Tuesday, December 6, 2011

Liberals Start New Legislative Session by Dumping on Residential Landlords Again

In the summer of 2011 Minister Bartolucci reacted in mock horror to the announcement of the 3.1% provincial rent increase for 2012, saying his government would re-vamp the system if the Liberals were re-elected.  And so they have!  Today a Bill was introduced at Queen's Park which will cap the guideline at a maximum of 2.5%, and will create a floor of 1%.

I'm confused by this comment at the Ministry web site when speaking about the Bill:

Tenants would benefit from greater certainty that would ensure affordable and stable rents so they have safe and affordable housing. For landlords, this would ensure a fair return so they can properly maintain rental properties.

So if inflation is set at 7%, and the guideline is capped out at 2.5%, that would ensure a fair return to the landlord?  How does that math work?  The methodology will remain the same; Minister Wynne said today that using the CPI is fair and transparent. So it seems that the government believes that the mathematical calculation is fair....that is until the resultant increase would be greater than 2.5%. How then does the landlord "properly maintain their rental housing".

But let’s look at the facts around the 2012 guideline that was set at 3.1%Prior to the Liberals enacting the Residential Tenancies Act in 2007, the annual guideline was based on a 3 year rolling average of eight building operating costs.  This blending of 3 years was used to smooth out the bumps of any one given year that may have been atypical.  It was Minister Bartolucci’s government that changed it to the current system which looks at only the most recent year of the Ontario Consumer Price Index.  

The rent guideline years of 2011 and 2012 were an aberration, and must be looked at together and in context.  This larger-than-normal increase for the 2012 calendar year exists because of the effect of the HST which came into force July 1st, 2010, affecting the “sample year” that was used to determine the 2012 guideline.  Landlords collect no HST on residential rents, and therefore there are no input tax credits available to them.  Nor can they pass on their cost of HST, as the rents they charge are strictly controlled.  Every cent of HST landlords paid was an added cost to them.  So adding the natural true inflationary forces with the new HST, you have a 3.1% increase for 2012, which I concede is more than 4 times greater than the .7% allowed for 2011.

But let’s go back and average the aberrations of 2011 and 2012, using a methodology closer to that used pre-Residential Tenancies Act.  Adding the 2011 and 2012 allowable percentages, we come up with 3.8% over two years, or 1.9% annualized.  If you look back all the way to 1990, there have only been 3 years that were less than the 1.9% (1.5% in 2005, 1.4% in 2008 and 1.8% in 2009). Interestingly the last two were under the current Liberal government.  So how is 1.9% averaged over two years unfair to tenants and a windfall to landlords?

The Liberals were happy to take credit when the increase was .7%, pandering to their core constituency.  But they are aghast when the low number from 2011 caught up with them in 2012.  They want to take credit when their formula produces numbers that look good on them, but disavow the formula when it produces a result fair to everyone.  Typical of the left, always picking winners and losers instead of allowing any sort of market forces to prevail.

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