The British Columbia government's decision to set a 3% limit on residential rent increases next year has wide-ranging implications for the real estate industry, with some multifamily investors and landlord groups arguing that the cap is too low to maintain and operate a rental property.
In addition to reducing the province's rent increase cap for existing tenants to 3% in 2025, based on the rate of inflation, from 3.5% this year, the provincial moves announced by Housing Minister Ravi Kahlon include the introduction of a $400 renter’s tax credit for low- and medium-income renters.
“At a time when we know renters are struggling, our rent cap protects renters against unfair rent hikes, while allowing landlords to meet rising costs so that rental homes can stay in B.C.’s housing market,” Kahlon said in the statement.
A 3% increase next year, despite being tied to the inflation rate, is insufficient to cover increasing rental property operating costs, insurance and property taxes, some rental property owners said in statements on LinkedIn and other social media. The caps and other rent controls could cause landlords to cut corners on maintenance and upgrades, or even remove their properties from the rental pool, some firms argued.
The 3% rent cap in 2025 tied to the inflation rate is “still woefully inadequate in the context of what it actually costs to run a rental business,” LandlordBC CEO David Hutniak told the Daily Hive.
While a return to inflation-based rent increases is a positive move, landlord advocacy group LandlordBC urged the province to reinstate the rent increase formula prior to 2018 that allows a 2% annual rent increase plus the annual rise in the inflation rate, which would "better reflect the costs rental housing providers face.”
However, the province's move reflects “the successful advocacy efforts of LandlordBC in holding the government accountable to their promise to return to an inflation-based rent increase formula,” the group said in a statement. LandlordBC also recommends an immediate and significant property tax cut for all rental housing providers to help offset soaring operational costs.
'Unintended consequences'
Caps on rent increases and other rent control measures can lead to unintended consequences, such as reduced investment in housing and property maintenance, Darin Germyn, a real estate agent at Macdonald Realty in Surrey, British Columbia, said in a post on his YouTube channel late last week after the rent cap announcement.
He added that the regulations could also decrease the supply of rentals, as smaller and medium-sized landlords may find it less profitable to rent out properties.
"The bulk of my investor clients have really given up on the idea of buying more investment properties, but rather are getting out of property investment altogether to go focus on more lucrative, more profitable ventures," Germyn said.
The provincial government believes the new rent cap is sufficient to support both renters and property owners.
“Tying the annual allowable rent increase to inflation is consistent with the recommendations from the Rental Housing Task Force to support renters and ensure that rental homes can stay available for renters,” Spencer Chandra Herbert, the liaison for renters to B.C. Premier David Eby, said in the province’s statement.
After years of no cuts, the Bank of Canada has cut interest rates three times in as many months after bringing inflation down to its lowest point in three years. The central bank this week lowered rates by another quarter percentage point to 4.25%, following decreases of 25 basis points in June and July.
Bank Governor Tiff Macklem left the door open for more rate cuts as concerns increase about rising housing costs that have curbed real estate purchases and consumer spending across the country.
The United States Federal Reserve has signaled that it plans its first cut later this month since interest rates were raised from 2022 to 2023, and it follows the Bank of England's interest rate decrease this summer.