Rent control has arrived in Nova Scotia Canada…well at least until February 21, 2022 or the COVID 19 state of emergency is lifted. Nova Scotia housing minister Chuck Porter made the announcement Wednesday November 25, 2020. The CBC reported on the story with the following article: Nova Scotia caps rent increases at 2% and bans ‘renovictions’ during pandemic
Link to official document – Direction of the Minister under a Declared State of Emergency
Based On This Announcement Here Are My Thoughts (Slanted towards the Halifax Market):
The reality is that many of the buildings in this city are quite old. Many from a financing and engineering point of view are past there usable life. Which means they need to be torn down and condemned (taking apartment units out of the market) or allowing small, brave, sometimes crazy investors take on the challenge of bringing them back to life with renovations to bring them up to good livable condition.
To make that financially feasible the renovations carried out need to bring value for financing companies to consider them. A lot of that value is weighted in the revenue.
Unfortunately these measures will hurt the lower income population.
How these measures will hurt those they are supposed to help:
Medium and large developers will stay away from the old stock, since they cannot do a full re-hab and increase rents to full market value.
Many smaller investors will not be able to buy them, because they will have a hard time securing financing. That means older buildings will work better by not being renovated, and operated as cheap as possible in order to scratch out a profit after paying expenses.
When buildings are upgraded new assessments are issued and additional property taxes have to be paid.
When construction happens, it is good for the entire economy, likely translating into dollars into the pockets of a huge portion of the work force. Everyone one from the building supply centers, gas stations, restaurants, and of course taxation (we all pay taxes).
New Inventory Enters The Market At Unaffordable Rates
The new construction will still continue, and new inventory will enter the market at rates that do not work for low income tenants. If these rent control measures continue past COVID times it could prevent some future projects from being built. This would mean less new inventory entering the market. New development actually makes older building owners sharper and more competitive. For example in old Clayton Park most of those old properties were considered quite luxurious in the eighties. Now most people want two or more bathrooms, stainless steel appliances, walk in closets, etc. Which means the old luxury becomes the new affordable. Every time a new building is built it is that much better for those looking for affordable units.
Did You Know Many Independent Landlords Simply Do Not Raise The Rent?
Many small landlords simply do not raise the rent, or rent below market to good tenants. Why? Because we all know bad tenants suck, so if you get a good one, and your bills are paid, why rock the boat.
These new measures unfortunately force all landlords to raise the rent at least the allowable 2% per year. If they do not and they plan to sell the building, it could be a deterrent for a buyer.
Has Anyone Done The Math?
Let me do the math for you, if rent is $1000 per month a 2% increase is $20 for year one making the rent $1020, year 2 $1040.40 year 3 $1061.20 year 4 $1082.42 year 5 $1104.06 and it continues on, but more than likely the government will allow an inflationary bump once the economy gets back on track, which means greater annual increases, and unfortunately the way it is set up, the government forces the landlord to maximize the increases to retain the value of the building.
With 2% increases, clearly no upgrades and only minimal upgrades can be carried out. I believe most people would be shocked at the operating cost of a typical apartment building (just the insurance and property tax alone).
Also since the majority of landlords will be participating in the annual increase program rents as a whole will increase driving up the average rent and taking the bargaining power out of the hands of the consumer.
How Many “Renovictions” Are Taking Place In Nova Scotia?
No, seriously, how many? Does anyone know? How many of these buildings absolutely needed to be upgraded? How many years were some of these tenants paying way below market rent? How many would be paying more than there new renovated rent had rent control been in place many years prior? How many of these tenants were bad tenants that a new landlord needed to remove to change the profile of a building for the good of the area?
Why Would The Government Want To Slow Economic Growth
We are in COVID times, this has amplified the affordable housing issue, so I would not want to be in the governments shoes right now making all these tough decisions. I do like the sly way the government tries to appeal to all sides by using phrases like: remain in place until Feb. 1, 2022, or whenever the COVID-19 state of emergency is lifted – does this mean rent control could end half way through 2021? Then of course they agreed to form a committee to further review the topic.
I do think it is irresponsible of the government to paint a picture of the vary people trying to upgrade and bring new rental inventory to the market as greedy villain’s.
The people seeking affordable housing would be better served by a government that would take responsibility for the issue.
A responsible government would ensure that any programs needed to help people in difficult financial situations would be properly funded, so those in need would be able to afford proper housing.
A responsible government would realize that the affordable housing issue is complex and about way more than the cost of a rental unit.
A responsible government would realize that if the affordable housing issue came down to the simple monthly rent payment, then it could be solved easily with rent subsidy’s for those in need paid by taxation.
In Summary
Rent control is not the answer. It may quiet some of the noise in the short term, and it will definitely financially benefit some people. Unfortunately those small gains will harm more than they will help.
It also does not bring us any closer to solving the affordable housing issue. I will also say that I have seen and read about “affordable areas” such as parts of Detroit, and I would much rather live in a vibrant growing city with a bustling economy and a growing tax base, then a run down “affordable place”.
Until next time,
Design your landlord experience,
Michael P Currie
Landlord by Design
Well said, Michael. Thank you for summarizing the issue. I don’t believe the decisions makers seriously considered the side effects of their actions.
Thanks Mike, I appreciate your feedback.
I know this is only one anecdotal example, but I, along with a group of like-minded investors, were looking at adding to the housing stock with a multi-unit building in HRM. With the recent chatter about rent controls, we started to get twitchy, and with this announcement, we pulled the plug on the project. Quite frankly, there are other locations with less friction and less risk of government policy placing out capital at risk.
Rent controls are a great way to get a city where the downtown is full of run down apartments that are affordable but unobtainable because of availability and the urban fringes are full of new apartments that are unaffordable but available because of vacancy.
One other unanticipated outcome of rent controls is a housing mismatch, where people who have long outgrown their apartments stay because their unit is rent controlled. You end up with a family of 6 living in a one-bedroom apartment, elderly living up three flights of stair, etc.
There are ways to help with affordable housing, but tackling a supply-side problem by reducing rents is simply foolish.
Great points, I appreciate the comment.