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Changes to controls — how “suite” are they?
May 13, 2005

An important part of any housing market is its rental segment. It sometimes gets overlooked in these times of multiple above list price offers on Multiple Listing Service® properties.

Looking at the entire real estate market, you realize fairly quickly that a good mix of all accommodations in sufficient numbers is critical to achieving a reasonable equilibrium between supply and demand. This also applies at a more localized or neighbourhood level where people have strong preferences for specific ownership/rental type properties.

In Winnipeg, apartment vacancies are at historically low levels and existing and new housing inventories are extremely tight. Is there any relief on the way? Or to put it another way, are there any safety valves to let out some of the pressure that is being exerted on the housing market? 

In the past week, a number of developments for new housing lots have been announced. However, the time line for final approval and the green light to proceed have yet to be determined.

The eight-storey Excelsior condo project on Waterfront Drive broke ground this week, a hopeful sign of downtown renewal. There are more projects to follow like the other three planned for this showcase street. 

There is talk about new rental construction by a British Columbia developer who successfully completed a project last year. He plans to develop up to 2,000 units in the next five years. In this instance, we are talking wood-frame construction which is cheaper to build than masonry units.

Despite new units on the horizon, there is nothing immediately available to temper a supercharged 2005 spring market. Looking beyond just what can be done to bring on new supply through government supported and private-sector projects, two new policy thrusts are worth mentioning.

Canada Mortgage and Housing Corporation (CMHC) has announced program changes to support the creation and ownership of secondary suites. The Canadian Real Estate Association (CREA) has already been calling on the federal government to support secondary suites as part of a new multi-dimensional national housing strategy.

Changes to CMHC’s mortgage loan insurance program allow Canadians to purchase and occupy a new or existing two-unit residence — such as a duplex or single home with a secondary suite — with as little as five per cent down. Up to 80 per cent of the confirmed gross rental income for the second unit can be used for income qualification, making it easier for the home buyer to qualify for mortgage insurance.

“Two-unit properties have become an important source of affordable rental housing for senior, young adults, recent immigrants and the working poor,” CMHC noted in its announcement. “The associated rental income also helps borrowers meet the costs of homeownership.”

CMHC also announced changes to the Residential Rehabilitation Assistance Program (RRAP) that allow for the creation of secondary rental and garden suites. Homeowners, private entrepreneurs, and First Nations owning single-family residential properties that can accommodate the creation of an affordable self-contained secondary suite or garden suite are now eligible to apply for RRAP funds. The property must also meet local zoning and building requirements.

One catch to make secondary suites a part of Winnipeg’s solution to addressing the need for more supply is local zoning and building restrictions. Single-family zoning does not permit secondary suites, so a change to Bylaw 6400 is needed to allow secondary suites under certain conditions and standards. This bylaw ,which applies citywide with the exception of the downtown, is under a major review with Winnipeg Real Estate Board participation on an industry advisory committee. The timing, therefore, is good to consider the merits of a more permissive zoning bylaw that can accommodate secondary suites in single-family residential areas.

The other policy, or more specifically legislative initiative, is proposed provincial amendments to the Residential Tenancies Act. The changes provide a longer period for new construction to be exempt from rent controls. 

But, more important, the changes open the door to existing suite renewal by providing apartment owners with a two-year exemption from rent controls on voluntary vacated units where major renovations are undertaken. The WREB has advocated a similar position, but does not have enough details on how it will be implemented to give it de facto support.

Another interesting proposed change included in this new legislation is allowing a distressed property to be exempt from rent control for a period of 15 years. This move clearly recognizes the poor state a number of apartment blocks are in, and attempts to provide incentive to an owner/investor to take on an extensive rehabilitation. It allows them to charge higher market rents since the newly-renovated end-product will offer much better accommodations than many substandard existing rental complexes.

A Winnipeg Free Press editorial recently suggested the minister responsible for this Act, Finance Minister Greg Selinger, is being very cautious in how the government proposes to manage and regulate this new provision (e.g. limit number of voluntary vacated units a year that will be exempted). Nevertheless, the fact that the government is prepared to make changes is a step in the right direction. With other housing policy manoeuvres occurring, like the federal government’s willingness to allocate affordable housing dollars to income subsidies or rent supplements to close the gap between household income and the cost of housing, there are opportunities to allow the market to function more autonomously without hurting low-income earners.

The bottom line is that, despite some new construction in apartments over the past two years, the overall rental universe has contracted and that cannot continue if the province wishes to attract 10,000 new immigrants every year. Where will they live and what will be the condition of the available units that they are able to afford?

The Winnipeg Chamber of Commerce recently released a news release calling for the province to scrap rent controls. While the government rejected this call, they did admit some things need to be changed and that is in part due to the chamber’s increasing concern over how a lack of a long-term housing strategy for the province will jeopardize economic growth. 

Sometimes incremental changes to appease political exigencies only get you so far. The public’s heightened awareness of housing shortages and the rising costs of housing may eventually — hopefully sooner than later — be enough to get the province to move more boldly in consultation with housing stakeholders, including other levels of government.

After all, if any government truly cares about its citizens’ quality of life, it must effectively address core shelter needs. Tinkering around the edges of a flawed rent control regime that has resulted in dangerously low vacancy rates, if not non-existent in some areas of the city, is not going to get the job done.