move them out.

“The landlord has to stop profiting for awhile.”

Mr. Hutniak is an outspoken opponent of vacancy control, which he says would kill off any new rental development. He argues that rental development in Vancouver is onerous enough and developers will simply go elsewhere.

“I can tell you there are a whole bunch of landlords who are wrestling with how they are going to continue to provide the housing they do. We are looking at property taxes, insurance costs, everything else, and it always falls on deaf ears, but it’s the harsh reality. There are a whole lot of folks in our sector, and yes, they have an asset that has appreciated, but they don’t realize that appreciation unless they sell it.

“This is a low-margin business, and it’s getting increasingly difficult to rationalize continuing to provide rental housing unless you have this critical mass to spread the costs over, and even then it’s still a challenge. …The reality is yes, we need to build more rental. But we have already seen the impact of some of that.”

Mr. Hutniak believes that it will be the secondary rental market, or rented condos, which will have the most impact on creating rental supply. The CMHC report also found a record number of long-term rental condos added to the rental market. Prior to new city and provincial taxes, many of those units would have been either sitting empty. Because the new taxes are incentivizing condo owners to keep their condos occupied, he says that tenants have more security. As Prof. Somerville points out, even if the resale market for condos goes up and the unit is sold, the new owner will still have to either live in the unit or rent it out.

“The reality is the secondary market disproportionately represents the rental supply universe in British Columbia – and that is never going to change,” Mr. Hutniak says. “It is highly unlikely that we will ever shift that balance where purpose-built rental will represent the more significant portion of the rental supply, versus the secondary market. I think that’s fairly well entrenched for decades to come.”

Prof. Somerville sees the solution in aggressive policies to stop tenants from unfair evictions, as well as more purpose-built rental construction and government-funded social housing.

“I think the hard form of rent control has been shown to have pretty counterproductive long-range effects,” he says. “I don’t think that is the mechanism that we should be using. I personally believe we should be building more social housing. We really want long-term stable housing for folks at the lower end of the income distribution, then progressive housing policy, and … there’s something to be said for progressive co-op [housing] policy as well.

“There’s not this magical we-solve-our-housing-problem-but-nothing-changes fairy dust,” Prof. Somerville says. “We have more density in our cities and our neighbourhoods are changing, and we’re spending lots of money to build social housing. There is no magic bullet.”

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