Alberta is well known as being the entrepreneurial capital of Canada, and has long been heavily biased towards privatization and less government interference in business. One indicator of this would be that Alberta is one of the few provinces that has essentially no rent controls in place. The only restriction on a landlord is that they can only raise the rent every 6 month period – but it can be for any amount they choose. What’s creating a lot of the problems and bad publicity is that investors are buying apartment buildings to convert to condominiums and sell individually. To do that, they want the tenants out as quickly as possible to start renovations, so they’re issuing massing rental increases when they take over, leaving the renters no choice but to move out. They’re doing this because it help skirt a limitation in the law that says if you are converting a building, you have to give 6 months’ notice to the tenants.. but if you are issuing a rental increase, you only have to give 3 months. So these converters are simply issuing crazy rental increases so they get people out in the 3 months, rather than 6. The problem is, these stories have made the papers and media. They’re showing poor tenants who are paying $700 a month in rent, and their rent is being increased to $2,500 a month. Now, the new owner has no intention to actually get that new rent, but they ask something outrageous to be sure that no one will stay with that new rent. Unfortunately, the media has made it look like most landlords are doing this, and that rents are tripling all over the place, making it unaffordable for everyone. So the real problem in the market is with the condo converters, and that’s what the government of Alberta rightly recognized and dealt with in their new legislation this week. With the incredible run-up of both housing prices and rents in Alberta, there has been a lot of talk recently about implementing rent controls in Alberta. Of course, the Alberta government has to pay some attention to this because the demands are coming from voters. Recently, a government committee made recommendations to the decision makers, including the temporary implementation of rent controls in Alberta. Unfortunately, when the government ‘temporarily’ implements something, it usually ends up permanent. Income taxes were first introduced as a temporary measure, and we know how that turned out. Yesterday, the Alberta government met to make a decision on rent controls, and I believe they made a good one. They rejected the calls to implement rent controls, because they knew if they brought them in, it would probably work towards putting them out of office in the next election. The fact is that rent controls do not work in the long run. They may temporarily reduce the rent increases that tenants see, but they act to immediately kill any development of new rental properties, and remove much of the attraction for an investor to become, or remain, a landlord. A lot of landlords, faced with rising costs and not being able to increase rents, cannot afford to keep up their properties and tenants end up living in properties that are not well maintained. It simply isn’t fair to tell a private investor who owns a rental property what they can and can’t charge someone for rent. That’s analogous to telling a lawyer they’re only allowed to charge a certain amount per hour, or that the local tire store can only charge a certain amount to rotate your tires. The fact that the market is so tight isn’t an investor’s fault — it’s the government’s fault for not having the foresight to recognize that a shortage is going to happen, and to respond accordingly. Instead, they step back and let the landlords take the heat for “gouging” and “taking advantage” of people. Of course, I don’t remember these same people lobbying for landlords to get subsidies from the government when vacancy rates were 9% and it was impossible to get rent that covered your costs! What the government did agree to was implementing a restriction that landlords can only raise rent once each year, as opposed to twice a year. And, anyone converting a building has to provide 12 months’ notice to tenants now as opposed to 6 months’, and they’re not allowed to increase rents during that time. I believe this was a fair and reasonable response by the government. It deals with the biggest concern in the market – condo converters using a loophole in the law to evict tenants faster – but maintains the attraction for investors such as us, who are long-term buy and hold investors. Even in these heady days of record breaking economic performance, record sales and prices in real estate, and almost zero rental vacancy in Alberta, it’s good to know that the carpet won’t be pulled out from under us!]]>