Winnipeg Real Estate News
Some recent media reports have drawn attention to how tight the rental market is in Winnipeg.
Canada Mortgage and Housing Corporation market analyst Dwayne Rewniak said the overall city average is three per cent per cent while many suburban areas like Fort Garry are just 0.7 per cent.
As is the case with any real estate market analysis, no one factor or cause can be attributed to the current situation. Some of the contributing factors include strong economic performance, low unemployment figures, net migration and apartment conversions to condominiums which have been going on for some time now.
Just converting one major apartment highrise tower like 55 Nassau and you begin to appreciate how conversions can reduce the available rental stock without the concomitant replacement in new construction units.
We are also seeing more young adults coming into the rental market as a result of the baby boom echo, and some of the growing empty-nester and seniors segment are opting to move from their homes to apartments.
With the tightest rental market conditions existing in Winnipeg in many years, you would think there would be a number of cranes dotting the Winnipeg landscape. Unfortunately, this is not the case. If you want to see cranes, you better head out to Oak Hammock Marsh.
Why is this the case? In the recent CMHC study Understanding Private Rental Investment in Canada, it found considerable interest in developing new rental units, however, when the numbers were crunched in the six cities studied, only Halifax could meet developer's expectations of a 15-per-cent return.
The report also said development costs, including land and construction costs and taxes, are too high in relation to market rent for construction to occur in Winnipeg.
In Manitoba, we are the last province under a true rent control regime, thus market rent does not exist as in other rent control-free jurisdictions. Rent control increases have been significantly lower than the Consumer Price Index. Over the last few years, the annual rent increase sanctioned by the provincial government was only one per cent.
The effects of rent controls have been well documented and one of the direct outcomes is a clear disincentive to build new apartments. In a recent newsletter by the Professional Property Managers Association, Max Reich, the secretary, said "there has been no new construction of rental apartment buildings for 10 years."
Another serious impediment of the current rent controls is to discourage apartment building owners as well as other residential landlords to upgrade their buildings that in many cases are aging and in need of repair. The consequence is a deterioration in building conditions and a considerable drop in the market value and the city's assessment base.
Just looking at sales this year through the WREB's Multiple Listing Service is illustrative of how far some apartments have dropped in value. One 17-suite apartment block in the West End sold for 195,000 and had originally sold at $368,000. Other apartments that sold include a 22-suite for $135,000, an 11-suite for $80,000 and an eight-suite for 104,000.
This drop in overall value of apartments rental accommodation affects not only that are subject to lack of availability of decent, affordable rental units, but it directly impacts all homeowners who must pick up the drop in assessment values through higher property taxes. A rent control study on Winnipeg by the late property specialist Bob Hanson estimated the hidden transfer from homeowners in the form of higher property taxes per home was $673 per year in 1996.
We need only to look next door to Saskatchewan or Ontario for solutions that can loosen up a tight rental market and help support the badly needed revitalization of our inner city.
In Saskatchewan, they passed amendments to their Residential Tenancies Act in 1992 that, in effect, ended rent controls. Since then, average rents have not gone through the roof and have remained stable.
With removal of rent controls, improvements in existing stock and new rental construction help alleviate concerns of demand far outstripping supply and thereby much higher rents. A case in point is in Santa Monica, California where rent controls were removed on January 1, 1999.
As for Ontario, they are taking a number of steps to encourage new investment in rental housing. A key one is exempting new rental construction from most rent rules. PST rebates are offered for builders of affordable multi-residential housing. When a unit is vacated, the landlord can negotiate the in-coming tenant's rent without regulatory restriction.
The system provides a balance between protecting tenants from dramatic increases in rents and allowing some market reality to prevail. Once a new tenant moves in, future rent increases are subject to the annual rent increase guideline under the Tenant Protection Act. Guideline rent increases are based on capital expenditures, operating costs and extraordinary operating costs for utilities and municipal taxes. There is no cap placed on the latter two since landlords have little control over increases in utility costs and property taxes.
Whatever path Manitoba follows, the status quo is no longer acceptable. The removal or modification of rent controls would encourage new construction and renovations to existing rental units. This in turn will see an improvement in the city's assessment base thus lessening the property tax burden on homeowners.
There are viable solutions to successfully address renters who are facing an increasing problem with accommodations and for homeowners who are looking for property tax relief and property value appreciation, especially in areas where house prices have been negatively affected by the deterioration of rental properties.