Rental housing 101 for government: Walking the walk instead of talking the talk
By David Lyman, Dickie & Lyman Lawyers LLP
Governments across Canada talk a good talk about wanting housing to be more affordable. But they donâ€™t walk the walk. Rental housing is the most affordable housing, which houses most people with the lowest incomes. (Each year, about 1/3 of lowincome renters live in community housing, and 2/3 of them live in for-profit rental housing.) In recent years, there has been a growth in the number of renters with higher incomes, mostly in Toronto and Vancouver, where house prices are out of reach for most people. However, even including the latest renters in the income averages, the average renter household has an annual after-tax income of $52,200, whereas the average homeowner household has an annual aftertax income of $93,800. The 2020 Taxation Report spells out the three main ways in which most governments in Canada tax rental housing more than owneroccupied housing. Those tax rules mean that, through their rents, the lowest income people pay the highest rates of tax, or in fact, pay taxes that homeowners donâ€™t pay at all. Government taxes and charges are a big factor explaining why rents are as high as they are. Governments happily load taxes and charges onto residential landlords, as if landlords have any revenue source to pay those taxes other than tenants. As a result, tenants ultimately pay the taxes and charges imposed on landlords and on rental housing properties.
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Substantial development charges have been imposed for years, driving up the price of new housing. Community benefit charges are the latest new ploy to extract money that home buyers and tenants end up paying. On the rental side, COVID-19 has brought new cost burdens and revenue restrictions onto landlords. In Ontario and BC, rents have been frozen, while costs like property David Lyman, Partner, taxes and insurance Dickie & Lyman Lawyers, LLP roll ever upward. Landlords are required to provide enhanced cleaning, PPE, and hand sanitizer, and other maintenance costs increase, but rents are frozen. In many cases, rents could not and cannot be collected because of moratoriums on evictions, and badly targeted government support programs. CERB paid all eligible renters the same $2,000 every four weeks regardless of whether the personâ€™s rent was $450 or $2,000. In Ontario, the Landlord and Tenant Board suffered from ridiculous backlogs even before COVID-19 struck, and its backlogs are still appalling. Some tenants, who are willing to abuse the system, have avoided paying $10,000 or
$12,000 of rent since March. Other tenants suffered from the poor targeting of CERB and other financial supports and could not pay their rents. Either way, landlords are carrying tenants, which means providing rental housing is less attractive as an investment. In my law practice, I have heard from many small landlords who say that when COVID-19 is over, they will sell their rental properties and never be a landlord again. I am sure that many other potential rental investors have decided that rental housing is not for them. That will mean fewer rental units are available and rents will be higher. Rental housing developers will face the same issue in raising capital from investors. The more governments impose tax and other burdens on rental housing providers, and the more progressive politicians criticize rental housing providers, the less willing investors will be to invest in rental housing assets. Less investment means less supply, which means higher market rents.
â€œAh, but we can stop rents from going up with tighter rent control,â€? say the progressives. What a crock! Over the last four decades, Ontario, BC, and Quebec have seen what tight rent control really does: lower maintenance, low vacancy rates, low investment in major repairs and new rental development, and a deteriorating rental stock. Gunnar Myrdal, a famous progressive Swedish economist and Nobel Prize winner, said that, apart from bombing, the best way to destroy a city is through rent control. Governments need to straighten out their badly targeted, counter-productive and detrimental policies. They need to support rental housing, and facilitate rental investment and development, instead of criticizing rental housing providers for responding to market demand, and instead of taxing rental housing more than owneroccupied housing. Then they would be walking the walk on housing affordability, and on support for low-income people in Canada.
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