June 11, 2024

There is a broad consensus that we need more rental housing in B.C.

Demand is growing, while rental development struggles to catch up.

Adding to the issue, it’s tempting for politicians to villainize private developers in the rental space.

But it’s time we depoliticize the issue from all sides, and find ways to work toward effective solutions.

The challenges for developers might be obvious to you already.

Rentals require a lot of upfront equity. Profit margins are thin; return on investment is slow, and construction costs and interest rates are stubbornly high.

Large developers are much better positioned to take on the costs of rental development and operations, but, ironically, these are the companies that governments like to villainize.

Uncertainty in the rental space has become critical as well—the operating environment has been in a constant state of flux for the past several years with changes to the annual allowable rent increases, end to fixed–term tenancies, eviction moratoriums and rent freezes, and increases in municipal taxes, fees and charges.

Some of these fluctuations provided protection for renters during uncertain times but also sent a chill through the rental ecosystem.

As the rental market becomes a more unpredictable space to operate in, it becomes harder to plan new projects, and funding becomes more elusive as lenders recognize the risk as well.

We need to find our way to a stabilized environment that reinvigorates the appeal to build rentals.

The fact is, the development sector wants to increase rental construction too. Tenants and rental providers have a lot more in common than it would seem if we only relied on the rhetoric.

UDI has some specific ideas to address the issue.

We need more support for market rentals:

Governments need to expand their support to include increasing market rentals, on top of their existing and growing support to develop below-market rentals. A more well-rounded rental market allows renters mobility and options to meet their specific needs.

This isn’t a new concept, and is an idea that was highlighted in the Canada-B.C. Expert Panel Report on Housing Supply and Affordability back in 2021, called filtering. As new rental supply is introduced into the market at any price point, renters will move in, leaving older, potentially more affordable rental units open. This movement cascades through the rental market and creates more mobility and options.

We need to enable reinvestment in existing buildings:

The ARI, Additional Rent Increase program, was introduced to help rental providers make capital investments in buildings, like updating a roof or replacing older drafty windows. These can be costly investments, and the ARI allows rental providers to recoup some of this cost. It’s a good program in concept, but it takes a long time and lacks clarity around how much landlords will get back, and when. Making some improvements here while continuing to protect tenants would lessen the disincentive to build new rentals and continue to operate existing buildings.

There needs to be an increase in predictability:

 When inflation skyrocketed, the Consumer Price Index (CPI) was uncoupled from the rent increase calculation. This move lessened the impact on renters, but amplified it for rental providers. Since the rent freeze was introduced, rental providers have fallen further and further behind, as cost increases have continually out-paced allowable rent increases. Rental providers have been struggling to close this gap, and without any mechanism to catch up, rising costs will continue to make it difficult for rental providers to operate. This is why we have recommended that allowable rent increases return to CPI +2%, like it was prior to 2019.

The abandonment of CPI as the predictor of annual allowable rent increases also introduced new unpredictability and politicized rent increase rates. The Provincial Government needs to return to a fair and predictable rent increase formula so that developers can enter into new rental projects with more clarity.

Governments must remove barriers through policies and processes:

If we agree that more rental housing needs to be built, and quickly, it follows that governments should make it easier and less cost-prohibitive to deliver. Removing cost barriers like Community Amenity Contributions and waiving fees would go a long way to supporting rental housing. The federal government recently removed the GST on new rental buildings, it’s time that other levels of government followed suit.

New policies that aim for enough density to make rental developments financially viable, waiving fees, and procedures that speed up the application funnel would all make an impact on the rental market overall as well.

We’re not saying anything new here. The solutions already exist in some form. They just need some adjustments, and governments need to go all in.

Developers have a role in this progress as well.

We need your help to champion them in your conversations with governments at all levels.

But perhaps the hardest ask we have of you is that we need you to help break down the us vs. them narrative that is occupying so much energy in this space.

As an advocacy organization, UDI knows firsthand that our voice is stronger when it recognizes the balance that must be struck, while also voicing our concerns and motivating change.

The rental crisis isn’t going away unless something changes. We will always keep the pressure on where it’s needed, and we need you in our corner to add to that force.

Sincerely, 

Anne + The UDI Team