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CHALLENGES AND/OR BARRIERS FACED IN THE RENTED CONDOMINIUM MARKET Rental Providers’ Perspectives, City.. Campbell, Latosia 2009

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.      Challenges and/or Barriers Faced in the Rented Condominium MarketRental Providers’ Perspectives, City of VancouverByLatosia CampbellBSc., The University of Technology, Jamaica, 2001A MASTER PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE (PLANNING)In The Faculty of Graduate StudiesSchool of Community and Regional PlanningWe accept this project as conforming to the required standard....................................................................................................................................................................................THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver)August, 2009© Latosia Campbell, 2009 ABSTRACTThe aim of this research is to assess the significance of rented condominiums and its implications for rental housing in the City of Vancouver; and to identify the challenges faced by providers of rented condominiums and policies needed to increase the supply. Interviews were conducted with rental providers and other stakeholders, using snowball sampling methods, which were supported by secondary data.    Research findings revealed that rented condominiums are highly significant in the City, given the gradual decline of the purpose built rental stock. However, an increased reliance on rented condominiums is problematic because this supply exists solely for investment purposes and there are some concerns regarding housing affordability. Furthermore, challenges faced by rented condominium providers could affect the supply of this stock. These include rent control and rental restrictions, which are regulated by provincial legislations. Minor amendments to these legislations are suggested to increase the supply. However, there are risks involved in adopting policies that encourage rented condominiums such as an unstable supply and difficulties in securing the stock. To secure rental housing affordability and adequate rental housing for renters in the City, policies focusing on increasing the supply of purpose built rental housing are recommended, in addition to comprehensive research on the rental housing sector. Strong emphasis is placed on supportive federal government policies, improved partnerships among all levels of government and a collaborative approach between government and rental providers in solving the rental housing shortage in the City. TABLE OF CONTENTSPagesAbstract .............................................................................................................................. ii                       Table of Contents................................................................................................................. iiiList of Tables and Illustrations.............................................................................................. iv Acknowledgement................................................................................................................ viiCHAPTER ONE:  INTRODUCTION                                                                                             Background............................................................................................................... 1 Study Rationale......................................................................................................... 5Research Objectives and Questions.......................................................................... 7Methodology............................................................................................................. 11Definition of Key Terms and Concepts..................................................................... 13Organization of the Chapters.................................................................................... 14CHAPTER TWO:  RENTAL CONDOMINIUMS, CITY OF VANCOUVERPolicies Affecting Rental Housing in Canada........................................................... 152.1.     The implications for Rental housing, City of Vancouver...........................................  22     2.2.    The Growth of Rented Condominiums....................................................................... 25   2.3.     Factors Influencing Investors Rent............................................................................ 272.4.     How significant are Rented Condominiums in the City?........................................... 282.5. 	Are there Implications for an Increased Reliance on Rented Condominiums........... 34 CHAPTER THREE:  TRENDS, OPPORTUNITIES AND RISKS Factors Impacting the Rented Condominium Supply............................................... 38      Challenges and/ Barriers Faced............................................................................... 393.2.      Emerging Trends...................................................................................................... 483.3.      Implications for the Supply of Rented Condominiums.............................................. 503.4. 	Opportunities............................................................................................................  53CHAPTER 4: ANALYSIS4.0. 	Discussion................................................................................................................ 554.1.	Strategic Policy Direction.......................................................................................... 57 4.2. 	Study Limitations....................................................................................................... 60CHAPTER 5: CONCLUSION 5.0. Conclusion..................................................................................................................... 635.1. Policy Implications......................................................................................................... 65REFERENCES......................................................................................................... 66APPENDICESOne: Interview questions...................................................................................................... 70LIST OF TABLES AND ILLUSTRATIONS                                                                                                                                  Pages   Tables: Table 1: The Main Tax Policies Affecting Rental Housing since the 1940s.......................... 18 Table 2: Investor-owned Share of Rented Condominiums in Vancouver and the CMA...................................................................................................................................... 33   Table 3: Stakeholders in the Rented Condominium Market and their Interests................... 46 Table 4: Possible Policies, Actions and Incentives Needed................................................. 59 Figures:                                                                           Figure 1: The Share of Private Market Rental Housing in the Vancouver CMA, 2008.......... 2Figure 2: Proportion of Apartment Condominium Rented, 2008............................................ 3Figure 3: Percentage Share of Rental Housing by Type in the City of Vancouver................ 6  Figure 4: Percentage Share of Participants Interviewed...................................................... 11  Figure 5: Purpose Built Rental Apartments Completions in Canada’s Urban Centers, 1970- 1997............................................................................................................................ 16  Figure 6: Housing Tenure for the City of Vancouver, 1971-2006......................................... 23Figure 7: Vacancy Rates for the City of Vancouver and the CMA, 1975-2008..................... 24  Figure 8: Completion of Market Rental and Condominiums in Vancouver (1970s to 2000s).................................................................................................................. 25Figure 9: Change in the Private Rental Stock in Vancouver CMA, 2008.............................  29Figure 10: Percentage Share of Condominiums Rented in the City of Vancouver and the CMA, 2007 & 2008..................................................................... 30 Figure 11: Median Household Income by Age Group and Tenure for the City, 2006 .........  34 Figure 12: Percentage of Renter Households by Age Group, 2006..................................... 35Figure 13: Average Rents for Purpose Built Rental and Rented Condominiums in Vancouver................................................................................... 36  Figure 14: Condominium Rental Restriction in the City of Vancouver.................................  44Figure 15: The Effect of Lower Demand on Housing Prices................................................. 50 Diagrams:Diagram1: Conceptual Map of the Research Framework...................................................... 9 Diagram 2: Relationship between the Public and Private Domains in the Rented Condominium Supply Market................................................................................................ 41Maps:Map 1: Condominium Buildings with Investor Share Less Than 20% in Adjacent Municipalities............................................................................................. 31Map 2: Condominium Building with Investor ShareGreater Than 40% in Adjacent Municipalities....................................................................... 32Graphs:Graph1: Average Housing Price Trend, Vancouver CMA ................................................... 49  ACKNOWLEDGEMENTThis project has been made possible due to funding provided through the BC Government Office of Housing Research, and strong support and encouragement received from my family, friends and project supervisors. Consequently, I would like to acknowledge and sincerely thank these individuals for their support. Firstly, I thank God for the wisdom, courage and tenacity in conceptualizing, planning and executing a project of this nature. I am very thankful to the BC Government Office of Housing Research and the School of Community and Regional Planning (SCARP) for the funding award received, without which this project would not be possible. Additionally, I thank Penny Gurstein and Michael Gordon, my project supervisors, from SCARP for their invaluable support. I am very appreciative of the time they spent discussing, reviewing and providing feedback on this project. Lastly, I thank my family for their prayers, unwavering support, encouragement and patience throughout this whole process. Special thanks to Paul, for his love, understanding and beliefs in my capabilities, especially during this time.  Also, thanks to all of my friends for their support and kind words given during the very difficult times.CHAPTER 1 - INTRODUCTIONBackgroundThe supply of purpose built rental housing has been the subject of numerous debates in Canada in recent years. A fundamental problem has been the inability of the private sector to supply new purpose built rental housing, especially in the three metropolitan areas (Toronto, Montreal and Vancouver), where the demand for rental housing is greatest (Hulchanski, 2001). Since the 1970s, there has been very little investment in new purpose built rental housing mainly because of unfavourable tax policies (Clayton Research Associates, 1998). The passage of condominium legislation during this period further complicated the problem, making it difficult for providers of purpose built rental housing to compete with those developing condominiums. Over the years, the condominium market flourished as the supply of purpose built rental housing steadily declined. Given the strong demand for rental housing, the secondary rental market, which includes condominiums, has grown more significant. Despite this, it is least explored as a strategy geared at ensuring an adequate supply of rental housing to meet the growing needs of renters. Consequently, the purpose of this research is to explore the secondary market, in particular rented condominiums in the City of Vancouver and address questions regarding their contribution.In the Vancouver Census Metropolitan Area (CMA), more than half the rental housing is provided through the secondary market based on CMHC data. Fig 1 shows the share of private rental, which includes a breakdown of secondary market rental. Figure 1: The Share of Private Market Rental Housing in the Vancouver CMA, 2008  Source: CMHC (2008): Secondary rental market survey, Vancouver and Abbotsford.   Although, other forms of secondary markets such as single detached and accessory units are providing a significant amount of the rental supply, it is the rented condominium supply that is of particular interest for a number of reasons. Compared to other CMAs in the rest of Canada, Vancouver has the second highest percentage share of rented condominiums (see fig 2 below).  Moreover, the City of Vancouver has the highest share of rented condominiums than any other urban area in Canada in 2008, which illustrates the growing importance of this form of rental.      Figure 2: Proportion of Apartment Condominium Rented, 2008Source: City of Vancouver (2009). CMHC apartment vacancy rates and rents as cited from CMHC, secondary market surveys.The Vancouver CMA faces numerous challenges relating to housing affordability, which makes it relevant that the growing importance of the rented condominium supply be explored. Renters’ households in the province of BC, where the Vancouver CMA is located, had the highest percentage (44%) of all households facing affordability problems in Canada (BC Statistics, 2006). In comparison to homeowners, renters are almost twice more likely to face affordability challenges. In 2006, 43.7 percent of renters in the province spent 30 percent or more on housing, while only 22.8 percent of homeowners were faced with a similar challenge (BC Statistics). Additionally, Vancouver is among the CMAs with the highest shelter to income ratio. The high cost of rent is a major challenge for renters, especially since their average income ($44, 671) is much lower than the average income ($68,262) of homeowners (Statistics Canada, 2006).Rental housing affordability has been the major theme in many of the rental housing studies and debates and is a major concern given the substantially lower income of renters relative to homeowners. While rental housing affordability is not the main focus of this research, it is certainly an essential policy consideration in exploring strategies that are geared at promoting an increased supply of rental housing. The Greater Vancouver Regional District (GVRD) Draft Affordable Housing Strategy (2006) recognises the need to increase the supply of affordable rental housing for low income renters and some strategies have been proposed. However, less emphasis is placed on investigating the growing significance of the rented condominium stock. With no additional supply of purpose built rental housing planned, it is necessary to assess the rented condominium supply to determine its significance, the challenges with the supply, and the policies that are needed to increase the current stock. Though an increased reliance on rented condominiums could have numerous implications for rental housing in the City, increasing this supply might be an essential priority. Therefore, it is crucial that this option is investigated as part of a strategy geared at increasing the rental housing supply in the City.        Consequently, the purpose of this research project is to assess the growing significance of the rented condominium supply and investigate possible implications of this supply for rental housing. Also, this research investigates the challenges and/or barriers rental providers of condominiums face and identifies the kinds of policies or actions needed to increase the supply. Study Rationale Understanding the significance of the rented condominium stock and challenges and/or barriers faced by rental providers (investors) in the City of Vancouver is necessary, given the strong demand for rental housing. The supply of purpose built rental housing in the City has been declining for several years, while the demand continues to increase. Developers favouring condominiums over purpose built rental development and the lack of favourable government tax incentives to promote rental housing development are the main reasons contributing to the shortage of this stock. Since the 1990’s, there has been minimum investment in new purpose built rental buildings because developers have chosen to build condominiums (City of Vancouver, 2005). Investing in condominiums has been highly profitable in comparison to purpose built rental housing. Additionally, the federal tax system discourages investment in rental properties through actions such as not allowing capital gains reinvested in rental housing to be exempt from capital gains tax (City of Vancouver, 2008). As a result, vacancy rates for purpose built rental housing in the City have been among the lowest in Canada and for the past two decades these rates have never risen above 1.8 percent (City of Vancouver, 2005). Low vacancy rates are a strong indication that the existing supply is insufficient to meet the growing demand. In 2008, the rental vacancy rate for purpose built rental housing declined further to 0.3 percent down from 0.5 percent in 2007 (CMHC, 2008). Built mainly in the 1960s and 1970s, many of the purpose built rental units have aged; been lost either through conversion or demolition; are temporarily out of the rental pool as they are being renovated; and are under redevelopment pressures (CMHC, 2008). Because of the shortage of purpose built rental housing, the secondary market, including the supply of investor owned rented condominiums has increased in significance. Currently, less than half the rental housing stock in the City of Vancouver is supplied by purpose built rental units, while a significantly higher proportion is being supplied through the secondary market. Fig 3 shows that the purpose built rental stock make up approximately 42 percent of the stock of rental housing in the City, while secondary suites (19%) and Investor owned condominium (11%) are other significant forms of rental housing supplied through the private market. There are also other types of rental housing, which include SRO’s and units in rooming houses (12%) and non-market rental housing (16%).Figure 3:  Percentage Share of Rental Housing by Type in the City of Vancouver  Note: Based on estimates derived from Statistics Canada (2006), City and CMHC dataSource: City of Vancouver (2008). Rental housing strategy: Processes and consultancies. City of Vancouver administrative report.In contrast, the demand for rental housing in the City has remained quite robust, having grown steadily over the past years. The proportion of rental to owner occupied dwellings has increased steadily since 1951, with the largest increases in the 1960s, and has remained relatively stable (City of Vancouver, 2005). In 2006, a total of 131,535 (~52%) of all dwellings in the City were rented (BC statistics, 2006). Across the region, the demand for rental housing continues to increase with over 30,000 people moving to Vancouver, many of whom will take up residence in rental housing before becoming homeowners (CHMC, 2008). Increasing the rental housing supply and maintaining the current stock in the City is vital given the strong demand for rental housing relative to the rest of the GVRD and the province.  The City of Vancouver has almost half (1/2) of the rental housing stock in the region and more than one quarter (1/4) of the province’s rental housing supply (City of Vancouver, 2008). Additionally, almost half the City’s population (46%) rely on rental housing (City of Vancouver, 2008). This strong demand for rental housing and the correspondingly steady decline of the purpose built rental supply is a major concern, making it imperative that the secondary rental housing market be explored.The stock of investor owned rented condominiums is of great interest as increasingly more of these units are being placed on the rental housing market. In 2008, an estimated 27 percent (approximately 17,000) of the condominium stock in the City was rented based on CMHC secondary market rental survey (2008). This supply appears to be an important source of rental housing in the City, but little is known about the extent of its contribution to the overall rental housing supply. Additionally, there is insufficient information about the barriers and/or challenges rental providers face in renting their condominiums, which could potentially limit the supply. If there are challenges and/or barriers that could impact the supply, it might be necessary to identify policies and actions that are needed to increase the stock. On the other hand, increasing the existing supply could have implications for rental housing affordability as renters pay significantly more for rented condominiums relative to purpose built rental units. In the City of Vancouver, average rents for condominiums were more than 30 percent higher compared to purpose built rental units (City of Vancouver, 2008).   In this regard, research that investigates the overall significance of rented condominiums and factors impacting the supply is relevant. Accordingly, this research assesses the rented condominium stock in the City of Vancouver in an attempt to provide a better understanding of the growing significance of this stock and more insights into factors impacting the supply. Also, the research discusses the implications of a highly significant rented condominium supply in the City, challenges faced and policies needed to increase the supply.       Research ObjectivesThe main objectives of this research are: To explore the significance of rented condominiums as part of the rental stock in the City of Vancouver and the implications of this for rental housing; To identify factors influencing rented condominium providers (landlords) to rent  their units and remain in the rental market; To explore possible incentives, actions and policies that are needed to further encourage  rental providers (landlords) to rent their condominiums on a long term basis;  An understanding of the significance of the rented condominium market as part of the overall rental stock is relevant in developing strategies for increasing the supply. Factors influencing investors’ decisions to rent their units could provide useful insights into ways to increase the supply. Also, identifying the barriers and/or challenges investors face could help to increase our knowledge about these issues and possible ways to address them. Finally, exploring the kinds of policies and incentives to encourage rental providers to increase the supply might be necessary. Diagram 1 shows a conceptual map of what this research intends to achieve. Diagram 1: Conceptual Map of the Research Framework  Research QuestionsThis research seeks to answer a series of questions relating to the research objectives:  How significant are rented condominiums as part of the overall rental housing market? What are the factors influencing owners to rent? And how long do they intend to be in the rental market? Given the loss of purpose built rental units, what are the implications for increasing the supply of rented condominiums?What are the specific challenges and/ or barriers faced by owners of rented condominiums?What are the policies and actions needed to increase the supply?  MethodologyThis research is primarily qualitative but is augmented by statistical data in determining the significance of the rented condominium supply and assessing the implications for rental housing. The research focuses primarily on rental providers (landlords) and the barriers they face in renting their condominium apartments in the City of Vancouver. Additionally, the kinds of policies that are needed to possibly increase the supply are explored.  Data Collection MethodAs this is an exploratory research, a variety of data collection methods were used. The primary source of data was interviews (semi-structured) conducted with key informants.  Snow ball sampling was used because of the difficulties in identifying and accessing key informants such as the rented condominiums providers and/or investors in the City. A total of twenty (20) interviews were conducted. Those interviewed included: rental providers, housing advocates, researchers and developers (see Fig 4 below). These participants were asked a series of questions relating to their involvement in the rented condominium market.Figure 4: Percentage Share of Participants Interviewed*others  includes landlords association, housing advocates and researchersThe questions asked varied given participants’ interests in, knowledge about, and experience with the rented condominium market. Rental providers (investors and property management companies) were asked about the length of time they have been in the market; their reasons for entering; why they stayed; the challenges they experienced in renting their units and kinds of policies and actions that are needed. Others such as developers and housing advocates were asked questions relating to the significance of the rented condominium stock, the challenges faced and the kinds of policies and actions needed to increase the supply. (See Appendix 1 for the interview questions).  Rental providers interviewed have been involved in the rental market for at least five years. The majority (85%) of those interviewed have been renting their condominiums for over 10 years, while the remainder (15%) have been doing so for at least five years. From the interviews conducted, greater insights into the challenges faced by rental providers have been obtained as well as the kinds of policies and incentives that could encourage greater interest in rental housing in the City. Additionally, a seminar, “Ready for Rental” hosted by the Urban Development Institute (UDI) in March, 2009 provided further insights into the rented condominium supply market and the challenges faced by rental housing providers. Through this seminar, data was obtained about the implications of federal disincentives and the kinds of policies needed to stimulate a greater interest in rental housing. Key strategies were highlighted that could be considered in exploring ways of not only increasing the supply of rented condominiums but also the stock of purpose built rental housing.  Finally, several secondary data sources were used in analysing the significance of the rented condominium supply. These sources provided a broad perspective on the rental housing market including the implications of government policies; current and emerging trends in the rented condominium market; and the gaps and opportunities involved. Key data sources included CMHC rental housing studies, studies on condominiums and City of Vancouver rental housing reports/releases.  Defining Key Terms and ConceptsThe secondary rental market refers to non traditional forms of rental accommodations that are supplied through the private sector. This includes rented condominiums, secondary suites, accessory units, single detached and row/duplex homes. Defined by Statistics Canada as a residential complex in which dwellings are owned individually while land is held in joint ownership with others, rented condominiums differ from other rental properties. Unlike other rental properties, there is joint ownership that is regulated by the Strata Property Act and as such there are differences in the handling of issues relating to the rental of condominium units. Investor, a term widely used throughout this paper, refers to an owner of a rented condominium unit(s). In addition to investor(s), rental provider (landlord) is a broader term that is used to describe an investor and/or his/her agent. The term landlord or rental provider refers to a person that owns an interest in property and who in exchange for rent, gives another person (tenant/renters) the right to use the property (Residential Tenancy Branch, 2006). These persons can be: the unit or building owner; the owner’s agent (property management company); a person, permitting occupation of a rental unit under the Act, on behalf of the owner; A person entitled to the possession of a rental unit and exercise rights of a landlord under the tenancy agreement. Organization of Chapters The chapters are organized in the following manner:Chapter Two:  Rented Condominium, City of VancouverThis chapter gives an overview of the policies impacting rental housing in Canada. It begins by examining the implications of these policies on rental housing in the City of Vancouver and the growth of rented condominiums. The factors influencing investors to rent are discussed and the growing significance of the rented condominium market assessed. Finally, the implications of an increased reliance on the rented condominium supply are explored.   Chapter Three:  Trends, Opportunities and Risks in the Rented Condominium Market  In this section, the factors impacting the rented condominium supply are highlighted including the challenges faced by rental providers. Additionally, the interests of key stakeholders and the role of all levels of government in the rented condominium market are discussed. Also, policies and actions needed to increase the supply are identified. At the end, the implications of the changing economy on the rented condominium supply are assessed; and risks and opportunities underlined. Chapter Four: Analysis The research findings are analysed and discussed in this chapter, and a strategic direction for increasing the supply of rental housing highlighted. Additionally, study limitations are highlighted and gaps in the analysis discussed. Finally, areas requiring further research are identified.    Chapter Five: Conclusion and Policy Implications  In this chapter, the research findings and analysis are summarized, highlighting the main concerns and policy implications. Key policy directions are suggested for consideration in ensuring an adequate supply of rental housing in the City.    CHAPTER 2 RENTED CONDOMINIUMS, CITY OF VANCOUVERPurpose built rental housing construction in Canada increased significantly from the 1960s before entering a period of modest growth in the 1980s, declining thereafter from the 1990s onwards. Given the steady decline of the purpose built rental supply, the secondary market, especially the rented condominium supply has increased (Lampert, 1999). To provide a better understanding of the problems leading to the decline in the purpose built rental stock and the subsequent growth of the rented condominium supply market in Vancouver, it is necessary to discuss the implications of past government policies and programs that have impacted rental housing. Policies Affecting Rental Housing The supply of housing in Canada has traditionally been and is still the responsibility of the private sector. Canada’s housing system relies almost entirely on the private sector to supply, allocate and maintain the housing stock (Scanlon and Whitehead, 2004). However, this has not always been the case as governments’ interventions have been necessary to stimulate an increased supply, in particular, in rental housing. Beginning in the late 1940s to 1960s, unprecedented economic growth and demographic changes necessitated a level of adaptation and adjustment in housing policies (Oberlander and Fallick, 1992). One essential adjustment has been the provision of favourable tax policies that encouraged the construction of housing. The progress made, particularly, in the rental housing sector in the 1960s and early 1970s was highly significant as the majority of Canada’s purpose built rental housing were constructed during that period. Smith (1983) suggests that Canadians were extremely well housed at the end of the 1960’s and this he argues was a result of the increased number of rental housing starts (47%). Factors that have helped to spur rental housing construction included the strong demand from especially the baby boomer generation, favourable income tax policies, lower interest rates and a lower inflation rate (Lampert, 1999).     However, since 1972 government policies have increasingly favoured ownership over rental housing, beginning with changes made to the mortgage and taxation systems. As part of this change process, several of the tax incentives for rental housing were removed. Notable changes that have severely impacted the provision of rental housing were:    The loss of tax benefits to investors such as the ability to pool properties to delay Capital Cost allowance (CCA) was eliminated;The use of “paper losses” from CCA as tax shelter against income from other sources was terminated;  The taxing of capital gains on rental properties was introduced.The changes in these provisions substantially reduced the attractiveness of rental investment by reducing the after tax yields and liquidity of the investment (Smith, 1983).  Furthermore, the inequities in tax provision created an imbalance in the provision of housing, which increasingly favoured homeownership over rental. These have served to disadvantage the rental housing supply market, impacting all the stakeholders (renters, investors and developers). Table 1 summarizes the main policies that have encouraged rental housing investments since the 1940s and the substantial changes made that have served to discourage these investments.Another fundamental impact on the provision of purpose built rental housing has been the passage of the condominium legislation, which introduced condominiums as a form of residential tenure in the 1970s. This legislation provides opportunities for higher income renters to own apartments rather than rent, and this in effect reduces the demand for rental housing and increases the demand for condominiums. Also, it is difficult for purpose built rental investors to compete with those investing in condominiums without favourable tax incentives. One of the main problems is that renters’ incomes are lower than the incomes of homeowners, making it easy for condominium developers to outbid developers of purpose built rental housing for residential sites (Hulchanski, 2001).  	Taken together, these changes have had profound impact on the rental housing provision, contributing to the steady decline of the purpose built rental stock. During the 1970’s, other factors such as the sharp rise in interest rates, uncertainties about land and construction costs and the growing fears of rent control also contributed to the decline of the rental supply  (Clayton, 1998). In response to the sharp decline of purpose built rental housing, the federal government introduced a combination of programs that increased the supply. These were:The Multiple Unit Residential Building (MURB), which allowed for investors to use the capital gain cost obtained from rental building as a deduction against total cost. This program was introduced in 1974 and was later extended to 1979; In addition to the MURB, the Assisted Rental Program (ARP) was also introduced from 1974 to 1978. Through this program, grants and later interest rate loans were provided to help make new rental projects more viable (Clayton, 1998). In essence, ARPs permitted investors to reduce their tax payables by deducting initial development cost, such as interim financing and architects’ fees from total income;  The Canada Rental Housing Supply Program (CRSP) was a rental subsidy program that replaced the MURB program, and which was reactivated in the 1980s (Hulchanski, 2002);   The MURB and the ARP programs resulted in a substantial increase in purpose built rental housing. However, after they were cancelled, the supply of purpose built rental housing has been declining continuously. Data compiled by Clayton Research Associates on twenty six (26) urban centers from 1970-1997, illustrates that the supply of rental housing have been on the decline in urban centers across Canada. Fig 5 shows that over this period, the number of private rental housing completed for these centers declined substantially.  Although, this data excludes the past ten (10) years, it is still reflective of the current situation in the purpose built rental market.Figure 5: Purpose Built Rental Apartments Completions in Canada’s Urban Centers, 1970-1997      Source: Clayton Research Associates (1998). Economic impact of federal tax legislation on rental housing in Canada prepared for the Canadian Federation of Apartment Association Since the 1970s, there has been little investment in the purpose built rental supply and the number of new rental completion has been declining especially from the 1990s onwards. Researchers assessing the declining trend in the provision of purpose built rental housing have identified various reasons for this. For instance, Smith (1983) argues that the philosophy of rental housing shifted from one which encouraged rental housing, improving the efficiencies in the real estate market in the 1970’s, to one that discouraged rental housing through direct intervention and regulation such as rent controls and subsidies. Likewise, the decline of purpose built rental housing in the 1990s has been attributed to the economic recession and its after effects, higher vacancy rates and the emergence of the secondary market supply (Clayton, 1998). This implies among other things the reduced demand for the purpose built rental housing. Though, in recent times the secondary market supply has increased, accommodating much of the current demand for rental housing in Canada (Lampert, 1999).However, a decline in the purpose built rental stock and an increase in the secondary supply leave more questions than answers about the rental housing supply market. These include but are not limited to:How significant is the secondary market supply?What is the significance of this for the rental housing sector?What are the factors driving this significance? Are there implications and what might these be?What are the most appropriate responses in stimulating an increase supply of rental housing? These are some of the questions that have been addressed in this research, which explores the rented condominium stock as part of the secondary rental market in the City of   Vancouver. In the next section, the growing importance of the rented condominium supply is analysed for the City of Vancouver and findings discussed in relation to the significance of this stock. Additionally, the factors influencing this significance are investigated.     Table 1: The Main Tax Policies Affecting Rental Housing since the 1940s PeriodsGovernment’s actions  Policy decisions Post WWII (1945-1960s)-high fertility rate-post war baby boom-stimulated housing production and upgradeFederal and provincial partnerships:-insured mortgage loan -Limited Dividend Program (LDP)  LDP- subsidizes rental unitsRental housing boom (1960s- 1971)Demand from baby boomer generationHigh divorce ratesDecline in birth ratesEnhanced role played by the  provincial government Federal government changes in mortgage financing and taxesCapital Cost Allowance (CCA) deductions allowed the treatment of depreciation on a building as an expense for income tax purposes. rental buildings pooled for tax purposesshelter income gained by claiming Capital Cost Allowance (CCA)Treatment of rental losses - the losses on any rental property can be deducted from income from other sources in order to calculate income for tax purposes.  These losses could include expenses such as operating costs and mortgage payments but not depreciation on buildings.    Capital gains on real estate properties were not taxable   Soft Costs are expenditures incurred by the owner of a new rental property which are not related to the actual acquisition of a fixed asset (building and land)   these costs could be deducted upfront in the first year Continued on the next page PeriodsGovernment’s actions Policy decisions Emergence of condominiums  (1972-1980)economic recessionrising land and housing costdeclining housing startdeclining vacancy rateshigh interest ratesFederal government changes in mortgage financing and taxesCondominium legislation introduced Federal government introduces  new incentives in 1974:MURB ARPloss of income tax benefit provisions to rental investorstax shelter abolished50% of capital gain tax applied to the sale of rental propertyprohibits the treatment of carrying costs (interest and property taxes) as operating expensesMURB-reintroduces tax shelter coverage for individual and private investors and ARPs provided capital cost benefits to investorsDisengagement  and withdrawal  of the federal government  from rental housing (1980s-1990s)high interest rates Federal government- Canada Rental Supply Plan (CRSP)Reduced federal government role in direct subsidies Greater role of provincial government       (rent control)  Soft cost allowed to be capitalised into the value of buildings and depreciated overtime CRSP- provides interest free loans to encourage the construction of rental housingCapital gain taxes increased to 66.67% in 1988 and then to 75% in 1990s. In 2000, it was reduced to 50 %Designation of rental housing as a passive investment in the income tax Act. This means that rental properties are ineligible for the tax advantages enjoyed by active small businesses, such as a special low rate of tax provided by way of an annual tax credit. Table 1: The Main Tax Policies Affecting Rental Housing since the 1940s Sources: (Clayton, 1998; Lampert, 1999; and Oberlander and Fallick, 1992)  Implications for Rental Housing Development, City of VancouverPurpose built rental housing development in the City of Vancouver has been severely constrained by the lack of favourable government tax incentives and the substantial development in condominiums. Since the 1970’s, the construction of purpose built rental units in the Vancouver CMA began to decline. Planned rental starts dropped from a peak of 67.4 percent in the 1960’s to 11.7 percent by 1975 (Hamilton, 1978). With the introduction of tax incentive programs such as the MURB and the ARP in 1974, purpose built rental housing starts increased significantly. After these programs were cancelled, the supply of purpose built rental started to gradually decline. Very few rental housing units have been built, except for an anomaly in 2003 when a total of 2000 new units were added (City of Vancouver, 2008).  In the first ten months of 2008, less than 3 percent of all new housing starts were rental with only 300 new rental units added across the Vancouver CMA, based on CMHC data. Additionally, a significant proportion of the existing stock has been demolished. Over the past year, more than 1,000 of this stock have been lost in the region (CHMC, 2008). CMHC indicates that the City of Vancouver is one of two cities with the greatest loss in its purpose built stock in the CMA. The demolition and in some cases conversion of rental buildings to condominiums and the temporary removal of some of the existing units from the rental pool for renovations are the main reasons contributing to this decline (CMHC, 2008). The remainder, particularly the older stock, is under redevelopment pressures in areas such as Marpole, the West End, South Granville and Kerrisdale (City of Vancouver, 2007). At the UDI discussion forum, “Ready for Rental, part 1”, a developer indicated that, “several of the current rental housing stock have reached the end of their economic life, where the land is worth more than the value of the rental units”.Redevelopment of these existing older purpose built rental housing is highly favourable for condominium development, considered the “highest and best use” of residential lands in the City. The strong demand for apartment condominiums, and high building and land costs have over the years made building for homeownership more attractive (CMHC, 2008). The desirability of the condominium supply market is further strengthened by the fact that profitable returns can be realised very early. Profitable returns can be obtained from the presale of condominium units even before these units are completed, while similar returns from rental buildings can only be realised when completed (Clayton, 1998). Although the cost to build a rental apartment is roughly the same as the cost to build a condominium, investors of purpose built rental housing will have to wait a decade to recover the land and construction costs. Conversely, condominium investors could have within a few years made money and would have lowered their financing cost by pre-selling units before construction (Paulsen, 2009). As a result, the supply of purpose built rental units continues to decline in the City.      Rental housing demand in the City has remained quite robust since the 1970’s. Census data on housing tenure analysed from 1971-2006 reveals that there is a consistently higher proportion of rented dwellings in the City compared to those that are owned. Fig 6 shows that more than half the households in the City of Vancouver are renters compared to homeowners and this proportion has grown tremendously over the years. In 2006, 52 percent of all households in the City were renters (Census, 2006). Increased inter and intra migration into the City and the rising cost of ownership are factors contributing to this strong demand for rental housing (CMHC, 2008). As a result of this persistently strong demand for rental housing and limited supply of purpose built rental housing, the rental vacancy rates for the City has remained very low.Figure 6:  Housing Tenure for the City of Vancouver, 1971-2006  Source: City of Vancouver Planning Department information sheet: City facts Census data series, tenure of dwelling 1971-2006.Vancouver’s rental vacancy rates have been among the lowest in Canada since World War II (City of Vancouver, 2005). Compared to the CMA, vacancy rates for purpose built rental in the City are very low and have been at their lowest since 2004 (see fig.7 below). Figure 7: Vacancy Rates for the City of Vancouver and the CMA, 1975-2008Source: City of Vancouver (2009). CMHC apartment vacancy rates and rents as cited from CMHC, secondary market surveys.Given the shortage of purpose built rental units in the City, much of the demand for rental housing is being filled through the secondary rental market. While there is insufficient information about the secondary market in the City of Vancouver, it is expected to be significant given the strong demand and shortage of purpose built rental housing. Of the secondary market rental opportunities, the rented condominium supply is quite significant given its growth. Also, the rented condominium supply is increasing as many investors have been placing their units in the rental housing pool for different purposes. Although the extent of this increase is largely unknown, recent studies have shown that a growing number of condominiums are rented out especially in urban areas. Before examining the significance of this supply, it is important to assess the growth in the condominium market and the factors which influence investors to rent.   Growth of Rented Condominiums Condominiums ownership is the most popular form of ownership in the City of Vancouver. Over the past eight years, the supply of condominiums has grown phenomenally, since becoming popular in the 1990’s. Fig. 8 shows that condominium development increased sharply in the 1990s before declining, thereafter becoming increasingly more significant as the supply of purpose built rental housing declines. In 2008, the total number of condominiums reached 62,714, up from 59,988 in the previous year (CMHC, 2008). The impetus for the magnitude of growth in the condominium supply market has been favourable government policies, notably the 50 percent reduction in taxes on capital gains. Government policies created an enabling environment for risk taking and investment by allowing investors to retain more of their gains (Government of Canada, 2002). Figure 8: Completion of Market Rental and Condominiums in Vancouver (1970s to 2000s)Source: cited from CMHC housing now survey in the City of Vancouver (2008). Rental housing strategy: Processes and consultancies. City of Vancouver administrative report.Rising house prices have resulted in condominiums development outperforming other housing options since it is the least expensive form of ownership. However, given the strong demand and limited supply, the average price increases for condominiums have increased significantly. The Housing Price Index (HPI) for condominiums increased by 82 percent ($387, 000) compared to the increases (70%) for detached homes in the CMA (REBGV, 2008). The City of Vancouver had the highest average price increases for condominiums in the CMA, especially in the Downtown subareas, where the prices were among the highest in the region. The average price increase from 2000 to 2008 was between 85-118 percent (Goodman report, 2008). Given the remarkable price increases, investing in condominiums in the City became highly lucrative for developers and investors alike. In 2008, housing supply increased considerably across the Vancouver CMA, reaching its highest recorded number of starts in 25 years (CMHC, 2008). Condominium apartments made up 60 percent of the new housing starts, the majority of which were in the City of Vancouver and Surrey, both having more than half the total number of starts, according to CMHC Housing Now Survey (2009). Rising prices have made homeownership difficult. CMHC market outlook (2008) suggests that the high cost of ownership has limited the demand from low equity and first time investors as well as investor buyers.  However, some investors that have bought into the condominium market are increasingly renting their condominiums for several reasons.2.3. Factors Influencing Investors to Rent There are several reasons influencing investors to rent their condominiums in the City. Based on interviews conducted with some of these investors, the following reasons were identified:For investment purposes;Steady income source/ cash flow;Increase equity on the capital gains/ Pension plan;Changes in personal circumstances such as relocation and  family situations; The majority of investors interviewed disclosed that renting out their condominium(s) in Vancouver was an investment decision. One person pointed out that he entered the rental market, “hoping to flip the unit and make a gain as the economic conditions have been very good over the past couple of years”. Another indicated that, “condo rental in Vancouver is highly beneficial as the demand is strong, prices continue to increase and in a couple months or years you are able to increase the gains on the rental property”. In contrast, others interviewed were of the view that the strong demand for condominiums for investment purposes is a major challenge. One housing advocate interviewed noted that, “investors are gambling up the price for condominiums in the hope to fetch a higher price in the resale market”. Still there were others who were interested in having a steady income source to help with their mortgage payments, property taxes and strata fees. One person noted that, “the steady income from rent provides security in the event I lose my job or I was to become ill and couldn’t work”.  Another indicated that, “by renting my condo, the mortgage payments, property taxes and strata fees are covered and I don’t have to worry about these on a monthly basis.” Further to this, several of these rental providers are involved because of the low risk associated with the rented condominium market. According to one investor interviewed, “renting a condominium is less risky when compared to stocks and bonds”. However, others see rented condominiums as part of their pension plan and long term investment held for their children. An investor noted that, “I bought my condo for my children and while they are at school they have been renting it to supplement their income”. While another stated that, “the rented condominium is my pension plan- over time the equity builds up, and by the time I retire I can pay off my mortgage, sell my apartment and live off the interest gained”.       Changes in family situations often influence some condominium owners to rent their condominiums. One person interviewed said, “I rent because I moved away for work and didn’t want to sell my condo”.  Another person noted that, “I got married and wanted more space but was not interested in selling... because I want to keep it as an investment”.   2.4.     How Significant are Rented Condominiums in the City?While this question is difficult to assess given the limited information about the rental stock consisting of condominiums, recent studies supported by interviews with individuals knowledgeable about this supply suggest that it is highly significant. A developer interviewed noted that, “the rented condominium supply is pretty significant in the City, especially in the Downtown area where a significant portion of condominiums have been constructed over the past couple years.” Similarly, the most comprehensive data available on this supply, CMHC secondary market survey, suggests that across the region the significance of this stock is increasing. This data reveals that more than one fifth (1/5) of all apartment condominiums have been rented out by individual investors in the Vancouver CMA. Additionally, more condominiums have been added to the existing supply than any other form of rental housing over the past year. CMHC estimated that more than 3,500 rented condominium units were added to the existing rental supply in 2008. Fig 9 shows that across the CMA the change in the number of rented condominiums added to the market is higher than other secondary market rental sources such as secondary suites and row/duplex homes.  Although there was a mere increase of 113 rented condominiums added to the rental market in the City over the past year, the existing data does provide sufficient information for one to make a conclusion about the significance of this stock. CMHC (2008) revealed that an estimated 27.1 percent (16,986) of condominiums were rented in the City, compared to the 22 percent for the rest of the region (CMHC, 2008). Fig 10 shows that rented condominiums remain highly significant despite the decrease in the percentage share of units rented between 2007 and 2008. There were more condominiums rented in 2007 in the Burrard Peninsula (Downtown) and the City of Vancouver in 2007. Approximately 39 percent were located in Downtown Vancouver, while 19 percent were in other parts of the City. It is important to note that the percentage share of rented condominium decreased by more than 4 percent in Downtown Vancouver between 2007 and 2008, while there was a slight increase (1%) in the percentage share of units rented in Vancouver (east/west ).   Figure 9: Change in the Private Rental Stock in Vancouver CMA, 2008* Change = number of units added to or lost from the rental housing stock Oct 07 and Oct 08  Source: CMHC (2008). Secondary Rental Market Survey, Vancouver and AbbotsfordFigure 10: Percentage Share of Condominium Units Rented in the City of Vancouver and the CMA, 2007 & 2008    Source: CMHC (2008). Secondary Rental Market Survey, Vancouver and AbbotsfordAlthough this is a good estimation of the rented condominium stock in the City, the number of units might in fact be higher, as not all rented condominiums have been captured by CMHC surveys. This is a significant challenge in assessing the full significance of this supply in the City.   Other studies have provided further evidence that supports the argument of a highly significant rented condominium supply. Recent data collected by Alexander and Somerville (2009) revealed that rented condominiums make up more than one third of the rental housing supply in the City. The majority of the stock is located in Downtown Vancouver, while the remainder is in other parts of the City. Map 1 and 2 show the distribution of rented condominiums throughout the City and identify where the majority are concentrated. This data is consistent with CMHC data, illustrating that the City of Vancouver has a higher concentration of rented condominium than adjacent municipalities. Map 1: Condominium Buildings with Investor Share Less Than 20% in the City of Vancouver and Adjacent MunicipalitiesSource: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums.Map 2:  Condominium Buildings with Investor Share Greater Than 40% in the City of Vancouver and Adjacent Municipalities  Source: Source: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums. Table 2 summarises the percentage distribution of rented condominiums in the lower mainland and in the City of Vancouver. From this data, it could also be assumed that the stock is highly significant throughout the City, but is of greater importance in the Downtown. Notwithstanding, there are still significant gaps in the  Table 2: Investor owned Share of Rented Condominiums in Vancouver and the CMA Area% share of investor ownedInvestor owned units as % of the rental  apt & town houses  Lower Mainland20.5%34.6%Vancouver26.3%31.2%Vancouver Downtown* 40.9%Over  90%West End28.2%18.4%*data excludes the West EndSource: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums.Yan (2009) in a study of ownership, occupancy and the rental of condominiums in Downtown Vancouver revealed that more than 10,000 rented condominium units were supplied. This is very significant considering the gaps in the source data and the fact that only a section of the downtown area is represented.    The high demand for rental housing in Downtown Vancouver is possibly one reason for this high concentration of rented condominiums. Generally, there is a higher demand for condominiums in Downtown Vancouver, but no correlation has been established between this demand and the supply of rental housing, or whether or not the demand is solely for investment or for ownership. Nevertheless, the supply of rented condominiums is limited in this area given the lower vacancy rates.  In the Downtown area, the vacancy rate is 0.3 percent, while in other sections of the City, the vacancy rate is higher (1.2%), indicating a lesser demand outside the urban core. This raises questions such as why are rented condominiums more significant in downtown Vancouver than in other parts of the City? And are there implications for an increased reliance on this supply given the continuous decline of the purpose built stock? The answer to the first question could be linked to why people own versus rent in the City, a discussion which is outside the scope of this research. However, the second question is the intent of this research and as such is dealt with below.    2.5. Are there Implications for an Increased Reliance on Rented Condominiums?    Housing costs in the City of Vancouver are among the highest in the CMA and the rest of Canada. The high cost of ownership along with the tight job market is a factor contributing to strong demand for rental housing (CMHC, 2008). Since tenants have lower incomes compared to homeowners, rental housing affordability is a major challenge. Income data collected from Statistics Canada reveals that the income of renters is significantly lower than the income of homeowners. In 2006, 44 percent of renters earned less than $30,000 per annum, compared to 19 percent of homeowners. The median income for renters in the City was less than $40,000 annually for all age groups who were relying on rented accomodations (see Fig 11).Fig 11: Median Household Income by Age Group and Tenure for the City, 2006  Source: Statistics Canada custom tabulation for City of Vancouver, 2006Conversly, a vast majority of the rental demand in the City is from the lower income groups, mainly younger households i.e., less than 35 years old (see Fig 12). Approximately 87 percent of renter households are within the 15-24 age groups, while 73 percent of households are within the 25-34 age groups (Statistic Canada, 2006). Besides having lower income, many of these households might not have enough savings to enter the homeownership market, resulting in a sustained demand for more rental housing in the City. Figure 12: Percentage of Renter Households by Age Group, 2006   Source: Statistics Canada custom tabulation for City of VancouverLower income renters’ households, especially, are more likely to face affordability challenges, and this will be even more severe if they are dependent on the rented condominium supply as a source of rental. Purpose built rental housing is more affordable for many renters but their continual decline is a major challenge. In contrast to purpose built rental housing, rented condominiums are newer and more sophisticated with modern fixtures and amenities. Additionally, they are much more expensive. The average rental rates for condominiums are approximately 32 to 48 percent higher than purpose built rental housing (City of Vancouver, 2009). Fig.13 compares the average rents for purpose built and rented condominiums in Vancouver CMA, the City and Downtown. Given the average cost of rents in the City, lower income tenants face affordability challenges in renting the more affordable purpose built units, let alone being able to afford the more expensive rented condominium stock. This is further complicated by the fact that rents are increasing faster than income. For instance, the median price of a 2-bedroom purpose built apartment increased by 3.1 percent, while the median income of renters grew by 0.6 percent in 2008 (CMHC, 2008).  Fig 13: Average Rents for Purpose Built Rental and Rented Condominiums in Vancouver, 2008  Source: Canada Mortagage and Housing Corporation (CMHC, 2008). Housing Market Survey Vancouver and Abbotsford.Irrespective of income levels, renters choosing to live and work in the City of Vancouver must be able to access rental housing. The provision of rental housing, given the need, is good social (public) policy (Carter and Polevychok, 2004). This is because it ensures the stability and security of households, which is important for economic and social sustainability. Therefore, an adequate supply of rental housing that meets the needs of renters in the City must be provided.  Regardless of income, renters face different challenges in finding accommodations in the City, given the extremely tight rental supply market. For instance, lower income households face affordability challenges and whilst higher income renters are able to afford high end rental units, these opportunities are still very limited. Increasing the supply of rented condominium is highly beneficial since it adds to the overall supply. Furthermore, since these are high end rental units, attracting higher income tenants, they allow for the freeing up of the purpose built supply for lower to moderate income renters. New supply will add to the stock of rental housing giving renters more choice between condominiums and purpose built rental units (CMHC, 2008). In the absence of this added supply, there would have been stronger competition for the limited purpose built rental stock.Equally, if purpose built rental supply continues to decline, and there are no new rental investments, there will be stronger competition for rental housing among the low to moderate income renters. CMHC rental survey (2008) suggests that while more households will be occupying secondary rental units, many will be competing for purpose built rental units in a tight market. Already, the rental vacancy rate for purpose built apartments is declining, which indicates a stronger demand for these units. Conversely, increasing the supply of rented condominiums is disadvantageous to profit seeking investors. This equates to the law of demand and supply; as the supply increases the demand decreases and vice versa. Over the past year, some first time buyers have been vacating their rented condominium apartments and are moving into their own home and this along with an increase in supply has contributed to an ease in the demand (CMHC, 2008). The ease in demand will no doubt impact the investors’ ability to attract tenants and earn profits on their investment.  At the UDI seminar, one presenter noted that, “the higher income tenants are buying homes and many of the cash strapped tenants are seeking units that are within their budget and which meet their needs such as proximity to school and other amenities”. While this presenter encouraged investors to be more creative in attracting tenants to their units, if tenants are unable to access rented condominiums due to affordability challenges, there will be fewer uptakes of these units. In contrast, the rented condominiums supply is important to continually satisfy the higher end rental demand as predicted by CMHC (2009). Regardless of this, increasing the supply of rented condominiums will not make up for the gradual loss of the purpose built supply, given the high cost of rents. The continual loss of the purpose built supply will have implications for rental housing affordability. This is a major public policy concern that needs to be addressed.        CHAPTER 3 - EMERGING TRENDS, OPPORTUNITIES AND RISKS The purpose of this section is to discuss the emerging trends, opportunities and risks in the rented condominium supply market.  Factors Impacting the Rented Condominium Supply The Investors’ Priorities To a large extent, investors’ priorities influence the supply of rented condominiums in the City of Vancouver. From the interviews conducted, two types of investors were identified. Short term investors (“flippers”) are those buying condominiums for the sole purpose of capitalizing on the short term gains either through rental and/or resale of their units. Many of these investors rent their units for short periods of time, until they are ready to sell. “Because of the way the condominium market has been booming for the past few years, it has become a source of income or cash flow for investors”, according to one researcher interviewed. These investors rely on a risky market, which is hinged on rising condominium prices. The supply of rented condominium from these investors is unstable as there is a possibility that units might be withdrawn at any time for resale or other purposes. In the Downtown area, where a large percentage of rented condominiums are found, renter turnover is very high. Yan’s (2009) research on 13 (thirteen) buildings in Downtown Vancouver, reveals that 15 to 55 percent of the condominiums surveyed had a change of name on their BC hydro record from 2007- 8. While this data represents only 10 percent of the (possible) rented condominium stock, it suggests a high turnover in unit occupancy. Since renters are three times more likely to move than homeowners based on census data, this high occupancy turnover indicates the possibility of renters. In contrast, long term investors are more likely to rent their condominiums for longer periods of time because of their interest in increasing the capital gains on their properties. These investors prefer the lower risks associated with the rental market as opposed to other forms of investment such as buying stocks. Although several of these investors acknowledge that condominium rental is not very profitable, they seemed satisfied with being able to simply cover the expenses related to maintaining ownership.  One investor interviewed pointed out that, “being able to cover my expenses, while the property is increasing in value is what really matters for me”. Even though long term investors may remain in the rental market longer, the supply of rented condominium is not guaranteed and cannot be fully relied on to meet the needs of renters. This is because an investor’s decision and/or priorities for being in the rental market may change. Furthermore, there are unforeseeable circumstances, challenges and/or other barriers that may cause investors to take their units off the market at any time. 3.1. Challenges and/or Barriers FacedThere are several challenges and barriers faced that could impede the supply of rented condominium. These include: The unprofitability of  investing in rented condominiums; Dealing with issues relating to tenant management; Rent control system.Below are some of the comments made by investors regarding the challenges they face: Interviewee 3: “We are not making any money off our condo...rents charged are not enough to cover expenses”.  Interviewee 1: “it is very unprofitable ...the rental income we receive barely covers the       mortgage, property tax and strata property fees”.Interviewee 6: “rent control makes it difficult for us to raise the rent, which can only be done when tenants leave”. Interviewee 8: “damages to the apartment caused by one of my tenants and the overspending on maintenance made it very hard for us because the rent does not cover those costs”.Interviewee 11: The Residential Tenant Act is too heavy handed with little protection for landlords...it is often complicated when I have to deal with a difficult tenant and frustrating”. Interviewee 14: “Evicting and getting a new tenant is time consuming, and is often a lengthy and costly process.”  Some barriers to increasing the supply of rented condominiums include changes in economic conditions. From the interviews with rental providers, few indicated that rising interest rates, inflation and corresponding financial hardship would cause them to consider selling their rented condominium units. Below are a few of the comments made by those interviewed.Interviewee 5: “if I were to experience financial hardship, I would consider selling the unit.” Interviewee 4 “if interest rates were to rise and mortgage rates were to go up; we would consider possibly selling our unit”.From the interviews, the role of all levels of government as a facilitator of and an inhibitor to increasing the supply of rented condominium was highlighted, making it relevant that this role be further assessed.  Governments’ Role Both the federal and municipal levels of government play an important role in facilitating an increase in the supply of condominiums in the City. The federal government stimulates these investments through interventions such as providing financing and mortgage insurance, lowering interest rates and providing favourable taxation policies. On the other hand, the municipal government regulates land for development, through zoning and other bylaws; collects property taxes; and offers increased densities. However, the federal and municipal governments have very little or no control over the supply of rented condominiums (see diagram 2 below). In contrast, the provincial government through legislations such as the Strata Property Act and the Landlords Tenants Act has some influence over the supply. The possible effects of legislation on the supply of rented condominium are examined below.  Diagram 2: Relationship between the Public and Private Domains in the Condominium Supply Market(cash flow)Strata Property Act (2009)To some degree, the supply of rented condominiums is influenced by the Strata Property Act, which gives Strata Councils the power to restrict or prevent the renting of condominiums in British Columbia. Under the Act, a ¾ majority could pass a bylaw restricting or preventing owners from renting out their units (BC Government, 2005). By restricting rental, the strata council decides the number of allowable rental units that will be permitted in their buildings or whether they will allow rental. One important exception is that developers can file a Rental Disclosure Statement. This allows developers and owners who purchase directly from a developer to rent their units, even if a rental restriction bylaw is passed at a later time by the owners (BC Government, 2005). The possibility of rental restrictions increases when condominiums are bought and resold by the original purchasers to other purchasers. This is because subsequent purchasers cannot rely on the rental rights created between the developer and the initial purchaser and will be subjected to rental restrictions under the strata bylaws (BC Government).  Few of those interviewed raised concerns about the ability of the strata council to restrict the rental units in condominium buildings as one factor potentially affecting the supply. One rental housing advocate interviewed indicated that, “there are a lot of condominiums sitting vacant and some owners wanting to rent are unable to do so because their Strata Councils restrict rental”. While this is widely seen as a barrier to increasing the supply of rented condominiums, it is not the most profound barrier faced by rental providers interviewed. It is important to note that many, if not all of those interviewed had permission from their Strata Councils to rent. Some indicated that they were Strata Council members. As a result, information used in assessing the extent to which rental restriction is a barrier and/or challenge to investing in rental condominiums was very limited. For instance, it is not known how much of an impact these restrictions have on the supply or potential supply.    Despite this, recent data compiled by Alexander and Somerville (2009) reveals that less than half the buildings listed as condominiums in the City have some form of rental restrictions. Additionally, there are some buildings in which no rental is allowed, approximately 15 percent of buildings surveyed. Fig 14 shows the percentage share of buildings with rental restrictions and those with no allowable rental in the City, the West End and Downtown.  From this data, it is assumed that rental restrictions could actually impede the supply of rented condominiums given the high percentage (45%) of buildings with restricted rental in the City, especially in the West End.  However, rental restriction is less of a challenge in the Downtown area as approximately 18 percent of rented condominium buildings have some forms of rental restriction. Similarly, there are more buildings that do not allow rental in the City (15%) and the West End area (18%) as opposed to the rest of downtown Vancouver (4%).     Another interesting finding from this data is that older buildings (built before 2003) have more restrictions than newer buildings (built after 2003). Given this trend, rental restrictions might be less of a challenge to increasing the rented condominium stock since a large majority of the condominiums in the City were built after 2003. Also, there is a strong possibility that rental restrictions might be non- existent in many of the newer condominiums buildings. Although this might be the case, it is difficult to predict future trends; for instance changes in ownership. One major assumption from this data is that many of the older units are owner occupied, while the newer units exist largely for investment purposes and this does affect the supply of rented condominium. While there are noticeable gaps with this data, it provides a rough estimate of the extent to which rental restrictions could impact the supply of rented condominiums in Vancouver. There are still unanswered questions from the investors’ point of view, one of which is the extent to which rental restriction is a barrier to entering the rental market. In addition to this, there is widespread speculation among those interviewed that there are several “hidden” or unaccounted for rented condominiums. This means that some of the condominiums believed to be owner occupied are actually rented. “Many of these condos are part of the underground market... these investors evade taxes and other obligations, which is not only bad but unfair for others” one rental provider noted. Knowing whether a condominium is owner occupied or rented is not very obvious from the data available. Furthermore, given the nature of rental restrictions and other barriers it is extremely difficult for researchers to provide a good estimation of the supply. Another major challenge is identifying the rental providers (investors), which is essential to better understand the supply.     Figure 14: Condominium Rental Restriction in the City of Vancouver              * excludes West End Source: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums. Residential Tenancy Act (2006)This legislation is applicable to all residential tenancies in BC. It sets out the roles and responsibilities of landlords and tenants. The Act mandates that every landlord and tenant must enter in an agreement that establishes the rules regarding tenancy. For instance, residential landlords cannot arbitrarily increase the rents for rental properties, as this Act stipulates when and how rent increases can be applied. This was one of the challenges raised by those interviewed. Several disapproved of the rent control system, which mandates the yearly rent increases in the province. One investor/ landlord noted that, “if we are to make a profit, rent control can’t be controlling rents”. Despite this, there are others who are still firmly in support of the rent control measures. Their main concern for keeping the rent control system was based on the possible implications for rental housing affordability. A rental housing advocate interviewed pointed out that, “removing rent control only serves to worsen the challenges faced by renters... government needs to improve the economics of rental housing”. In addition to this, rent control has been singled out as a fundamental problem in the rental housing market and is still a highly debateable matter. Despite the disagreements, there is still insufficient information to determine the implications of rent control on the rented condominium supply, which is a matter requiring further study.     Another concern raised about this legislation is the limited protection of tenant’s rights given the fact that rented condominiums are in some cases short term rental. Under Section 49 (landlord’s use of property) of the Act, there is very little protection offered to tenants in rented condominiums. In this section, “an individual landlord may end tenancy of a rental unit for the following reasons: to occupy it or to sell the unit providing that all conditions of the sale have been met and the purchaser, in writing, requests that the landlord gives notice to the tenant”. This is a fundamental clause that seeks to work in the favour of short term investors in the rented condominium market. A major challenge is that renters are not protected against short term eviction notices given by rental providers- investors (rental providers) can require tenants to vacate their premises by giving two months notice. There are several assumptions that are being made about the implications of this provision on tenants living in condominiums and the subsequent implications on the supply. One tenant advocate interviewed suggested that, “investors in rented condominiums have far more leeway in getting rid of tenants...with only two months notice a tenant can be kicked out of their apartment”. This is especially challenging because rental vacancies are limited in the City of Vancouver. Moreover, renters on the move are faced with higher cost rents as vacancies are created, allowing landlords the opportunity to raise rents to the current market value. As a result, displaced condominium renters might be faced with increased affordability challenges.The protection afforded to renters of condominiums is a sharp contrast to the protection renters have in purpose built rental housing. The Act was amended to give more protection to tenants (renters) by increasing the amount of notice that landlords must give to tenants in the event of renovation and increases the compensation payable to them under these circumstances (Bill M205, 2008).In addition to government’s limited role, other stakeholders (such as the developers and renters) are also playing an important part in increasing the supply of rented condominiums. Table 3 summaries the role of these other stakeholders. Developers are often seeking ways to maximize their returns, and given the robustness of the housing market over the past few years condominium investments provide many opportunities for them to do so. Developers capitalise on the solid demand of households and/ or investors to achieve their returns by increasing the supply of condominiums at the price people are willing to pay, without depleting their profit margin. In contrast, increased profitability in the rented condominium market depends largely on the strong demand by renters. Given the rising house prices over the years, many renters have been unable to own homes. In Downtown Vancouver, the demand for rented condominium is highest, which may be a result of higher income renters being unable to buy into the housing market. Higher income renters are usually more attracted to the newer units with modern amenities and fixtures, the convenience of the downtown and proximity to transit and other services.   Table 3: Stakeholders in the Rented Condominium Market and their Interests Category of stakeholdersInterestsDevelopers: Provide competitive price for units so as to attract favourable returnsInvestment is very profitableIncrease market shareCapitalise on strong market demand  for housing   Short term investors (‘flippers’) Less risky investment Cash  flowMaximize their returns through short term gainsLong term investors Increase capital gains Steady income RentersAffordable rentalsLocation: convenience and proximity (work, school, transportation) Access to amenities and servicesSafe and appropriate housing      The demand for rental units is one of the reasons many rental providers enter the market. Providers of rented condominiums capitalize on the solid demand from renters. Despite the challenges, some rental providers have chosen to remain in the housing market for a variety of reasons. The majority of those interviewed indicated that having good tenants over the years and a low renter turnover is a key consideration in their decision to remain in the market. “It is a real hassle to find tenants...I don’t want short term tenants because I fear those are the ones more likely to thrash the unit”, notes one investor interviewed. Another pointed out that, “I have a good relationship with the tenant in our building... the property is well maintained and I am quite happy”. It is worth mentioning that some investors intended on renting their units on a short term basis ended up staying in the rental market longer than anticipated. “I didn’t expect to stay this long, but it was okay once I’m in and I’ll see how it goes from here”, said one investor. Another noted that, “I went into the market hoping to stay a year and I’m still involved, I even have another rented condominium and I’ll remain in the market for a while, maybe until the economy improves”. This makes it very difficult to determine the length of time investors (rental providers) will remain in the rental market.  Based on this and from previous discussion, two fundamental challenges have been identified with the supply. These are the uncertainties about the stability of rented condominium supply and the reliability of the supply in continuously meeting the rental demand in the City. What can be done to secure the supply?From the interview with stakeholders, there are limited actions that can be taken to increase and secure the existing supply of rented condominiums in the City. The main actions suggested are:Changes to the Residential Tenancy Act, for example eliminating the rent control provision;Senior governments providing special tax benefits (incentives) to investors as a way to encourage owners of vacant apartments to rent out their units or to encourage those already in the market to remain for longer periods (over 10 years); Provincial government amending the Strata Property Act to increase the percentage of allowable rental units in condominium buildings. Through this amendment, the provincial government could require that Strata Councils does not set the maximum number of rented condominium at less than 20 percent.    Emerging Trends  As stakeholders contemplate the challenges ahead with the growth of rented condominiums and the continuous loss of the purpose built, there are some emerging trends that impact rental housing. It is important to briefly discuss these trends and assess the implications for rented condominiums, as this is crucial in defining the next steps for rental housing in the City.      Across North America over the past year, housing construction and sales slowed tremendously, following the sub-prime mortgage problems in the United States and the global economic recession that preceded this. Like the rest of Canada, Vancouver’s housing market has not been immune to the effects of the global economic slowdown, and both the privately owned and rental housing markets have been affected. Economic uncertainties and job losses impacted consumer confidence and the demand for housing in Vancouver. Case and Quigley (2008) argue that an economic slowdown or increase in condominiums can trigger a shift in consumer psychology, accelerating a decline in the demand. Additionally, the loss of full time employment has had adverse impact on the housing demand (CMHC, 2009).  As the housing demand decreases, the number of units available for sale, housing prices and the number of units sold are reduced.  In Vancouver, the demand for new and resale homes, including condominiums, has dropped substantially, while the supply increases. Compared to the past few years, buyers are now extremely cautious about entering the market, which is evident in the number of unsold properties, many of which would have previously commanded multiple offers (Goodman Report, 2008). Relative to other types of housing, the absorption (take up) of condominiums has been very good in the City of Vancouver, averaging 12 percent in February, 2009. This is because many of these units were presold, before completion, resulting in fewer of these units on the market. However, given the substantial amount still under construction, CMHC (2009) predicts that the lower levels of demand and very little presale agreements for recent projects will contribute to an increase in the inventory of unsold condominiums. As a result of the decrease in demand, the number of sales and active listing has also decreased, suggesting that sellers have chosen to let the listing expire or have taken their homes off the market for other purposes (CMHC, 2009). Additionally, prices have been declining as developers try to attract potential buyers. Several developers and marketers of new projects have been offering incentives such as discounts to remain competitive (CMHC, 2009).  Similar to other types of housing in the CMA, condominium prices have been reduced.  In spring of 2008, the monthly average resale prices peaked and by March of this year was reduced by 15 percent (see Graph 1).  Graph 1: Average Housing Price Trend, Vancouver CMA   Source: REBGV, seasonal adjustment, trends cycles generated by CMHC % change from peak to March 2009. CMHC calculations as cited in CMHC Housing Market Outlook (2009) The effects of a shift in consumer demand on home sales and prices are shown in Fig 15. The drop in demand is because buyers have stopped looking and sellers are refusing to lower their prices for long periods, holding out at the ‘sticky price’ (Case and Quigley, 2008). As the spread between the bid and asking price increases, there are fewer agreements or sales. Case and Shiller (1988, 2003) survey of home buyers in four metropolitan states in the United States found that sellers, unable to sell their homes, reacted differently. Some sellers said they would leave the prices the same and wait for buyers, others said they would take the house off the market or rent it and still others said they would lower the price step by step until a buyer is found. Similar to this finding, homeowners in Vancouver who are faced with the challenges of selling investment property due to the lower demand acted the same. More importantly, however, is the underlying implications for rental housing. Figure 15: The Effect of Lower Demand on Housing Prices Source: Case, k., & Quigley, J., (2008). How housing booms unwind: income effects, wealth effects and feedbacks through financial markets. 3.3. Implications for the Supply of Rented Condominium Some implications for the rental housing sector, especially for the rented condominium stock, arising from slower economic growth include:Lower demand for rented condominiums Slower economic growth and job losses have caused increased hardship for renters in the City (CMHC, 2009). Since rented condominiums are more expensive than purpose built rental housing, there is less demand for these given the increased challenges faced. Additionally, fewer tenants are responding to rental advertisements and more are vacating their apartments (Goodman Report, 2008). Interviews conducted with a few rental providers reveal that the vacancy rate in rented condominium buildings is increasing, averaging between 3 to 5 percent. Throughout the City rental vacancy rates are increasing, and recent CMHC data reveals that vacancy rates are higher in rented condominium buildings than in purpose built rental buildings. While CHMC predicts that the vacancy rates in purpose built building would increase up to 1.5 percent by 2010, there is no indication as to the percentage increase for condominiums, which could be a result of the uncertainties surrounding the supply.    Declining investment interestSince the economic downturn, a number of new housing projects (including condominiums) have been delayed given the substantial decline in sales. The demand for condominiums for housing and investment purposes has declined significantly. Investment demand has been reduced since housing prices started to decline in the spring 2008 (CMHC, 2009). Reducing prices have eroded the profitability in the condominium market, resulting in more investors exploring opportunities in the rental market. Some investors, especially those who were hoping to flip their condominiums, may consider putting them in the rental housing pool as they anticipate market recovery. CHMC housing market outlook (2009) estimates that the supply of rented condominiums will increase as more investors choose to rent their units. Although there is the possibility that the rented condominium supply will be substantial, there are some risks involved, which include but are not limited to the following:The supply of rented condominium is unstable, given the underlying interests of the investors. It is anticipated that once the market improves, condominium units will be withdrawn from rental. One rental provider said that, “some investors will prefer to rent their condominium rather than sell it below what they paid for it”. This is a point that has been reaffirmed by the CHMC housing market outlook, which suggests that investors will choose to rent their units out to help cover monthly mortgage carrying costs. It is very difficult to secure the supply, even with government support, and there are no mechanisms to ensure that the current stock of rented condominiums will be available over the long run.Rented condominiums are the most expensive form of rental housing and an increased reliance on this supply could result in more renters facing affordability challenges. Additionally, since the majority of renters in the City have low income, there is the greater possibility that more would fall within core housing needs.There is insufficient information about the rented condominium supply in the City.  For example, neither the total number of rented condominium nor the length of time rented is known. Additionally, there is no information about the investors, where they are from and about the challenges faced within the rented condominium market. Given these risks, researchers, housing specialists and rental housing advocates interviewed pointed out that the focus should be on the purpose built rental housing and not on increasing the supply of rented condominiums. “What is required is senior level of government involvement, particularly federal government incentives to encourage the building of purpose built rental housing,” noted one housing specialist.  Moreover, the majority of those interviewed including rental providers indicated that senior government tax incentives are important to increase the supply of rental housing. This is also supported by the Director of Planning for the City of Vancouver who recommends in a letter, “that the Mayor writes to senior levels of government regarding the urgent need to remove tax disincentives, and reinstitute incentives to build purpose built rental housing”, (City of Vancouver, 2007).The main policy initiative suggested was:The introduction of federal government incentive programs for rental buildings, which include but are not limited to:Tax shelter packages for rental housing;Reducing  the GST on new rental housing construction; Reducing the interest rates for new rental construction; and Providing low interest loans.The provincial government could assist the federal government to establish taxation and other measures that foster the development of purpose built rental housing. In particular, there are some institutions such as pension funds that view development prospect much differently than residential condominium developers who do not want to carry a building for a long time. Government leadership bringing together these players would be very helpful.Besides the senior levels of government, developers have suggested that the municipal government could assist in a number of ways. These include:   Reduction in Development Cost Charges (DDCs) and building permit fees for developers of rental housing Fast-tracking the time frame for approving development and building permits for rental buildingsReducing parking requirements Using zoning to encourage rental housing  Several of these suggestions have been consistent with previous studies done in the CMA and elsewhere in Canada.  These include GVRD (2006); Smart Growth BC (2005) and the Ontario Housing Supply Working Group’s interim report (2001). Other possible approaches identified in one or more of the reports above, but not suggested by participants interviewed are:   Promoting public/ private partnership in affordable rental housing provision (combination of government subsidies, favourable financing and community involvement);Improving partnership among all levels of government.OpportunitiesThe economic slowdown has created a renewed interest in rental housing projects but government support is required in making these projects feasible. Some interested developers are seeking government’s assistance to make rental housing more viable from an investment standpoint (UDI seminar, 2009). Despite the lower construction costs, the land costs remain high making rental housing feasibility difficult (CMHC, 2009).  Improving the economics of rental housing investment is important in promoting more long term rental housing solutions. Given this renewed interest in rental housing development, there are opportunities to better understand the rented condominium supply, given its importance and develop partnerships with providers to increase the supply.CHAPTER 4- ANALYSISDiscussionThis research was intended to investigate the rented condominium supply as part of an overall objective of examining ways to increase the stock of rental housing in the City of Vancouver. While several assumptions were made in answering the research questions, useful insights have been garnered about the rented condominium supply and the rental providers involved. Important findings about the significance of the supply, the challenges faced by rental providers and the risks and opportunities are revealed. Additionally, some concerns are raised about the growing significance of rental condominiums, while the supply of purpose built rental housing continues to decline. This section assesses these findings and highlights a strategic approach to ensure that there is an adequate supply of rental housing in the City.  The study findings reveal that rented condominiums are very significant in the City of Vancouver, primarily in Downtown, where the majority of the stock is present. The supply exists for investment purposes and is largely dependent on the interest of individual investors. As a result, there are some concerns about this significance and the implications for the rental housing market in the City. The main concern is on rental housing affordability. Rented condominiums are far more expensive than purpose built rental housing and since the majority of renters are within the low to modest income bracket, challenges with affordability will be more profound. Therefore, a highly significant rented condominium market alongside a declining purpose built rental supply is a major problem.  Moreover, it is a crucial public policy matter requiring government’s action. An increased reliance on rented condominiums as a significant source of rental housing in the City of Vancouver is challenging, given investors’ interests and the risks that these units could be removed from the rental market at anytime. The uncertainties surrounding the length of time condominiums will remain in the rental market are not very reassuring when developing a healthy rental housing market. Furthermore, the instability and unreliability of this supply is a barrier in making steady progress toward ensuring an adequate supply of rental housing throughout the City. A fundamental challenge is that the supply exists solely to meet investors’ needs. Therefore, challenges and/ or barriers they face such as low rents, rental restrictions and rent control may prevent them from increasing the supply. Although many of these are widely recognizable challenges in the rental housing sector, on the whole, there are no simple solutions as strategies identified (see preceding chapter) are difficult to implement. Also, there could be far reaching implications if steps are taken to increase the supply of rented condominiums as opposed to allowing the market to operate without intervention. For example, removing rent control may have severe implications for rental housing affordability and amending the Landlord Tenant Act could have negative consequences for both investors and renters. Additionally, there are no guarantees that these changes will increase the stock. Moreover, changes of any kind could possibly serve more as a hindrance for some interested rental providers. Finally, economic conditions conducive to rising housing prices may have a greater influence on investors’ decisions rather than targeted interventions.     	 As it is, the rented condominium supply market seems to be operating effectively, responding to the demand. The supply has been increasing as more investors are offering their units for rental and this is expected to continue up to 2010 as predicted by CHMC. An increased supply of this stock is important as part of any strategy aimed at maintaining a healthy and balanced supply of rental housing. This will ensure that more rental housing options are available for renters, regardless of their income. A major obstacle, however, is the lack of information about the supply and challenges faced by renters given the cost, instability and insecurity of the supply.      	 In light of this, it is important that further effort be made through research to better understand the rented condominium market and to investigate the implications of its significance for the rental housing sector. However, a fundamental insight garnered from this research is the need for government to improve the conditions for rental housing investment, through the provision of supportive tax policies. Strategic Policy DirectionEncouraging the building of purpose built rental housing through favourable tax policies and other incentives is a key strategy that has been suggested. Government intervention in the rental housing market is needed to create and sustain a healthy and well balanced rental housing supply market. To achieve this, the best approach is for governments to improve the economics of rental housing, thereby allowing for investments in purpose built rental housing to become more feasible. It is crucial that all levels of government to be involved but the federal government has a more important role to play in influencing investment in new rental housing, given its taxation powers. If purpose built rental housing is to remain profitable, favourable federal government tax incentives are needed (see table 4 for few examples).  Also, since several of the existing purpose built stock have aged and deteriorated, providing support to enable continuous maintenance is important. Federal government support is needed to encourage the improvement and upgrading of the existing stock. In addition to this kind of support, a comprehensive study of the rental housing market and a rental housing policy is needed to understand the rental housing supply sector. To the extent that the provincial government can act, new ways to partner with the federal government should be identified. Other actions that may be necessary for the province to consider are outlined in table 4. Also, increasing the assistance given to low income renter households is necessary to bridge the gaps in affordability challenges experienced. Although it is acknowledged that without the support of the federal government, the provincial government will be unable to increase its social assistance policies and programs geared towards low income earners. Similarly, the City of Vancouver has a role to play in stimulating greater interest in rental housing. Several investors and some researchers including Clayton (1999) are of the view that they are able to lessen the burden for new rental development by removing barriers in the development process. These include: Development Cost Charges (DCCs) and the lengthy approval process. In addition, the City has municipal taxation powers, which could impact on rental housing development (see Table 4). However, reducing DCCs or property taxes could have consequences such as a greater burden on tax payers to fund the cost of services and possibly reduce quality of services provided in the City. Although these are well needed actions, it is recognized that funding is a major challenge faced by various levels of government in effectively tackling rental housing shortage. Responding to this requires strategic intervention geared at increasing and sustaining the supply of rental housing. The substantial involvement and commitment of all levels of government is a critical first step. Secondly, increased partnerships between government and key stakeholders are important. Thirdly, the economic slowdown has created the impetus for the rethinking of more innovative strategies in increasing the rental housing supply, which includes greater collaboration with stakeholders in the rental sector.     Finally, there are opportunities to better understand the existing stock including rented condominiums through research partnerships that could be forged with local universities. For example, funding research projects and/or researchers interested in exploring the rental housing market.  Table 4: Possible Policies, Actions and Incentives needed at all levels of Government    Level of governmentPolicy influence in the rental market Possible actionsFederal government:Sets taxes policies  and GST Federal taxation policies were important in stimulating private sectors interest in rental housing in the 1960s and 1970s. Also, the absence of GST on rental housing construction was a favourable incentive for rental housing provisionNew purpose built rental housing   The provision of shelter incentives for the building of new purpose built rental stockReduction of GST on new rental housing Enabling investors to defer CCA recapture and capital gains from the earnings of the sale of their property Providing lower interest rates which is favourable for the cost of financing and cash flowExisting Purpose built rentals housingProviding favourable tax incentives to landlords to upgrade propertiesUndertaking research on the existing stock of rental housingUndertaking comprehensive study of the rental housing market in all major Canadian centers Rented Condominiums No direct control over supplyDetermines interest rates Interest rates have a direct effect on developers interested in rental housing projects. They are interested in maximizing their returns and so debt servicing should not exceed operating expenses. Currently, rental housing investment is highly unprofitable. Without special consideration   in this regard, purpose built rental housing will remain unattractive to investorsProvides access to financing and  cost of mortgage insurance   This enables developers to borrow a significant portion of financing for the housing project. This allows for the reduce equity required for the housing project and for developers to borrow money at a lower rate than they would pay other wise     Collects rental housing statistics  Provides rental housing data for purpose built and more recently the secondary housing market   Table 4: Possible Policies, Actions and Incentives needed at all levels of GovernmentLevel of governmentPolicy influence in the rental market Possible actions Provincial Government:Legislation Residential Tenancy ActRent controlStrata Property ActDiscouraged investment in rental housing Rent controlRestriction  on condominium rental    Rented Condominiums Limited regulatory action might be possible such as amending the Strata property Act to allow for more rental units.   New purpose built rental housing Identifying new ways to partner with federal government. These include assisting to establish taxation and other measures and providing leadership in bringing key players together Existing purpose built rental housing  Developing a rental housing strategy and action planUndertaking research on the existing stock and the implications of rent control  and Residential Tenancy ActConsidering phasing out the system of rental control Encouraging the preservation and upgrading of the existing supply Affordable housing provision The Province provides rental assistance to low income families and shelter aid assistance for elderly renters. In addition to funding for housing projects, which includes acquiring and rehabilitating SROs.     Municipal Government Property TaxesIncreases in property taxes could have an impact on the ongoing returns from rental investments.Rented CondominiumsThe City has no control over the supply of rented condominiums Table 4: Possible Policies, Actions and Incentives needed at all levels of Government    Level of governmentPolicy influence in the  rental market Possible actionsMunicipal (Continued)Development cost charges Development cost charges, which assists the City to provide infrastructural services, may have very limited impact on the rental housing provision.  New purpose built rental housingOffering increased densities in exchange for more rental unitsReducing parking requirements Streamlining the  development approval process  Existing purpose built housingContinue to develop  mechanisms to preserve the existing stockUndertake rental housing studies Develop a rental action planidentify opportunities to partner with senior levels of government Land use and zoning regulation creates opportunities for new rental housing development    Rate of change regulationsRestricts the demolition and conversion of existing purpose built rental housing Study Limitations:There were a number of limitations in researching the rented condominium market. While there was congruence between primary and secondary data sources, numerous assumptions had to be made in answering some of the key questions pertinent to this research. The main challenges were the lack of information about rented condominiums in the City; the difficulties in comparing and analysing data sources; and problems in finding investors and other stakeholders to interview.  Although this research provided information about the rented condominium market, especially on the challenges and barriers faced, further research is still needed to unravel the uncertainties and dismiss speculations that still exist regarding the supply. Similarly, comparing and analysing data sources, for example CMHC and Census data, was not only difficult but was based mainly on assumptions. Census data does not differentiate between renters living in rented condominiums and those in purpose built rental housing. Furthermore, the data is collected every five years and as such recent changes are not captured. Therefore, several assumptions have been made regarding the implications for rental housing affordability. Additionally, there are numerous privacy and confidential issues relating to the stock of rented condominiums, which made it difficult to obtain information. Rental providers and other stakeholders interviewed were difficult to identify and many of those interviewed were more interested in discussing the need to increase the economics of rental housing than the rented condominium supply market. While this research benefited from the perspectives of rental providers who have been in the rented condominium market for some time, it lacks the perspectives of the short term investors. Understanding the interests and challenges faced by these short term investors is important because their decision could have serious effects on the supply. This is an area that needs to be further explored. Other areas include but are not limited to:  The implications on rental housing affordability in the City;The extent to which policies such as Landlord Tenants legislations and the Strata Property Act impact the supply of rented condominiums in the City.CHAPTER 5- CONCLUSIONAnalysis of this research reveals that the stock of rented condominium is very important in the City of Vancouver. The supply is highly significant and its contribution continues to increase. Increasing the supply of this stock is important as it reduces the competition for higher end purpose built rental housing, making them more available for moderate to low income renters. However, the main dilemma is the growing significance of the rented condominium stock and the continuous decline of purpose built rental housing. This is a major concern given the implications and risks associated with an increased reliance on rented condominiums. There are implications for rental housing affordability and for the provision of a healthy and sustainable supply of rental housing in the City. Rented condominiums are the most expensive form of rental housing and an increased reliance on this supply could have serious implications for rental housing affordability. While the extent of these implications is unknown, given the limitations of the research, it is a burgeoning public policy matter. In addition to this, there are other concerns and risks around the supply of rented condominiums that are major barriers to its sustenance as a major source of rental housing in the City. The stock of rented condominium is not stable and cannot be relied on to continuously meet the rental housing needs in the City. Moreover, measures that are required to secure the supply are unpopular and as such are very difficult to implement. With the exception of amendments to provincial legislations and possibly tighter regulation of rented condominiums, there is very little that can be done by way of government policies to increase the supply. Therefore, focusing on the rented condominium supply as part of a strategy geared at ensuring an adequate and healthy supply of rental housing, while important, should not be the main priority for government. The main priority, as underlined by this research, must be to create the conditions necessary to stimulate a greater interest in rental housing. Improving the economics of rental housing is a key strategy. This includes the provision of supportive rental housing policies, which are geared at creating a level playing field for developers and investors interested in building purpose built rental housing. Carefully planned and implemented government policies and actions could greatly assist in alleviating the long standing problem of rental housing shortage. Overall, these policies and programs should aim to achieve the following core objectives:  To increase and sustain a healthy supply and well balanced rental housing supply;  To increase societal benefits, which include reducing the risks of homelessness and the overall cost to taxpayers for addressing the associated challenges. The federal government, in particular, must play a key role by leading the way in developing a rental housing policy, supported by the introduction of favourable incentives and tax policies. These include but are not limited to:Tax incentive programs to stimulate greater interest in rental housing; The provision of financial and other incentives to promote the improvement and upgrading of the current stock; Assisting the province with the development of more strategic social policies geared at helping low income renters. These include social assistance programs. In addition, partnerships among different levels of government and strong collaboration between stakeholders such as community organizations, the private sector and non-profit organizations are critical. This is important to maximize the use of scarce resources, while increasing the rental housing supply.     Although the research was hampered by a lack of information and other limitations, several insights have been garnered from it and the work of others, which point to some implications for policies around rental housing in CanadaPolicy ImplicationsThe key policy implications are:Stronger partnerships are required among the levels of government to encourage and promote greater interest in purpose built rental housing;Extensive research is needed on the rental housing market, especially research focusing on examining the status of the current supply of rental housing and the significance of rented condominiums in other major Canadian centers, and appropriate policies developed to promote and sustain the provision of rental housing; Government needs to explore ways to partner with rental housing providers and other key players in ensuring an adequate provision of rental housing;Rental housing policies that promote long term interests in the rental market are urgently needed.REFERENCESAlexander. M., & Somerville.T., (2009). Diverse housing and the Vancouver Area’s investor-owned condominiums. Presentation at BC land summit. BC government (2005). Rental restriction for residential strata property. Information bulletin financial institutions commission of BC #5PA-05-01.----------- (2006). Residential Tenancy Act: A guide for landlords and tenants in British Columbia. Residential tenancy branch office of housing and construction standards. BC Statistics (2006).  Housing affordability in British Columbia. Census fast facts 2006Case., K., & Quigley. J., (2008). How housing booms unwind: Income effects, wealth effects, and feedbacks through financial markets. European journal of housing policy vol 8, no 2, 161-180.    Carter. T., & Polevychok. C, (2004). Housing is good social policy. Canadian Policy and Research Network Inc. Clayton Research (1998). Economic impact of federal tax legislation on rental housing in Canada prepared for the Canadian Federation of Apartment Association.  ---------- (1999). Understanding private rental housing investment in Canada. Prepared for CMHC. City of Vancouver (2005). Affordable Housing. The City of Vancouver Housing Center   ---------- (2005). Rental Housing. The City of Vancouver Housing Center. Issue 2006-14   ---------- (2007). Protection of Rental Housing Stock: Rate of Change Regulation. Policy Report Building and Development. City of Vancouver.---------- (2008). Rental Housing strategy: Process and Consultancies. Administrative report, RTS no. 07640Canada Mortgage and Housing Corporation (2007). Rental market report, Vancouver and Abbotsford CMAs  ---------- (2008). Canadian Housing Observer. Canada Mortgage and Housing Corporation (CMHC)---------- (2008). Secondary market rental research, Vancouver and Abbotsford CMA  ---------- (2008). CMHC apartment vacancy rates and average rents. Housing policy, social development, community services group, City of Vancouver.--------- (2009). Canadian housing observer. Canada Mortgage and Housing Corporation--------- (2009). Housing market outlook, Vancouver and Abbotsford CMAs. Canada Mortgage and Housing Corporation. --------- (2009). Housing now, Vancouver and Abbotsford. Canada Mortgage and Housing Corporation       Goodman D., & Goodman M., (2008). The market repositions. The Goodman report for apartment owners. Issue 36   Government of Canada (2002). Capital gain tax cut. Tax bulletin, Department of FinanceGreater Vancouver Regional District (2006). Draft affordable rental housing strategyReal Estate Board of Greater Vancouver (2008). Making sense of today’s housing market. REBGV news releases. Oberlander. P., & Fallick (1992). Housing a nation: The evolution of Canadian Housing Policy prepared for the Canada Mortgage Housing Corporation.  Ontario Housing supply working group (2001). Affordable rental housing supply: The dynamics of the market and recommendations for encouraging new supplyHamilton, S., (ed), (1978). Condominiums a Decade of Experience in BC. British Colombia Real Estate Association (BREA).  Hulchanski, D. (2001). A tale of two Canada’s: Homeowners getting richer, renters getting poorer, income and wealth trends in Toronto, Montreal and Vancouver, 1984 and 1999, Center for Urban Studies research bulleting #2, University of Toronto.Hulchanski, D., (2002). Housing Policy for Tomorrow’s Cities (Dec 2002), Canadian Policy Research NetworkLampert, G., (1999). Review of recent reports on rental markets in Canada. Prepared for the Canadian home builders’ association  Landcor Data Corporation (2006). A report on condo’s in Vancouver’s West end Paulsen, M., (2009). We need rental today: Toderian. Tyree http://thetyee.ca/News/2009/03/03/RentalHousing/.McClanaghan & Associates (2006). Affordable housing supply analysis final study result. A report prepared for the GVRD Planning and Policy Department. GVRD.Smart Growth BC (2005). Affordable housing policy. Affordable housing policy committee, Smart Growth BC.  Smith. L., (1983). The crisis of rental housing: a Canadian perspective. The annals of American Academy of political and social science. Sage.  Statistics Canada (2006). Custom tabulator for household maintainer in the City of Vancouver. Yan. A., (2009). Ownership, occupancy, and rentals: An indicative study of condominiums in Downtown Vancouver      Appendix 1Semi Structured InterviewQuestionnaireBelow are some guiding questions that were posed to participants. Section A:  Questions for landlords and/ or property manager of rented condominiums in the City of Vancouver.  How long have you been renting your condominium? What would you say are some of the reasons influencing your decision to rent your unit(s)?  How long do you intend to remain in the rental housing market? What are the factors that you take into consideration in deciding how long to stay in the rental housing market?What are some of the barriers and/ or challenges you face in renting out your condominium? How have you dealt with these barriers? And what kinds of support or assistance would you need in overcoming them?What are some conditions or factors that might hinder or encourage you to stay longer than anticipated in the rental market? How much “on average” do you charge monthly for your condominium?Section B: Questions for housing specialists and other individuals knowledgeable about rental housing in Vancouver.Investor owned condominiums, along with secondary suites are providing needed accommodation as the more affordable purpose built rental units are declining, here in the city of Vancouver.     How significant are rented condominiums, as an option for renters?What are some trends observed over the past year in the uptake of rented condominiums by renters? And are more units becoming available? On average, how long do renters remain in rented condominiums?What is the profile of a typical renter of a condominium? What are some of barriers and/ or challenges landlords face in renting out their condominiums? On average, how long do rented condominiums remain on the rental housing market?Given the challenge with rental housing in the city, what policies and programs are needed around condominiums to encourage more landlords become interested in renting out their condominium on a long term basis?NB: Rented condominiums investigated as part of this study are primarily 100% strata properties in the City of Vancouver.     Households are considered to be facing affordability challenges if more than 30 percent of their gross income is spent on housing (CMHC, 2008) A vacancy rate of 1.8 percent or less means that 18 or less apartments out of every 1000 are available for rent. Generally, a vacancy rate of 2.5 percent is considered a balanced market for the City of Vancouver. A balanced market is defined by the City as one in which renters have a wide selection of properties and landlords can meet their cost.  Achieving this balance market has been difficult as this has only occurred once in the last 30 years (City of Vancouver, 2005). As cited by J. David Hulchanski (2001)   The Housing Price Index (HPI) is an alternative measure of real estate prices that provides a clearer picture of market trends over traditional tools such as mean or median average prices and is modeled after the consumer price index ( REBGV)  This number is derived through the calculation of data provided by CMHC on the number of rented condominiums for 2007 and 2008.   According to CMHC (2008), the Burrard Peninsula includes RMS Zone 1 (West End and Stanley Park), Zone2 (English Bay) and Zone 3 (Downtown)    This data does not include rented condominiums in Vancouver’s West End and is based on BC assessment data which was used to determine whether a unit is investor owned or not. If the assessment is sent to the unit owner it is considered to be owner occupied. If it is not, it is considered to be investor- owned with the potential for rental (Alexander and Somerville, 2009)     Source: CMHC rental market survey This data is based on MLS listing 2006-2009.  	 Alexander, M., & Somerville, T., (2009). Diverse Housing and the Vancouver Area’s Investor Owned Condos. BC Land Summit, May 21, 2009.   Source: CMHC Housing Market Survey (2009) As cited in Case and Quigley (2008). How housing boom unwinds: Income effects, wealth effects, and feedbacks through financial markets.    CHMC defines core housing needs as households paying more than 30 percent  or more of their income on housing viiii1429Rented condo market:(demand driven)Rented condo market:(supply oriented)Housing market condo: (supply oriented)Public DomainPrivate DomainFederal GovernmentDevelops Tax policiesSets interest ratesProvides financing and guaranteed mortgages Undertakes housing researchMunicipal Government Regulates zoning/land use Sets rates for DCCs, CACs Collects property taxesOffer density bonus     Provincial GovernmentDevelops legislation such as  landlord tenant Act Regulates  condo (Strata property Act)  Rental assistance program Development financing InterestsInvestment and holdings:Risk premiumAsset diversificationFinancial institutions Mortgage financing Completion and absorptionNew housing startsRental OwnershipHousing demandHousing supplyProviders, enablers and regulators Insights into the significance of rented condominiums   Better understanding of the challenges faced by rental providers Programs and policies needed to increase the  supply of rented condominiums Contribution Rental providers /Landlords DevelopersLandlords associationsStrata councilsGovernment RentersInterest groupsUnderstanding the significance of the rented condominium supplyIdentify factors influencing  investors to rent their unitsImplications for rental housing  affordability given an increase reliance on rented condosChallenges and/or barrier faced in the rented condominium marketResearch interestsThe significance of the rented condo stockChallenges faced by rented condo  providers (supply side)Profile of investors in rented condo marketRenters profile (demand side)Incentives, policies and programs  needed  to increase the  supply of rented condosKnowledge gapsInvestors Strata CouncilsDevelopers .  CHALLENGES  AND/OR  BARRIERS FACED CONDOMINIUM MARKET  IN THE  RENTED  Rental Providers’ Perspectives, City of Vancouver  By Latosia Campbell BSc., The University of Technology, Jamaica, 2001 A MASTER PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE (PLANNING) In The Faculty of Graduate Studies School of Community and Regional Planning We accept this project as conforming to the required standard ............................................................ ............................................................. ........................................................... THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver) August, 2009 © Latosia Campbell, 2009  ii  ABSTRACT The aim of this research is to assess the significance of rented condominiums and its implications for rental housing in the City of Vancouver; and to identify the challenges faced by providers of rented condominiums and policies needed to increase the supply. Interviews were conducted with rental providers and other stakeholders, using snowball sampling methods, which were supported by secondary data. Research findings revealed that rented condominiums are highly significant in the City, given the gradual decline of the purpose built rental stock. However, an increased reliance on rented condominiums is problematic because this supply exists solely for investment purposes and there are some concerns regarding housing affordability. Furthermore, challenges faced by rented condominium providers could affect the supply of this stock. These include rent control and rental restrictions, which are regulated by provincial legislations. Minor amendments to these legislations are suggested to increase the supply. However, there are risks involved in adopting policies that encourage rented condominiums such as an unstable supply and difficulties in securing the stock. To secure rental housing affordability and adequate rental housing for renters in the City, policies focusing on increasing the supply of purpose built rental housing are recommended, in addition to comprehensive research on the rental housing sector. Strong emphasis is placed on supportive federal government policies, improved partnerships among all levels of government and a collaborative approach between government and rental providers in solving the rental housing shortage in the City.  ii  TABLE OF CONTENTS Pages  Abstract .............................................................................................................................. ii Table of Contents................................................................................................................. iii List of Tables and Illustrations.............................................................................................. iv Acknowledgement................................................................................................................ vii  CHAPTER ONE: INTRODUCTION 1.0 .  Background............................................................................................................... 1  1.1 .  Study Rationale......................................................................................................... 5  1.2 .  Research Objectives and Questions.......................................................................... 7  1.3 .  Methodology............................................................................................................. 11  1.4 .  Definition of Key Terms and Concepts..................................................................... 13  1.5 .  Organization of the Chapters.................................................................................... 14  CHAPTER TWO: RENTAL CONDOMINIUMS, CITY OF VANCOUVER 2.0 .  Policies Affecting Rental Housing in Canada........................................................... 15  2.1.  The implications for Rental housing, City of Vancouver........................................... 22  2.2.  The Growth of Rented Condominiums....................................................................... 25  2.3.  Factors Influencing Investors Rent............................................................................ 27  2.4.  How significant are Rented Condominiums in the City?........................................... 28  2.5.  Are there Implications for an Increased Reliance on Rented Condominiums........... 34  CHAPTER THREE: TRENDS, OPPORTUNITIES AND RISKS 3.0 . 3.1  Factors Impacting the Rented Condominium Supply............................................... 38  Challenges Faced............................................................................... 39  3.2.  and/  Barriers  Emerging Trends...................................................................................................... 48 iii  3.3.  Implications for the Supply of Rented Condominiums.............................................. 50  3.4.  Opportunities............................................................................................................ 53  CHAPTER 4: ANALYSIS 4.0.  Discussion................................................................................................................ 55  4.1.  Strategic Policy Direction.......................................................................................... 57  4.2.  Study Limitations....................................................................................................... 60  CHAPTER 5: CONCLUSION 5.0. Conclusion..................................................................................................................... 63 5.1. Policy Implications......................................................................................................... 65  REFERENCES......................................................................................................... 66 APPENDICES One: Interview questions...................................................................................................... 70  iv  LIST OF TABLES AND ILLUSTRATIONS Pages  Tables: Table 1: The Main Tax Policies Affecting Rental Housing since the 1940s.......................... 18 Table 2: Investor-owned Share of Rented Condominiums in Vancouver and the CMA...................................................................................................................................... 33 Table 3: Stakeholders in the Rented Condominium Market and their Interests................... 46 Table 4: Possible Policies, Actions and Incentives Needed................................................. 59 Figures: Figure 1: The Share of Private Market Rental Housing in the Vancouver CMA, 2008.......... 2 Figure 2: Proportion of Apartment Condominium Rented, 2008............................................ 3 Figure 3: Percentage Share of Rental Housing by Type in the City of Vancouver................ 6 Figure 4: Percentage Share of Participants Interviewed...................................................... 11 Figure 5: Purpose Built Rental Apartments Completions in Canada’s Urban Centers, 1970- 1997............................................................................................................................ 16 Figure 6: Housing Tenure for the City of Vancouver, 1971-2006......................................... 23 Figure 7: Vacancy Rates for the City of Vancouver and the CMA, 1975-2008..................... 24 Figure 8: Completion of Market Rental and Condominiums in Vancouver (1970s to 2000s).................................................................................................................. 25 Figure 9: Change in the Private Rental Stock in Vancouver CMA, 2008............................. 29 Figure 10: Percentage Share of Condominiums Rented in the City of Vancouver and the CMA, 2007 & 2008..................................................................... 30 Figure 11: Median Household Income by Age Group and Tenure for the City, 2006 ......... 34  v  Figure 12: Percentage of Renter Households by Age Group, 2006..................................... 35 Figure 13: Average Rents for Purpose Built Rental and Rented Condominiums in Vancouver................................................................................... 36 Figure 14: Condominium Rental Restriction in the City of Vancouver................................. 44 Figure 15: The Effect of Lower Demand on Housing Prices................................................. 50 Diagrams: Diagram1: Conceptual Map of the Research Framework...................................................... 9 Diagram 2: Relationship between the Public and Private Domains in the Rented Condominium Supply Market................................................................................................ 41 Maps: Map 1: Condominium Buildings with Investor Share Less Than 20% in Adjacent Municipalities............................................................................................. 31 Map 2: Condominium Building with Investor Share Greater Than 40% in Adjacent Municipalities....................................................................... 32 Graphs: Graph1: Average Housing Price Trend, Vancouver CMA ................................................... 49  vi  ACKNOWLEDGEMENT This project has been made possible due to funding provided through the BC Government Office of Housing Research, and strong support and encouragement received from my family, friends and project supervisors. Consequently, I would like to acknowledge and sincerely thank these individuals for their support. Firstly, I thank God for the wisdom, courage and tenacity in conceptualizing, planning and executing a project of this nature. I am very thankful to the BC Government Office of Housing Research and the School of Community and Regional Planning (SCARP) for the funding award received, without which this project would not be possible. Additionally, I thank Penny Gurstein and Michael Gordon, my project supervisors, from SCARP for their invaluable support. I am very appreciative of the time they spent discussing, reviewing and providing feedback on this project. Lastly, I thank my family for their prayers, unwavering support, encouragement and patience throughout this whole process. Special thanks to Paul, for his love, understanding and beliefs in my capabilities, especially during this time. Also, thanks to all of my friends for their support and kind words given during the very difficult times.  vi i  CHAPTER 1 - INTRODUCTION 1.1.1. Background The supply of purpose built rental housing has been the subject of numerous debates in Canada in recent years. A fundamental problem has been the inability of the private sector to supply new purpose built rental housing, especially in the three metropolitan areas (Toronto, Montreal and Vancouver), where the demand for rental housing is greatest (Hulchanski, 2001). Since the 1970s, there has been very little investment in new purpose built rental housing mainly because of unfavourable tax policies (Clayton Research Associates, 1998). The passage of condominium legislation during this period further complicated the problem, making it difficult for providers of purpose built rental housing to compete with those developing condominiums. Over the years, the condominium market flourished as the supply of purpose built rental housing steadily declined. Given the strong demand for rental housing, the secondary rental market, which includes condominiums, has grown more significant. Despite this, it is least explored as a strategy geared at ensuring an adequate supply of rental housing to meet the growing needs of renters. Consequently, the purpose of this research is to explore the secondary market, in particular rented condominiums in the City of Vancouver and address questions regarding their contribution. In the Vancouver Census Metropolitan Area (CMA), more than half the rental housing is provided through the secondary market based on CMHC data. Fig 1 shows the share of private rental, which includes a breakdown of secondary market rental.  1  Figure 1: The Share of Private Market Rental Housing in the Vancouver CMA, 2008  Source: CMHC (2008): Secondary rental market survey, Vancouver and Abbotsford.  Although, other forms of secondary markets such as single detached and accessory units are providing a significant amount of the rental supply, it is the rented condominium supply that is of particular interest for a number of reasons. Compared to other CMAs in the rest of Canada, Vancouver has the second highest percentage share of rented condominiums (see fig 2 below). Moreover, the City of Vancouver has the highest share of rented condominiums than any other urban area in Canada in 2008, which illustrates the growing importance of this form of rental.  2  Figure 2: Proportion of Apartment Condominium Rented, 2008  Source: City of Vancouver (2009). CMHC apartment vacancy rates and rents as cited from CMHC, secondary market surveys.  The Vancouver CMA faces numerous challenges relating to housing affordability, which makes it relevant that the growing importance of the rented condominium supply be explored. Renters’ households in the province of BC, where the Vancouver CMA is located, had the highest percentage (44%) of all households facing affordability problems in Canada (BC Statistics, 2006). In comparison to homeowners, renters are almost twice more likely to face affordability challenges. In 2006, 43.7 percent of renters in the province spent 30 percent or more on housing, while only 22.8 percent of homeowners were faced with a similar challenge (BC Statistics). Additionally, Vancouver is among the CMAs with the highest shelter to income ratio. The high cost of rent is a major challenge for renters, especially since their average income ($44, 671) is much lower than the average income ($68,262) of homeowners (Statistics Canada, 2006). Rental housing affordability1 has been the major theme in many of the rental housing studies and debates and is a major concern given the substantially lower income of renters relative to homeowners. While rental housing affordability is not the main focus of this  Househo ld s are cons i de r e d to be fac i n g af f o r d ab i l i t y cha l l e n ges i f more than 30 percen t of the i r gross i n come i s spen t on hous i ng (CMHC, 2008) 1  3  research, it is certainly an essential policy consideration in exploring strategies that are geared at promoting an increased supply of rental housing. The Greater Vancouver Regional District (GVRD) Draft Affordable Housing Strategy (2006) recognises the need to increase the supply of affordable rental housing for low income renters and some strategies have been proposed. However, less emphasis is placed on investigating the growing significance of the rented condominium stock. With no additional supply of purpose built rental housing planned, it is necessary to assess the rented condominium supply to determine its significance, the challenges with the supply, and the policies that are needed to increase the current stock. Though an increased reliance on rented condominiums could have numerous implications for rental housing in the City, increasing this supply might be an essential priority. Therefore, it is crucial that this option is investigated as part of a strategy geared at increasing the rental housing supply in the City. Consequently, the purpose of this research project is to assess the growing significance of the rented condominium supply and investigate possible implications of this supply for rental housing. Also, this research investigates the challenges and/or barriers rental providers of condominiums face and identifies the kinds of policies or actions needed to increase the supply.  4  1.1.2. Study Rationale Understanding the significance of the rented condominium stock and challenges and/ or barriers faced by rental providers (investors) in the City of Vancouver is necessary, given the strong demand for rental housing. The supply of purpose built rental housing in the City has been declining for several years, while the demand continues to increase. Developers favouring condominiums over purpose built rental development and the lack of favourable government tax incentives to promote rental housing development are the main reasons contributing to the shortage of this stock. Since the 1990’s, there has been minimum investment in new purpose built rental buildings because developers have chosen to build condominiums (City of Vancouver, 2005). Investing in condominiums has been highly profitable in comparison to purpose built rental housing. Additionally, the federal tax system discourages investment in rental properties through actions such as not allowing capital gains reinvested in rental housing to be exempt from capital gains tax (City of Vancouver, 2008). As a result, vacancy rates for purpose built rental housing in the City have been among the lowest in Canada and for the past two decades these rates have never risen above 1.8 percent2 (City of Vancouver, 2005). Low vacancy rates are a strong indication that the existing supply is insufficient to meet the growing demand. In 2008, the rental vacancy rate for purpose built rental housing declined further to 0.3 percent down from 0.5 percent in 2007 (CMHC, 2008). Built mainly in the 1960s and 1970s, many of the purpose built rental units have aged; been lost either through conversion or demolition; are temporarily out of the rental pool as they are being renovated; and are under redevelopment pressures (CMHC, 2008). Because of the shortage of purpose built rental housing, the secondary market, including the supply of investor owned rented condominiums has increased in significance. Currently, less than half the rental housing stock in the City of Vancouver is supplied by purpose built rental units, while a significantly higher proportion is being supplied through the secondary market. Fig 3 shows that the purpose built rental stock make up approximately 42 percent of the stock of rental housing in the City, while secondary suites (19%) and Investor owned condominium (11%) are other significant forms of rental housing supplied through the A vacancy rate of 1.8 percent or less means that 18 or less apartments out of every 1000 are available for rent. Generally, a vacancy rate of 2.5 percent is considered a balanced market for the City of Vancouver. A balanced market is defined by the City as one in which renters have a wide selection of properties and landlords can meet their cost. Achieving this balance market has been difficult as this has only occurred once in the last 30 years (City of Vancouver, 2005). 2  5  private market. There are also other types of rental housing, which include SRO’s and units in rooming houses (12%) and non-market rental housing (16%).  Figure 3: Percentage Share of Rental Housing by Type in the City of Vancouver  Note: Based on estimates derived from Statistics Canada (2006), City and CMHC data  Source: City of Vancouver (2008). Rental housing strategy: Processes and consultancies. City of Vancouver administrative report.  In contrast, the demand for rental housing in the City has remained quite robust, having grown steadily over the past years. The proportion of rental to owner occupied dwellings has increased steadily since 1951, with the largest increases in the 1960s, and has remained relatively stable (City of Vancouver, 2005). In 2006, a total of 131,535 (~52%) of all dwellings in the City were rented (BC statistics, 2006). Across the region, the demand for rental housing continues to increase with over 30,000 people moving to Vancouver, many of whom will take up residence in rental housing before becoming homeowners (CHMC, 2008). Increasing the rental housing supply and maintaining the current stock in the City is vital given the strong demand for rental housing relative to the rest of the GVRD and the province. The City of Vancouver has almost half (1/2) of the rental housing stock in the region and more than one quarter (1/4) of the province’s rental housing supply (City of Vancouver, 2008). Additionally, almost half the City’s population (46%) rely on rental 6  housing (City of Vancouver, 2008). This strong demand for rental housing and the correspondingly steady decline of the purpose built rental supply is a major concern, making it imperative that the secondary rental housing market be explored. The stock of investor owned rented condominiums is of great interest as increasingly more of these units are being placed on the rental housing market. In 2008, an estimated 27 percent (approximately 17,000) of the condominium stock in the City was rented based on CMHC secondary market rental survey (2008). This supply appears to be an important source of rental housing in the City, but little is known about the extent of its contribution to the overall rental housing supply. Additionally, there is insufficient information about the barriers and/or challenges rental providers face in renting their condominiums, which could potentially limit the supply. If there are challenges and/or barriers that could impact the supply, it might be necessary to identify policies and actions that are needed to increase the stock. On the other hand, increasing the existing supply could have implications for rental housing affordability as renters pay significantly more for rented condominiums relative to purpose built rental units. In the City of Vancouver, average rents for condominiums were more than 30 percent higher compared to purpose built rental units (City of Vancouver, 2008). In this regard, research that investigates the overall significance of rented condominiums and factors impacting the supply is relevant. Accordingly, this research assesses the rented condominium stock in the City of Vancouver in an attempt to provide a better understanding of the growing significance of this stock and more insights into factors impacting the supply. Also, the research discusses the implications of a highly significant rented condominium supply in the City, challenges faced and policies needed to increase the supply.  7  1.1.3. Research Objectives The main objectives of this research are: 1. To explore the significance of rented condominiums as part of the rental stock in the City of Vancouver and the implications of this for rental housing; 2. To identify factors influencing rented condominium providers (landlords) to rent their units and remain in the rental market; 3. To explore possible incentives, actions and policies that are needed to further encourage rental providers (landlords) to rent their condominiums on a long term basis; An understanding of the significance of the rented condominium market as part of the overall rental stock is relevant in developing strategies for increasing the supply. Factors influencing investors’ decisions to rent their units could provide useful insights into ways to increase the supply. Also, identifying the barriers and/or challenges investors face could help to increase our knowledge about these issues and possible ways to address them. Finally, exploring the kinds of policies and incentives to encourage rental providers to increase the supply might be necessary. Diagram 1 shows a conceptual map of what this research intends to achieve.  8  Diagram 1: Conceptual Map of the Research Framework  Knowledge gaps  Research interests  Interest groups  The significance of the rented condo stock  1. Understanding the significance of the rented condominium supply    •  Challenges faced by rented condo providers (supply side)  2. Identify factors influencing investors to rent their units    Developers  •  Profile of investors in rented condo market    Landlords associations  •  3. Implications for rental housing affordability given an increase reliance on rented condos  Renters profile (demand side)    Strata councils  •  Incentives, policies and programs needed to increase the supply of rented condos    Government  •  4. Challenges and/or barrier faced in the rented condominium market  Contribution  Rental providers /Landlords   Insights into the significance of rented condominiums    Better understanding of the challenges faced by rental providers    Programs and policies needed  Prov i de r s , enab le r s and regu l a t o r s  9  Research Questions This research seeks to answer a series of questions relating to the research objectives: 1.  How significant are rented condominiums as part of the overall rental housing market?  2.  What are the factors influencing owners to rent? And how long do they  intend to be in the rental market?  3.  Given the loss of purpose built rental units, what are the implications for  increasing the supply of rented condominiums?  4.  What are the specific challenges and/ or barriers faced by owners of  rented condominiums?  5.  What are the policies and actions needed to increase the supply?  10  1.1.4. Methodology This research is primarily qualitative but is augmented by statistical data in determining the significance of the rented condominium supply and assessing the implications for rental housing. The research focuses primarily on rental providers (landlords) and the barriers they face in renting their condominium apartments in the City of Vancouver. Additionally, the kinds of policies that are needed to possibly increase the supply are explored.  Data Collection Method As this is an exploratory research, a variety of data collection methods were used. The primary source of data was interviews (semi-structured) conducted with key informants. Snow ball sampling was used because of the difficulties in identifying and accessing key informants such as the rented condominiums providers and/or investors in the City. A total of twenty (20) interviews were conducted. Those interviewed included: rental providers, housing advocates, researchers and developers (see Fig 4 below). These participants were asked a series of questions relating to their involvement in the rented condominium market.  Figure 4: Percentage Share of Participants Interviewed  11  *others includes landlords association, housing advocates and researchers The questions asked varied given participants’ interests in, knowledge about, and experience with the rented condominium market. Rental providers (investors and property management companies) were asked about the length of time they have been in the market; their reasons for entering; why they stayed; the challenges they experienced in renting their units and kinds of policies and actions that are needed. Others such as developers and housing advocates were asked questions relating to the significance of the rented condominium stock, the challenges faced and the kinds of policies and actions needed to increase the supply. (See Appendix 1 for the interview questions). Rental providers interviewed have been involved in the rental market for at least five years. The majority (85%) of those interviewed have been renting their condominiums for over 10 years, while the remainder (15%) have been doing so for at least five years. From the interviews conducted, greater insights into the challenges faced by rental providers have been obtained as well as the kinds of policies and incentives that could encourage greater interest in rental housing in the City. Additionally, a seminar, “Ready for Rental” hosted by the Urban Development Institute (UDI) in March, 2009 provided further insights into the rented condominium supply market and the challenges faced by rental housing providers. Through this seminar, data was obtained about the implications of federal disincentives and the kinds of policies needed to stimulate a greater interest in rental housing. Key strategies were highlighted that could 12  be considered in exploring ways of not only increasing the supply of rented condominiums but also the stock of purpose built rental housing. Finally, several secondary data sources were used in analysing the significance of the rented condominium supply. These sources provided a broad perspective on the rental housing market including the implications of government policies; current and emerging trends in the rented condominium market; and the gaps and opportunities involved. Key data sources included CMHC rental housing studies, studies on condominiums and City of Vancouver rental housing reports/releases.  2.0 .  Defining Key Terms and Concepts  The secondary rental market refers to non traditional forms of rental accommodations that are supplied through the private sector. This includes rented condominiums, secondary suites, accessory units, single detached and row/duplex homes. Defined by Statistics Canada as a residential complex in which dwellings are owned individually while land is held in joint ownership with others, rented condominiums differ from other rental properties. Unlike other rental properties, there is joint ownership that is regulated by the Strata Property Act and as such there are differences in the handling of issues relating to the rental of condominium units. Investor, a term widely used throughout this paper, refers to an owner of a rented condominium unit(s). In addition to investor(s), rental provider (landlord) is a broader term that is used to describe an investor and/or his/her agent. The term landlord or rental provider refers to a person that owns an interest in property and who in exchange for rent, gives another person (tenant/renters) the right to use the property (Residential Tenancy Branch, 2006). These persons can be: •  the unit or building owner; the owner’s agent (property management company);  13  •  a person, permitting occupation of a rental unit under the Act, on behalf of the owner;  •  A person entitled to the possession of a rental unit and exercise rights of a landlord under the tenancy agreement.  2.1.1. Organization of Chapters The chapters are organized in the following manner:  Chapter Two: Rented Condominium, City of Vancouver This chapter gives an overview of the policies impacting rental housing in Canada. It begins by examining the implications of these policies on rental housing in the City of Vancouver and the growth of rented condominiums. The factors influencing investors to rent are discussed and the growing significance of the rented condominium market assessed. Finally, the implications of an increased reliance on the rented condominium supply are explored.  Chapter Three: Trends, Opportunities and Risks in the Rented Condominium Market In this section, the factors impacting the rented condominium supply are highlighted including the challenges faced by rental providers. Additionally, the interests of key stakeholders and the role of all levels of government in the rented condominium market are discussed. Also, policies and actions needed to increase the supply are identified. At the end, the implications of the changing economy on the rented condominium supply are assessed; and risks and opportunities underlined. 14  Chapter Four: Analysis The research findings are analysed and discussed in this chapter, and a strategic direction for increasing the supply of rental housing highlighted. Additionally, study limitations are highlighted and gaps in the analysis discussed. Finally, areas requiring further research are identified.  Chapter Five: Conclusion and Policy Implications In this chapter, the research findings and analysis are summarized, highlighting the main concerns and policy implications. Key policy directions are suggested for consideration in ensuring an adequate supply of rental housing in the City.  15  CHAPTER 2 RENTED CONDOMINIUMS, CITY OF VANCOUVER Purpose built rental housing construction in Canada increased significantly from the 1960s before entering a period of modest growth in the 1980s, declining thereafter from the 1990s onwards. Given the steady decline of the purpose built rental supply, the secondary market, especially the rented condominium supply has increased (Lampert, 1999). To provide a better understanding of the problems leading to the decline in the purpose built rental stock and the subsequent growth of the rented condominium supply market in Vancouver, it is necessary to discuss the implications of past government policies and programs that have impacted rental housing.  2.1.2. Policies Affecting Rental Housing The supply of housing in Canada has traditionally been and is still the responsibility of the private sector. Canada’s housing system relies almost entirely on the private sector to supply, allocate and maintain the housing stock (Scanlon and Whitehead, 2004) 3. However, this has not always been the case as governments’ interventions have been necessary to stimulate an increased supply, in particular, in rental housing. Beginning in the late 1940s to 1960s, unprecedented economic growth and demographic changes necessitated a level of adaptation and adjustment in housing policies (Oberlander and Fallick, 1992). One essential adjustment has been the provision of favourable tax policies that encouraged the construction of housing. The progress made, particularly, in the rental housing sector in the 1960s and early 1970s was highly significant as the majority of Canada’s purpose built rental housing were constructed during that period. Smith (1983) suggests that Canadians were extremely well housed at the end of the 1960’s and this he argues was a result of the increased number of rental housing starts (47%). Factors that have helped to spur rental housing construction included the strong demand from especially the baby boomer generation, favourable income tax policies, lower interest rates and a lower inflation rate (Lampert, 1999).  3  As cited by J. David Hulchanski (2001)  16  However, since 1972 government policies have increasingly favoured ownership over rental housing, beginning with changes made to the mortgage and taxation systems. As part of this change process, several of the tax incentives for rental housing were removed. Notable changes that have severely impacted the provision of rental housing were: 1.  The loss of tax benefits to investors such as the ability to pool properties to delay Capital Cost allowance (CCA) was eliminated;  2. The use of “paper losses” from CCA as tax shelter against income from other sources was terminated; 3. The taxing of capital gains on rental properties was introduced. The changes in these provisions substantially reduced the attractiveness of rental investment by reducing the after tax yields and liquidity of the investment (Smith, 1983). Furthermore, the inequities in tax provision created an imbalance in the provision of housing, which increasingly favoured homeownership over rental. These have served to disadvantage the rental housing supply market, impacting all the stakeholders (renters, investors and developers). Table 1 summarizes the main policies that have encouraged rental housing investments since the 1940s and the substantial changes made that have served to discourage these investments. Another fundamental impact on the provision of purpose built rental housing has been the passage of the condominium legislation, which introduced condominiums as a form of residential tenure in the 1970s. This legislation provides opportunities for higher income renters to own apartments rather than rent, and this in effect reduces the demand for rental housing and increases the demand for condominiums. Also, it is difficult for purpose built rental investors to compete with those investing in condominiums without favourable tax incentives. One of the main problems is that renters’ incomes are lower than the incomes of homeowners, making it easy for condominium developers to outbid developers of purpose built rental housing for residential sites (Hulchanski, 2001). Taken together, these changes have had profound impact on the rental housing provision, contributing to the steady decline of the purpose built rental stock. During the 1970’s, other factors such as the sharp rise in interest rates, uncertainties about land and construction costs and the growing fears of rent control also contributed to the decline of the rental supply  (Clayton, 1998). In response to the sharp decline of purpose built rental 17  housing, the federal government introduced a combination of programs that increased the supply. These were: •  The Multiple Unit Residential Building (MURB), which allowed for investors to use the capital gain cost obtained from rental building as a deduction against total cost. This program was introduced in 1974 and was later extended to 1979;  •  In addition to the MURB, the Assisted Rental Program (ARP) was also introduced from 1974 to 1978. Through this program, grants and later interest rate loans were provided to help make new rental projects more viable (Clayton, 1998). In essence, ARPs permitted investors to reduce their tax payables by deducting initial development cost, such as interim financing and architects’ fees from total income;  •  The Canada Rental Housing Supply Program (CRSP) was a rental subsidy program that replaced the MURB program, and which was reactivated in the 1980s (Hulchanski, 2002);  The MURB and the ARP programs resulted in a substantial increase in purpose built rental housing. However, after they were cancelled, the supply of purpose built rental housing has been declining continuously. Data compiled by Clayton Research Associates on twenty six (26) urban centers from 1970-1997, illustrates that the supply of rental housing have been on the decline in urban centers across Canada. Fig 5 shows that over this period, the number of private rental housing completed for these centers declined substantially. Although, this data excludes the past ten (10) years, it is still reflective of the current situation in the purpose built rental market.  18  Figure 5: Purpose Built Rental Apartments Completions in Canada’s Urban Centers, 1970-1997  Source: Clayton Research Associates (1998). Economic impact of federal tax legislation on rental housing in Canada prepared for the Canadian Federation of Apartment Association  Since the 1970s, there has been little investment in the purpose built rental supply and the number of new rental completion has been declining especially from the 1990s onwards. Researchers assessing the declining trend in the provision of purpose built rental housing have identified various reasons for this. For instance, Smith (1983) argues that the philosophy of rental housing shifted from one which encouraged rental housing, improving the efficiencies in the real estate market in the 1970’s, to one that discouraged rental housing through direct intervention and regulation such as rent controls and subsidies. Likewise, the decline of purpose built rental housing in the 1990s has been attributed to the economic recession and its after effects, higher vacancy rates and the emergence of the secondary market supply (Clayton, 1998). This implies among other things the reduced demand for the purpose built rental housing. Though, in recent times the secondary market supply has increased, accommodating much of the current demand for rental housing in Canada (Lampert, 1999). However, a decline in the purpose built rental stock and an increase in the secondary supply leave more questions than answers about the rental housing supply market. These include but are not limited to:  19  1. How significant is the secondary market supply? 2. What is the significance of this for the rental housing sector? 3. What are the factors driving this significance? 4. Are there implications and what might these be? 5. What are the most appropriate responses in stimulating an increase supply of rental housing? These are some of the questions that have been addressed in this research, which explores the rented condominium stock as part of the secondary rental market in the City of Vancouver. In the next section, the growing importance of the rented condominium supply is analysed for the City of Vancouver and findings discussed in relation to the significance of this stock. Additionally, the factors influencing this significance are investigated.  20  Table 1: The Main Tax Policies Affecting Rental Housing since the 1940s Periods Post WWII (19451960s) -high fertility rate -post war baby boom -stimulated housing production and upgrade Rental housing boom (1960s1971) - Demand from baby boomer generation - High divorce rates - Decline in birth rates  Government’s actions Federal and provincial partnerships: -insured mortgage loan -Limited Dividend Program (LDP)  Policy decisions LDP- subsidizes rental units  -  Enhanced role played by the provincial government  Capital Cost Allowance (CCA) deductions allowed the treatment of depreciation on a building as an expense for income tax purposes.  -  Federal government changes in mortgage financing and taxes  -  rental buildings pooled for tax purposes shelter income gained by claiming Capital Cost Allowance (CCA)  Treatment of rental losses - the losses on any rental property can be deducted from income from other sources in order to calculate income for tax purposes. These losses could include expenses such as operating costs and mortgage payments but not depreciation on buildings. Capital gains on real estate properties were not taxable Soft Costs are expenditures incurred by the owner of a new rental property which are not related to the actual acquisition of a fixed asset (building and land) - these costs could be deducted upfront in the first year Continued on the next page  21  Table 1: The Main Tax Policies Affecting Rental Housing since the 1940s  Periods Emergence of condominiums (1972-1980) - economic recession - rising land and housing cost - declining housing start - declining vacancy rates - high interest rates Disengagement and withdrawal of the federal government from rental housing (1980s-1990s) - high interest rates  Government’s actions - Federal government changes in mortgage financing and taxes -  Condominium legislation introduced  -  Federal government introduces new incentives in 1974: o MURB o ARP Federal governmentCanada Rental Supply Plan (CRSP)  -  -  -  Reduced federal government role in direct subsidies Greater role of provincial government (rent control)  Policy decisions - loss of income tax benefit provisions to rental investors - tax shelter abolished - 50% of capital gain tax applied to the sale of rental property - prohibits the treatment of carrying costs (interest and property taxes) as operating expenses MURB-reintroduces tax shelter coverage for individual and private investors and ARPs provided capital cost benefits to investors • • •  •  Soft cost allowed to be capitalised into the value of buildings and depreciated overtime CRSP- provides interest free loans to encourage the construction of rental housing Capital gain taxes increased to 66.67% in 1988 and then to 75% in 1990s. In 2000, it was reduced to 50 % Designation of rental housing as a passive investment in the income tax Act. This means that rental properties are ineligible for the tax advantages enjoyed by active small businesses, such as a special low rate of tax provided by way of an annual tax credit.  Sources: (Clayton, 1998; Lampert, 1999; and Oberlander and Fallick, 1992)  22  2.1.3. Implications for Rental Housing Development, City of Vancouver Purpose built rental housing development in the City of Vancouver has been severely constrained by the lack of favourable government tax incentives and the substantial development in condominiums. Since the 1970’s, the construction of purpose built rental units in the Vancouver CMA began to decline. Planned rental starts dropped from a peak of 67.4 percent in the 1960’s to 11.7 percent by 1975 (Hamilton, 1978). With the introduction of tax incentive programs such as the MURB and the ARP in 1974, purpose built rental housing starts increased significantly. After these programs were cancelled, the supply of purpose built rental started to gradually decline. Very few rental housing units have been built, except for an anomaly in 2003 when a total of 2000 new units were added (City of Vancouver, 2008). In the first ten months of 2008, less than 3 percent of all new housing starts were rental with only 300 new rental units added across the Vancouver CMA, based on CMHC data. Additionally, a significant proportion of the existing stock has been demolished. Over the past year, more than 1,000 of this stock have been lost in the region (CHMC, 2008). CMHC indicates that the City of Vancouver is one of two cities with the greatest loss in its purpose built stock in the CMA. The demolition and in some cases conversion of rental buildings to condominiums and the temporary removal of some of the existing units from the rental pool for renovations are the main reasons contributing to this decline (CMHC, 2008). The remainder, particularly the older stock, is under redevelopment pressures in areas such as Marpole, the West End, South Granville and Kerrisdale (City of Vancouver, 2007). At the UDI discussion forum, “Ready for Rental, part 1”, a developer indicated that, “several of the current rental housing stock have reached the end of their economic life, where the land is worth more than the value of the rental units”. Redevelopment of these existing older purpose built rental housing is highly favourable for condominium development, considered the “highest and best use” of residential lands in the City. The strong demand for apartment condominiums, and high building and land costs have over the years made building for homeownership more attractive (CMHC, 2008). The desirability of the condominium supply market is further strengthened by the fact that profitable returns can be realised very early. Profitable returns can be obtained from the presale of condominium units even before these units are completed, while similar returns from rental buildings can only be realised when completed  23  (Clayton, 1998). Although the cost to build a rental apartment is roughly the same as the cost to build a condominium, investors of purpose built rental housing will have to wait a decade to recover the land and construction costs. Conversely, condominium investors could have within a few years made money and would have lowered their financing cost by pre-selling units before construction (Paulsen, 2009). As a result, the supply of purpose built rental units continues to decline in the City. Rental housing demand in the City has remained quite robust since the 1970’s. Census data on housing tenure analysed from 1971-2006 reveals that there is a consistently higher proportion of rented dwellings in the City compared to those that are owned. Fig 6 shows that more than half the households in the City of Vancouver are renters compared to homeowners and this proportion has grown tremendously over the years. In 2006, 52 percent of all households in the City were renters (Census, 2006). Increased inter and intra migration into the City and the rising cost of ownership are factors contributing to this strong demand for rental housing (CMHC, 2008). As a result of this persistently strong demand for rental housing and limited supply of purpose built rental housing, the rental vacancy rates for the City has remained very low.  Figure 6: Housing Tenure for the City of Vancouver, 1971-2006  Source: City of Vancouver Planning Department information sheet: City facts Census data series, tenure of dwelling 1971-2006.  24  Vancouver’s rental vacancy rates have been among the lowest in Canada since World War II (City of Vancouver, 2005). Compared to the CMA, vacancy rates for purpose built rental in the City are very low and have been at their lowest since 2004 (see fig.7 below). Figure 7: Vacancy Rates for the City of Vancouver and the CMA, 1975-2008  Source: City of Vancouver (2009). CMHC apartment vacancy rates and rents as cited from CMHC, secondary market surveys.  Given the shortage of purpose built rental units in the City, much of the demand for rental housing is being filled through the secondary rental market. While there is insufficient information about the secondary market in the City of Vancouver, it is expected to be significant given the strong demand and shortage of purpose built rental housing. Of the secondary market rental opportunities, the rented condominium supply is quite significant given its growth. Also, the rented condominium supply is increasing as many investors have been placing their units in the rental housing pool for different purposes. Although the extent of this increase is largely unknown, recent studies have shown that a growing number of condominiums are rented out especially in urban areas. Before examining the significance of this supply, it is important to assess the growth in the condominium market and the factors which influence investors to rent. 25  2.2 . Growth of Rented Condominiums Condominiums ownership is the most popular form of ownership in the City of Vancouver. Over the past eight years, the supply of condominiums has grown phenomenally, since becoming popular in the 1990’s. Fig. 8 shows that condominium development increased sharply in the 1990s before declining, thereafter becoming increasingly more significant as the supply of purpose built rental housing declines. In 2008, the total number of condominiums reached 62,714, up from 59,988 in the previous year (CMHC, 2008). The impetus for the magnitude of growth in the condominium supply market has been favourable government policies, notably the 50 percent reduction in taxes on capital gains. Government policies created an enabling environment for risk taking and investment by allowing investors to retain more of their gains (Government of Canada, 2002). Figure 8: Completion of Market Rental and Condominiums in Vancouver (1970s to 2000s)  Source: cited from CMHC housing now survey in the City of Vancouver (2008). Rental housing strategy: Processes and consultancies. City of Vancouver administrative report.  26  Rising house prices have resulted in condominiums development outperforming other housing options since it is the least expensive form of ownership. However, given the strong demand and limited supply, the average price increases for condominiums have increased significantly. The Housing Price Index 4(HPI) for condominiums increased by 82 percent ($387, 000) compared to the increases (70%) for detached homes in the CMA (REBGV, 2008). The City of Vancouver had the highest average price increases for condominiums in the CMA, especially in the Downtown subareas, where the prices were among the highest in the region. The average price increase from 2000 to 2008 was between 85-118 percent (Goodman report, 2008). Given the remarkable price increases, investing in condominiums in the City became highly lucrative for developers and investors alike. In 2008, housing supply increased considerably across the Vancouver CMA, reaching its highest recorded number of starts in 25 years (CMHC, 2008). Condominium apartments made up 60 percent of the new housing starts, the majority of which were in the City of Vancouver and Surrey, both having more than half the total number of starts, according to CMHC Housing Now Survey (2009). Rising prices have made homeownership difficult. CMHC market outlook (2008) suggests that the high cost of ownership has limited the demand from low equity and first time investors as well as investor buyers. However, some investors that have bought into the condominium market are increasingly renting their condominiums for several reasons.  2.3. Factors Influencing Investors to Rent The Hous ing Pr i ce Index (HPI ) i s an a l t e r n a t i v e measure of rea l es ta t e pr i c e s tha t prov i d e s a c lea r e r p i c t u r e of marke t t r e nds ove r t r a d i t i o n a l too l s such as mean or median average pr i c e s and i s modeled af t e r the consumer pr i c e i ndex ( REBGV) 4  27  There are several reasons influencing investors to rent their condominiums in the City. Based on interviews conducted with some of these investors, the following reasons were identified: 1. For investment purposes; 2. Steady income source/ cash flow; 3. Increase equity on the capital gains/ Pension plan; 4. Changes in personal circumstances such as relocation and family situations; The majority of investors interviewed disclosed that renting out their condominium(s) in Vancouver was an investment decision. One person pointed out that he entered the rental market, “hoping to flip the unit and make a gain as the economic conditions have been very good over the past couple of years”. Another indicated that, “condo rental in Vancouver is highly beneficial as the demand is strong, prices continue to increase and in a couple months or years you are able to increase the gains on the rental property”. In contrast, others interviewed were of the view that the strong demand for condominiums for investment purposes is a major challenge. One housing advocate interviewed noted that, “investors are gambling up the price for condominiums in the hope to fetch a higher price in the resale market”. Still there were others who were interested in having a steady income source to help with their mortgage payments, property taxes and strata fees. One person noted that, “the steady income from rent provides security in the event I lose my job or I was to become ill and couldn’t work”. Another indicated that, “by renting my condo, the mortgage payments, property taxes and strata fees are covered and I don’t have to worry about these on a monthly basis.” Further to this, several of these rental providers are involved because of the low risk associated with the rented condominium market. According to one investor interviewed, “renting a condominium is less risky when compared to stocks and bonds”. However, others see rented condominiums as part of their pension plan and long term investment held for their children. An investor noted that, “I bought my condo for my children and while they are at school they have been renting it to supplement their income”. While another stated that, “the rented condominium is my pension plan- over time the equity builds up, and by the time I retire I can pay off my mortgage, sell my apartment and live off the interest gained”. 28  Changes in family situations often influence some condominium owners to rent their condominiums. One person interviewed said, “I rent because I moved away for work and didn’t want to sell my condo”. Another person noted that, “I got married and wanted more space but was not interested in selling... because I want to keep it as an investment”.  2.4.  How Significant are Rented Condominiums in the City? While this question is difficult to assess given the limited information about the rental  stock consisting of condominiums, recent studies supported by interviews with individuals knowledgeable about this supply suggest that it is highly significant. A developer interviewed noted that, “the rented condominium supply is pretty significant in the City, especially in the Downtown area where a significant portion of condominiums have been constructed over the past couple years.” Similarly, the most comprehensive data available on this supply, CMHC secondary market survey, suggests that across the region the significance of this stock is increasing. This data reveals that more than one fifth (1/5) of all apartment condominiums have been rented out by individual investors in the Vancouver CMA. Additionally, more condominiums have been added to the existing supply than any other form of rental housing over the past year. CMHC estimated that more than 3,500 rented condominium units were added to the existing rental supply in 2008. Fig 9 shows that across the CMA the change in the number of rented condominiums added to the market is higher than other secondary market rental sources such as secondary suites and row/duplex homes. Although there was a mere increase of 1135 rented condominiums added to the rental market in the City over the past year, the existing data does provide sufficient information for one to make a conclusion about the significance of this stock. CMHC (2008) revealed that an estimated 27.1 percent (16,986) of condominiums were rented in the City, compared to the 22 percent for the rest of the region (CMHC, 2008). Fig 10 shows that rented condominiums remain highly significant despite the decrease in the percentage share of units rented between 2007 and 2008. There were more condominiums rented in 2007 in the Burrard Peninsula6 (Downtown) and the City of Vancouver in 2007. Approximately 39 percent were located in Downtown Vancouver, while 19 percent were in other parts of the Th is number i s der i v e d th r ough the ca l cu l a t i o n of data prov i d ed by CMHC on the number of ren t ed condomin i ums fo r 2007 and 2008 . 5  29  City. It is important to note that the percentage share of rented condominium decreased by more than 4 percent in Downtown Vancouver between 2007 and 2008, while there was a slight increase (1%) in the percentage share of units rented in Vancouver (east/west ).  Figure 9: Change in the Private Rental Stock in Vancouver CMA, 2008  * Change = number of units added to or lost from the rental housing stock Oct 07 and Oct 08 Source: CMHC (2008). Secondary Rental Market Survey, Vancouver and Abbotsford  Figure 10: Percentage Share of Condominium Units Rented in the City of Vancouver and the CMA, 2007 & 2008  Accord i n g to CMHC (2008 ) , the Bur ra r d Pen insu l a i n c l u de s RMS Zone 1 (West End and Stan l e y Park ) , Zone2 (Eng l i s h Bay) and Zone 3 (Downtown) 6  30  Source: CMHC (2008). Secondary Rental Market Survey, Vancouver and Abbotsford  Although this is a good estimation of the rented condominium stock in the City, the number of units might in fact be higher, as not all rented condominiums have been captured by CMHC surveys. This is a significant challenge in assessing the full significance of this supply in the City. Other studies have provided further evidence that supports the argument of a highly significant rented condominium supply. Recent data collected7 by Alexander and Somerville (2009) revealed that rented condominiums make up more than one third of the rental housing supply in the City. The majority of the stock is located in Downtown Vancouver, while the remainder is in other parts of the City. Map 1 and 2 show the distribution of rented condominiums throughout the City and identify where the majority are concentrated. This data is consistent with CMHC data, illustrating that the City of Vancouver has a higher concentration of rented condominium than adjacent municipalities.  Map 1: Condominium Buildings with Investor Share Less Than 20% in the City of Vancouver and Adjacent Municipalities  This data does not include rented condominiums in Vancouver’s West End and is based on BC assessment data which was used to determine whether a unit is investor owned or not. If the assessment is sent to the unit owner it is considered to be owner occupied. If it is not, it is considered to be investor- owned with the potential for rental (Alexander and Somerville, 2009) 7  31  Source: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums.  Map 2: Condominium Buildings with Investor Share Greater Than 40% in the City of Vancouver and Adjacent Municipalities  32  Source: Source: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums.  Table 2 summarises the percentage distribution of rented condominiums in the lower mainland and in the City of Vancouver. From this data, it could also be assumed that the  33  stock is highly significant throughout the City, but is of greater importance in the Downtown. Notwithstanding, there are still significant gaps in the  Table 2: Investor owned Share of Rented Condominiums in Vancouver and the CMA  % share of inves to r owned  Area  Inves to r owned uni t s as % of the renta l apt & town houses  Lower Main l a nd  20.5%  34 .6%  Vancouve r  26.3%  31 .2%  Vanco uver Downtown*  40.9%  West End  28.2%  Over  90% 18 .4%  *data excludes the West End Source: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums.  Yan (2009) in a study of ownership, occupancy and the rental of condominiums in Downtown Vancouver revealed that more than 10,000 rented condominium units were supplied. This is very significant considering the gaps in the source data and the fact that only a section of the downtown area is represented. The high demand for rental housing in Downtown Vancouver is possibly one reason for this high concentration of rented condominiums. Generally, there is a higher demand for condominiums in Downtown Vancouver, but no correlation has been established between this demand and the supply of rental housing, or whether or not the demand is solely for investment or for ownership. Nevertheless, the supply of rented condominiums is limited in this area given the lower vacancy rates. In the Downtown area, the vacancy rate is 0.3 percent8, while in other sections of the City, the vacancy rate is higher (1.2%), indicating a lesser demand outside the urban core. This raises questions such as why are rented condominiums more significant in downtown Vancouver than in other parts of the City? And are there implications for an increased reliance on this supply given the continuous decline of the purpose built stock? The answer to the first question could be linked to why people own versus rent in the City, a discussion which is outside the scope of this research. However, the second question is the intent of this research and as such is dealt with below. 8  Source: CMHC rental market survey  34  2.5. Are there Implications for an Increased Reliance on Rented Condominiums? Housing costs in the City of Vancouver are among the highest in the CMA and the rest of Canada. The high cost of ownership along with the tight job market is a factor contributing to strong demand for rental housing (CMHC, 2008). Since tenants have lower incomes compared to homeowners, rental housing affordability is a major challenge. Income data collected from Statistics Canada reveals that the income of renters is significantly lower than the income of homeowners. In 2006, 44 percent of renters earned less than $30,000 per annum, compared to 19 percent of homeowners. The median income for renters in the City was less than $40,000 annually for all age groups who were relying on rented accomodations (see Fig 11).  Fig 11: Median Household Income by Age Group and Tenure for the City, 2006  Source: Statistics Canada custom tabulation for City of Vancouver, 2006  Conversly, a vast majority of the rental demand in the City is from the lower income groups, mainly younger households i.e., less than 35 years old (see Fig 12). Approximately 87 percent of renter households are within the 15-24 age groups, while 73 percent of households are within the 25-34 age groups (Statistic Canada, 2006). Besides having lower income, many of these households might not have enough savings to enter the homeownership market, resulting in a sustained demand for more rental housing in the City. Figure 12: Percentage of Renter Households by Age Group, 2006  35  Source: Statistics Canada custom tabulation for City of Vancouver  Lower income renters’ households, especially, are more likely to face affordability challenges, and this will be even more severe if they are dependent on the rented condominium supply as a source of rental. Purpose built rental housing is more affordable for many renters but their continual decline is a major challenge. In contrast to purpose built rental housing, rented condominiums are newer and more sophisticated with modern fixtures and amenities. Additionally, they are much more expensive. The average rental rates for condominiums are approximately 32 to 48 percent higher than purpose built rental housing (City of Vancouver, 2009). Fig.13 compares the average rents for purpose built and rented condominiums in Vancouver CMA, the City and Downtown. Given the average cost of rents in the City, lower income tenants face affordability challenges in renting the more affordable purpose built units, let alone being able to afford the more expensive rented condominium stock. This is further complicated by the fact that rents are increasing faster than income. For instance, the median price of a 2-bedroom purpose built apartment increased by 3.1 percent, while the median income of renters grew by 0.6 percent in 2008 (CMHC, 2008).  Fig 13: Average Rents for Purpose Built Rental and Rented Condominiums in Vancouver, 2008  36  Source: Canada Mortagage and Housing Corporation (CMHC, 2008). Housing Market Survey Vancouver and Abbotsford.  Irrespective of income levels, renters choosing to live and work in the City of Vancouver must be able to access rental housing. The provision of rental housing, given the need, is good social (public) policy (Carter and Polevychok, 2004). This is because it ensures the stability and security of households, which is important for economic and social sustainability. Therefore, an adequate supply of rental housing that meets the needs of renters in the City must be provided. Regardless of income, renters face different challenges in finding accommodations in the City, given the extremely tight rental supply market. For instance, lower income households face affordability challenges and whilst higher income renters are able to afford high end rental units, these opportunities are still very limited. Increasing the supply of rented condominium is highly beneficial since it adds to the overall supply. Furthermore, since these are high end rental units, attracting higher income tenants, they allow for the freeing up of the purpose built supply for lower to moderate income renters. New supply will add to the stock of rental housing giving renters more choice between condominiums and purpose built rental units (CMHC, 2008). In the absence of this added supply, there would have been stronger competition for the limited purpose built rental stock. Equally, if purpose built rental supply continues to decline, and there are no new rental investments, there will be stronger competition for rental housing among the low to moderate income renters. CMHC rental survey (2008) suggests that while more households  37  will be occupying secondary rental units, many will be competing for purpose built rental units in a tight market. Already, the rental vacancy rate for purpose built apartments is declining, which indicates a stronger demand for these units. Conversely, increasing the supply of rented condominiums is disadvantageous to profit seeking investors. This equates to the law of demand and supply; as the supply increases the demand decreases and vice versa. Over the past year, some first time buyers have been vacating their rented condominium apartments and are moving into their own home and this along with an increase in supply has contributed to an ease in the demand (CMHC, 2008). The ease in demand will no doubt impact the investors’ ability to attract tenants and earn profits on their investment. At the UDI seminar, one presenter noted that, “the higher income tenants are buying homes and many of the cash strapped tenants are seeking units that are within their budget and which meet their needs such as proximity to school and other amenities”. While this presenter encouraged investors to be more creative in attracting tenants to their units, if tenants are unable to access rented condominiums due to affordability challenges, there will be fewer uptakes of these units. In contrast, the rented condominiums supply is important to continually satisfy the higher end rental demand as predicted by CMHC (2009). Regardless of this, increasing the supply of rented condominiums will not make up for the gradual loss of the purpose built supply, given the high cost of rents. The continual loss of the purpose built supply will have implications for rental housing affordability. This is a major public policy concern that needs to be addressed.  38  CHAPTER 3 EMERGING TRENDS, OPPORTUNITIES AND RISKS The purpose of this section is to discuss the emerging trends, opportunities and risks in the rented condominium supply market.  3.0 .  Factors Impacting the Rented Condominium Supply  The Investors’ Priorities To a large extent, investors’ priorities influence the supply of rented condominiums in the City of Vancouver. From the interviews conducted, two types of investors were identified. Short term investors (“flippers”) are those buying condominiums for the sole purpose of capitalizing on the short term gains either through rental and/or resale of their units. Many of these investors rent their units for short periods of time, until they are ready to sell. “Because of the way the condominium market has been booming for the past few years, it has become a source of income or cash flow for investors”, according to one researcher interviewed. These investors rely on a risky market, which is hinged on rising condominium prices. The supply of rented condominium from these investors is unstable as there is a possibility that units might be withdrawn at any time for resale or other purposes. In the Downtown area, where a large percentage of rented condominiums are found, renter turnover is very high. Yan’s (2009) research on 13 (thirteen) buildings in Downtown Vancouver, reveals that 15 to 55 percent of the condominiums surveyed had a change of name on their BC hydro record from 2007- 8. While this data represents only 10 percent of the (possible) rented condominium stock, it suggests a high turnover in unit occupancy. Since renters are three times more likely to move than homeowners based on census data, this high occupancy turnover indicates the possibility of renters. In contrast, long term investors are more likely to rent their condominiums for longer periods of time because of their interest in increasing the capital gains on their properties. These investors prefer the lower risks associated with the rental market as opposed to other forms of investment such as buying stocks. Although several of these investors acknowledge that condominium rental is not very profitable, they seemed satisfied with being able to simply cover the expenses related to maintaining ownership. One investor 39  interviewed pointed out that, “being able to cover my expenses, while the property is increasing in value is what really matters for me”. Even though long term investors may remain in the rental market longer, the supply of rented condominium is not guaranteed and cannot be fully relied on to meet the needs of renters. This is because an investor’s decision and/or priorities for being in the rental market may change. Furthermore, there are unforeseeable circumstances, challenges and/or other barriers that may cause investors to take their units off the market at any time.  3.1. Challenges and/or Barriers Faced There are several challenges and barriers faced that could impede the supply of rented condominium. These include: •  The unprofitability of investing in rented condominiums;  •  Dealing with issues relating to tenant management;  •  Rent control system.  Below are some of the comments made by investors regarding the challenges they face: Interviewee 3: “We are not making any money off our condo...rents charged are not enough to cover expenses”. Interviewee 1: “it is very unprofitable ...the rental income we receive barely covers the mortgage, property tax and strata property fees”. Interviewee 6: “rent control makes it difficult for us to raise the rent, which can only be done when tenants leave”. Interviewee 8: “damages to the apartment caused by one of my tenants and the overspending on maintenance made it very hard for us because the rent does not cover those costs”. Interviewee 11: The Residential Tenant Act is too heavy handed with little protection for landlords...it is often complicated when I have to deal with a difficult tenant and frustrating”. Interviewee 14: “Evicting and getting a new tenant is time consuming, and is often a lengthy and costly process.”  40  Some barriers to increasing the supply of rented condominiums include changes in economic conditions. From the interviews with rental providers, few indicated that rising interest rates, inflation and corresponding financial hardship would cause them to consider selling their rented condominium units. Below are a few of the comments made by those interviewed. Interviewee 5: “if I were to experience financial hardship, I would consider selling the unit.” Interviewee 4 “if interest rates were to rise and mortgage rates were to go up; we would consider possibly selling our unit”. From the interviews, the role of all levels of government as a facilitator of and an inhibitor to increasing the supply of rented condominium was highlighted, making it relevant that this role be further assessed.  Governments’ Role Both the federal and municipal levels of government play an important role in facilitating an increase in the supply of condominiums in the City. The federal government stimulates these investments through interventions such as providing financing and mortgage insurance, lowering interest rates and providing favourable taxation policies. On the other hand, the municipal government regulates land for development, through zoning and other bylaws; collects property taxes; and offers increased densities. However, the federal and municipal governments have very little or no control over the supply of rented condominiums (see diagram 2 below). In contrast, the provincial government through legislations such as the Strata Property Act and the Landlords Tenants Act has some influence over the supply. The possible effects of legislation on the supply of rented condominium are examined below.  41  Diagram 2: Relationship between the Public and Private Domains in the Condominium Supply Market  Publ i c Domain Federa l Government •  Devel opmen t f i nanci ng  • •  •  Deve l ops Tax po l i c i e s Sets i n t e r e s t ra t e s Prov i d e s f i n a n c i n g and guaran t eed mor t gages Under t a kes  Provinc i a l Government • Deve lops leg i s l a t i o n such as land l o r d tenan t Act • Regula t e s condo (S t r a t a prope r t y  Strata Councils  Developers  Housing supply  New hous i ng s ta r t s  Comple t i o n and abso rp t i o n  I nves t or s  Housing demand  Ownersh i p  Munic ipa l Government • Regula t e s zon i ng / l a n d use • Sets ra t e s fo r DCCs, CACs • Col l e c t s prope r t y taxes  In t e r e s t s • Inves tmen t and ho ld i n g s : Risk premium Asset d ive r s i f i c  Renta l  Mortgage f i n anc i n g  Pr iva t e Fi nanci a l i nst i t ut  (cash flow)  42  •  Strata Property Act (2009)  To some degree, the supply of rented condominiums is influenced by the Strata Property Act, which gives Strata Councils the power to restrict or prevent the renting of condominiums in British Columbia. Under the Act, a ¾ majority could pass a bylaw restricting or preventing owners from renting out their units (BC Government, 2005). By restricting rental, the strata council decides the number of allowable rental units that will be permitted in their buildings or whether they will allow rental. One important exception is that developers can file a Rental Disclosure Statement. This allows developers and owners who purchase directly from a developer to rent their units, even if a rental restriction bylaw is passed at a later time by the owners (BC Government, 2005). The possibility of rental restrictions increases when condominiums are bought and resold by the original purchasers to other purchasers. This is because subsequent purchasers cannot rely on the rental rights created between the developer and the initial purchaser and will be subjected to rental restrictions under the strata bylaws (BC Government). Few of those interviewed raised concerns about the ability of the strata council to restrict the rental units in condominium buildings as one factor potentially affecting the supply. One rental housing advocate interviewed indicated that, “there are a lot of condominiums sitting vacant and some owners wanting to rent are unable to do so because their Strata Councils restrict rental”. While this is widely seen as a barrier to increasing the supply of rented condominiums, it is not the most profound barrier faced by rental providers interviewed. It is important to note that many, if not all of those interviewed had permission from their Strata Councils to rent. Some indicated that they were Strata Council members. As a result, information used in assessing the extent to which rental restriction is a barrier and/or challenge to investing in rental condominiums was very limited. For instance, it is not known how much of an impact these restrictions have on the supply or potential supply. Despite this, recent 9data compiled by Alexander and Somerville (2009) reveals that less than half the buildings listed as condominiums in the City have some form of rental restrictions. Additionally, there are some buildings in which no rental is allowed, approximately 15 percent of buildings surveyed. Fig 14 shows the percentage share of buildings with rental restrictions and those with no allowable rental in the City, the West End and Downtown. From this data, it is assumed that rental restrictions could actually impede 9  Th is data i s based on MLS l i s t i n g  2006- 2009 .  43  the supply of rented condominiums given the high percentage (45%) of buildings with restricted rental in the City, especially in the West End. However, rental restriction is less of a challenge in the Downtown area as approximately 18 percent of rented condominium buildings have some forms of rental restriction. Similarly, there are more buildings that do not allow rental in the City (15%) and the West End area (18%) as opposed to the rest of downtown Vancouver (4%). Another interesting finding from this data is that older buildings (built before 2003) have more restrictions than newer buildings (built after 2003)10. Given this trend, rental restrictions might be less of a challenge to increasing the rented condominium stock since a large majority of the condominiums in the City were built after 2003. Also, there is a strong possibility that rental restrictions might be non- existent in many of the newer condominiums buildings. Although this might be the case, it is difficult to predict future trends; for instance changes in ownership. One major assumption from this data is that many of the older units are owner occupied, while the newer units exist largely for investment purposes and this does affect the supply of rented condominium. While there are noticeable gaps with this data, it provides a rough estimate of the extent to which rental restrictions could impact the supply of rented condominiums in Vancouver. There are still unanswered questions from the investors’ point of view, one of which is the extent to which rental restriction is a barrier to entering the rental market. In addition to this, there is widespread speculation among those interviewed that there are several “hidden” or unaccounted for rented condominiums. This means that some of the condominiums believed to be owner occupied are actually rented. “Many of these condos are part of the underground market... these investors evade taxes and other obligations, which is not only bad but unfair for others” one rental provider noted. Knowing whether a condominium is owner occupied or rented is not very obvious from the data available. Furthermore, given the nature of rental restrictions and other barriers it is extremely difficult for researchers to provide a good estimation of the supply. Another major challenge is identifying the rental providers (investors), which is essential to better understand the supply.  Figure 14: Condominium Rental Restriction in the City of Vancouver  Alexande r , M. , & Somerv i l l e , T. , (2009 ) . Dive r se Hous ing and the Vancouve r Area ’ s Inves t o r Owned Condos . BC Land Summit , May 21, 2009 . 10  44  * excludes West End Source: Alexander, M., & Somerville, T., (2009). Diverse housing and the Vancouver Area’s Investor owned Condominiums.  •  Residential Tenancy Act (2006)  This legislation is applicable to all residential tenancies in BC. It sets out the roles and responsibilities of landlords and tenants. The Act mandates that every landlord and tenant must enter in an agreement that establishes the rules regarding tenancy. For instance, residential landlords cannot arbitrarily increase the rents for rental properties, as this Act stipulates when and how rent increases can be applied. This was one of the challenges raised by those interviewed. Several disapproved of the rent control system, which mandates the yearly rent increases in the province. One investor/ landlord noted that, “if we are to make a profit, rent control can’t be controlling rents”. Despite this, there are others who are still firmly in support of the rent control measures. Their main concern for keeping the rent control system was based on the possible implications for rental housing affordability. A rental housing advocate interviewed pointed out that, “removing rent control only serves to worsen the challenges faced by renters... government needs to improve the economics of rental housing”. In addition to this, rent control has been singled out as a fundamental problem in the rental housing market and is still a highly debateable matter. Despite the disagreements, there is still insufficient information to determine the implications of rent control on the rented condominium supply, which is a matter requiring further study. Another concern raised about this legislation is the limited protection of tenant’s rights given the fact that rented condominiums are in some cases short term rental. Under 45  Section 49 (landlord’s use of property) of the Act, there is very little protection offered to tenants in rented condominiums. In this section, “an individual landlord may end tenancy of a rental unit for the following reasons: to occupy it or to sell the unit providing that all conditions of the sale have been met and the purchaser, in writing, requests that the landlord gives notice to the tenant”. This is a fundamental clause that seeks to work in the favour of short term investors in the rented condominium market. A major challenge is that renters are not protected against short term eviction notices given by rental providers- investors (rental providers) can require tenants to vacate their premises by giving two months notice. There are several assumptions that are being made about the implications of this provision on tenants living in condominiums and the subsequent implications on the supply. One tenant advocate interviewed suggested that, “investors in rented condominiums have far more leeway in getting rid of tenants...with only two months notice a tenant can be kicked out of their apartment”. This is especially challenging because rental vacancies are limited in the City of Vancouver. Moreover, renters on the move are faced with higher cost rents as vacancies are created, allowing landlords the opportunity to raise rents to the current market value. As a result, displaced condominium renters might be faced with increased affordability challenges. The protection afforded to renters of condominiums is a sharp contrast to the protection renters have in purpose built rental housing. The Act was amended to give more protection to tenants (renters) by increasing the amount of notice that landlords must give to tenants in the event of renovation and increases the compensation payable to them under these circumstances (Bill M205, 2008). In addition to government’s limited role, other stakeholders (such as the developers and renters) are also playing an important part in increasing the supply of rented condominiums. Table 3 summaries the role of these other stakeholders. Developers are often seeking ways to maximize their returns, and given the robustness of the housing market over the past few years condominium investments provide many opportunities for them to do so. Developers capitalise on the solid demand of households and/ or investors to achieve their returns by increasing the supply of condominiums at the price people are willing to pay, without depleting their profit margin. In contrast, increased profitability in the rented condominium market depends largely on the strong demand by renters. Given the rising house prices over the years, many renters have been unable to own homes. In Downtown Vancouver, the demand for rented condominium is highest, which may be a 46  result of higher income renters being unable to buy into the housing market. Higher income renters are usually more attracted to the newer units with modern amenities and fixtures, the convenience of the downtown and proximity to transit and other services. Table 3: Stakeholders in the Rented Condominium Market and their Interests  Category of Interests stakeholders Developers: Short term investors (‘flippers’) Long term • investors • Renters  • •  Provide competitive price for units so as to attract favourable returns Investment is very profitable Increase market share Capitalise on strong market demand housing Less risky investment Cash flow  for  Maximize their returns through short term gains Increase capital gains Steady income  •  Affordable rentals Location: convenience and proximity (work, school, transportation) Access to amenities and services  •  Safe and appropriate housing  Housing market condo: (supply oriented)  Rented condo market: (supply oriented)  Rented condo market: (demand driven)  The demand for rental units is one of the reasons many rental providers enter the market. Providers of rented condominiums capitalize on the solid demand from renters. Despite the challenges, some rental providers have chosen to remain in the housing market for a variety of reasons. The majority of those interviewed indicated that having good tenants over the years and a low renter turnover is a key consideration in their decision to remain in the market. “It is a real hassle to find tenants...I don’t want short term tenants because I fear those are the ones more likely to thrash the unit”, notes one investor interviewed. Another  47  pointed out that, “I have a good relationship with the tenant in our building... the property is well maintained and I am quite happy”. It is worth mentioning that some investors intended on renting their units on a short term basis ended up staying in the rental market longer than anticipated. “I didn’t expect to stay this long, but it was okay once I’m in and I’ll see how it goes from here”, said one investor. Another noted that, “I went into the market hoping to stay a year and I’m still involved, I even have another rented condominium and I’ll remain in the market for a while, maybe until the economy improves”. This makes it very difficult to determine the length of time investors (rental providers) will remain in the rental market. Based on this and from previous discussion, two fundamental challenges have been identified with the supply. These are the uncertainties about the stability of rented condominium supply and the reliability of the supply in continuously meeting the rental demand in the City.  What can be done to secure the supply? From the interview with stakeholders, there are limited actions that can be taken to increase and secure the existing supply of rented condominiums in the City. The main actions suggested are: •  Changes to the Residential Tenancy Act, for example eliminating the rent control provision;  •  Senior governments providing special tax benefits (incentives) to investors as a way to encourage owners of vacant apartments to rent out their units or to encourage those already in the market to remain for longer periods (over 10 years);  •  Provincial government amending the Strata Property Act to increase the percentage of allowable rental units in condominium buildings. Through this amendment, the provincial government could require that Strata Councils does not set the maximum number of rented condominium at less than 20 percent.  48  3.2.1. Emerging Trends As stakeholders contemplate the challenges ahead with the growth of rented condominiums and the continuous loss of the purpose built, there are some emerging trends that impact rental housing. It is important to briefly discuss these trends and assess the implications for rented condominiums, as this is crucial in defining the next steps for rental housing in the City. Across North America over the past year, housing construction and sales slowed tremendously, following the sub-prime mortgage problems in the United States and the global economic recession that preceded this. Like the rest of Canada, Vancouver’s housing market has not been immune to the effects of the global economic slowdown, and both the privately owned and rental housing markets have been affected. Economic uncertainties and job losses impacted consumer confidence and the demand for housing in Vancouver. Case and Quigley (2008) argue that an economic slowdown or increase in condominiums can trigger a shift in consumer psychology, accelerating a decline in the demand. Additionally, the loss of full time employment has had adverse impact on the housing demand (CMHC, 2009). As the housing demand decreases, the number of units available for sale, housing prices and the number of units sold are reduced. In Vancouver, the demand for new and resale homes, including condominiums, has dropped substantially, while the supply increases. Compared to the past few years, buyers are now extremely cautious about entering the market, which is evident in the number of unsold properties, many of which would have previously commanded multiple offers (Goodman Report, 2008). Relative to other types of housing, the absorption (take up) of condominiums has been very good in the City of Vancouver, averaging 12 percent11 in February, 2009. This is because many of these units were presold, before completion, resulting in fewer of these units on the market. However, given the substantial amount still under construction, CMHC (2009) predicts that the lower levels of demand and very little presale agreements for recent projects will contribute to an increase in the inventory of unsold condominiums.  As a result of the decrease in demand, the number of sales and active listing has also decreased, suggesting that sellers have chosen to let the listing expire or have taken their 11  Source :  CMHC Hous ing Marke t Survey (2009 )  49  homes off the market for other purposes (CMHC, 2009). Additionally, prices have been declining as developers try to attract potential buyers. Several developers and marketers of new projects have been offering incentives such as discounts to remain competitive (CMHC, 2009).  Similar to other types of housing in the CMA, condominium prices have been  reduced. In spring of 2008, the monthly average resale prices peaked and by March of this year was reduced by 15 percent (see Graph 1).  Graph 1: Average Housing Price Trend, Vancouver CMA  Source: REBGV, seasonal adjustment, trends cycles generated by CMHC % change from peak to March 2009. CMHC calculations as cited in CMHC Housing Market Outlook (2009)  The effects of a shift in consumer demand on home sales and prices are shown in Fig 15. The drop in demand is because buyers have stopped looking and sellers are refusing to lower their prices for long periods, holding out at the ‘sticky price’ (Case and Quigley, 2008). As the spread between the bid and asking price increases, there are fewer agreements or sales. Case and Shiller (1988, 2003)12 survey of home buyers in four metropolitan states in the United States found that sellers, unable to sell their homes, reacted differently. Some sellers said they would leave the prices the same and wait for buyers, others said they would take the house off the market or rent it and still others said they would lower the price step by step until a buyer is found. Similar to this finding, homeowners in Vancouver who are faced with the challenges of selling investment property due to the lower demand acted the same. More importantly, however, is the underlying implications for rental housing. As c i t e d i n Case and Quig l e y (2008 ) . How hous i ng boom unwinds : Income ef f e c t s , weal t h ef f e c t s , and feedbacks th r ough f i n a nc i a l marke t s . 12  50  Figure 15: The Effect of Lower Demand on Housing Prices  Source: Case, k., & Quigley, J., (2008). How housing booms unwind: income effects, wealth effects and feedbacks through financial markets.  3.3. Implications for the Supply of Rented Condominium Some implications for the rental housing sector, especially for the rented condominium stock, arising from slower economic growth include:  •  Lower demand for rented condominiums Slower economic growth and job losses have caused increased hardship for renters  in the City (CMHC, 2009). Since rented condominiums are more expensive than purpose built rental housing, there is less demand for these given the increased challenges faced. Additionally, fewer tenants are responding to rental advertisements and more are vacating their apartments (Goodman Report, 2008). Interviews conducted with a few rental providers reveal that the vacancy rate in rented condominium buildings is increasing, averaging between 3 to 5 percent. Throughout the City rental vacancy rates are increasing, and recent CMHC data reveals that vacancy rates are higher in rented condominium buildings than in purpose built rental buildings. While CHMC predicts that the vacancy rates in purpose built building would increase up to 1.5 percent by 2010, there is no indication as to the percentage increase for condominiums, which could be a result of the uncertainties surrounding the supply.  51  •  Declining investment interest Since the economic downturn, a number of new housing projects (including  condominiums) have been delayed given the substantial decline in sales. The demand for condominiums for housing and investment purposes has declined significantly. Investment demand has been reduced since housing prices started to decline in the spring 2008 (CMHC, 2009). Reducing prices have eroded the profitability in the condominium market, resulting in more investors exploring opportunities in the rental market. Some investors, especially those who were hoping to flip their condominiums, may consider putting them in the rental housing pool as they anticipate market recovery. CHMC housing market outlook (2009) estimates that the supply of rented condominiums will increase as more investors choose to rent their units. Although there is the possibility that the rented condominium supply will be substantial, there are some risks involved, which include but are not limited to the following: •  The supply of rented condominium is unstable, given the underlying interests of the investors. It is anticipated that once the market improves, condominium units will be withdrawn from rental. One rental provider said that, “some investors will prefer to rent their condominium rather than sell it below what they paid for it”. This is a point that has been reaffirmed by the CHMC housing market outlook, which suggests that investors will choose to rent their units out to help cover monthly mortgage carrying costs.  •  It is very difficult to secure the supply, even with government support, and there are no mechanisms to ensure that the current stock of rented condominiums will be available over the long run.  •  Rented condominiums are the most expensive form of rental housing and an increased reliance on this supply could result in more renters facing affordability challenges. Additionally, since the majority of renters in the City have low income, there is the greater possibility that more would fall within core housing needs13.  •  There is insufficient information about the rented condominium supply in the City. For example, neither the total number of rented condominium nor the length of time  CHMC def i n e s core hous i ng needs as househo l d s pay i ng more than 30 percen t or more of the i r i n come on hous i ng 13  52  rented is known. Additionally, there is no information about the investors, where they are from and about the challenges faced within the rented condominium market. Given these risks, researchers, housing specialists and rental housing advocates interviewed pointed out that the focus should be on the purpose built rental housing and not on increasing the supply of rented condominiums. “What is required is senior level of government involvement, particularly federal government incentives to encourage the building of purpose built rental housing,” noted one housing specialist.  Moreover, the  majority of those interviewed including rental providers indicated that senior government tax incentives are important to increase the supply of rental housing. This is also supported by the Director of Planning for the City of Vancouver who recommends in a letter, “that the Mayor writes to senior levels of government regarding the urgent need to remove tax disincentives, and reinstitute incentives to build purpose built rental housing”, (City of Vancouver, 2007). The main policy initiative suggested was: The introduction of federal government incentive programs for rental buildings, which include but are not limited to: •  Tax shelter packages for rental housing;  •  Reducing the GST on new rental housing construction;  •  Reducing the interest rates for new rental construction; and  •  Providing low interest loans.  The provincial government could assist the federal government to establish taxation and other measures that foster the development of purpose built rental housing.  In particular,  there are some institutions such as pension funds that view development prospect much differently than residential condominium developers who do not want to carry a building for a long time. Government leadership bringing together these players would be very helpful. Besides the senior levels of government, developers have suggested that the municipal government could assist in a number of ways. These include: 53  1 Reduction in Development Cost Charges (DDCs) and building permit fees for developers of rental housing 2 Fast-tracking the time frame for approving development and building permits for rental buildings 3 Reducing parking requirements 4 Using zoning to encourage rental housing Several of these suggestions have been consistent with previous studies done in the CMA and elsewhere in Canada. These include GVRD (2006); Smart Growth BC (2005) and the Ontario Housing Supply Working Group’s interim report (2001). Other possible approaches identified in one or more of the reports above, but not suggested by participants interviewed are: •  Promoting public/ private partnership in affordable rental housing provision (combination of government subsidies, favourable financing and community involvement);  •  Improving partnership among all levels of government.  3.4 .  Opportunities  The economic slowdown has created a renewed interest in rental housing projects but government support is required in making these projects feasible. Some interested developers are seeking government’s assistance to make rental housing more viable from an investment standpoint (UDI seminar, 2009). Despite the lower construction costs, the land costs remain high making rental housing feasibility difficult (CMHC, 2009). Improving  54  the economics of rental housing investment is important in promoting more long term rental housing solutions. Given this renewed interest in rental housing development, there are opportunities to better understand the rented condominium supply, given its importance and develop partnerships with providers to increase the supply.  CHAPTER 4- ANALYSIS 4.0.  Discussion This research was intended to investigate the rented condominium supply as part of  an overall objective of examining ways to increase the stock of rental housing in the City of Vancouver. While several assumptions were made in answering the research questions, useful insights have been garnered about the rented condominium supply and the rental providers involved. Important findings about the significance of the supply, the challenges 55  faced by rental providers and the risks and opportunities are revealed. Additionally, some concerns are raised about the growing significance of rental condominiums, while the supply of purpose built rental housing continues to decline. This section assesses these findings and highlights a strategic approach to ensure that there is an adequate supply of rental housing in the City. The study findings reveal that rented condominiums are very significant in the City of Vancouver, primarily in Downtown, where the majority of the stock is present. The supply exists for investment purposes and is largely dependent on the interest of individual investors. As a result, there are some concerns about this significance and the implications for the rental housing market in the City. The main concern is on rental housing affordability. Rented condominiums are far more expensive than purpose built rental housing and since the majority of renters are within the low to modest income bracket, challenges with affordability will be more profound. Therefore, a highly significant rented condominium market alongside a declining purpose built rental supply is a major problem. Moreover, it is a crucial public policy matter requiring government’s action. An increased reliance on rented condominiums as a significant source of rental housing in the City of Vancouver is challenging, given investors’ interests and the risks that these units could be removed from the rental market at anytime. The uncertainties surrounding the length of time condominiums will remain in the rental market are not very reassuring when developing a healthy rental housing market. Furthermore, the instability and unreliability of this supply is a barrier in making steady progress toward ensuring an adequate supply of rental housing throughout the City. A fundamental challenge is that the supply exists solely to meet investors’ needs. Therefore, challenges and/ or barriers they face such as low rents, rental restrictions and rent control may prevent them from increasing the supply. Although many of these are widely recognizable challenges in the rental housing sector, on the whole, there are no simple solutions as strategies identified (see preceding chapter) are difficult to implement. Also, there could be far reaching implications if steps are taken to increase the supply of rented condominiums as opposed to allowing the market to operate without intervention. For example, removing rent control may have severe implications for rental housing affordability and amending the Landlord Tenant Act could have negative consequences for both investors and renters. Additionally, there are no 56  guarantees that these changes will increase the stock. Moreover, changes of any kind could possibly serve more as a hindrance for some interested rental providers. Finally, economic conditions conducive to rising housing prices may have a greater influence on investors’ decisions rather than targeted interventions. As it is, the rented condominium supply market seems to be operating effectively, responding to the demand. The supply has been increasing as more investors are offering their units for rental and this is expected to continue up to 2010 as predicted by CHMC. An increased supply of this stock is important as part of any strategy aimed at maintaining a healthy and balanced supply of rental housing. This will ensure that more rental housing options are available for renters, regardless of their income. A major obstacle, however, is the lack of information about the supply and challenges faced by renters given the cost, instability and insecurity of the supply. In light of this, it is important that further effort be made through research to better understand the rented condominium market and to investigate the implications of its significance for the rental housing sector. However, a fundamental insight garnered from this research is the need for government to improve the conditions for rental housing investment, through the provision of supportive tax policies.  4.1.1  Strategic Policy Direction  Encouraging the building of purpose built rental housing through favourable tax policies and other incentives is a key strategy that has been suggested. Government intervention in the rental housing market is needed to create and sustain a healthy and well balanced rental housing supply market. To achieve this, the best approach is for governments to improve the economics of rental housing, thereby allowing for investments  57  in purpose built rental housing to become more feasible. It is crucial that all levels of government to be involved but the federal government has a more important role to play in influencing investment in new rental housing, given its taxation powers. If purpose built rental housing is to remain profitable, favourable federal government tax incentives are needed (see table 4 for few examples). Also, since several of the existing purpose built stock have aged and deteriorated, providing support to enable continuous maintenance is important. Federal government support is needed to encourage the improvement and upgrading of the existing stock. In addition to this kind of support, a comprehensive study of the rental housing market and a rental housing policy is needed to understand the rental housing supply sector. To the extent that the provincial government can act, new ways to partner with the federal government should be identified. Other actions that may be necessary for the province to consider are outlined in table 4. Also, increasing the assistance given to low income renter households is necessary to bridge the gaps in affordability challenges experienced. Although it is acknowledged that without the support of the federal government, the provincial government will be unable to increase its social assistance policies and programs geared towards low income earners. Similarly, the City of Vancouver has a role to play in stimulating greater interest in rental housing. Several investors and some researchers including Clayton (1999) are of the view that they are able to lessen the burden for new rental development by removing barriers in the development process. These include: Development Cost Charges (DCCs) and the lengthy approval process. In addition, the City has municipal taxation powers, which could impact on rental housing development (see Table 4). However, reducing DCCs or property taxes could have consequences such as a greater burden on tax payers to fund the cost of services and possibly reduce quality of services provided in the City. Although these are well needed actions, it is recognized that funding is a major challenge faced by various levels of government in effectively tackling rental housing shortage. Responding to this requires strategic intervention geared at increasing and sustaining the supply of rental housing. The substantial involvement and commitment of all levels of government is a critical first step. Secondly, increased partnerships between government and key stakeholders are important. Thirdly, the economic slowdown has created the impetus for the rethinking of more innovative strategies in increasing the rental 58  housing supply, which includes greater collaboration with stakeholders in the rental sector. Finally, there are opportunities to better understand the existing stock including rented condominiums through research partnerships that could be forged with local universities. For example, funding research projects and/or researchers interested in exploring the rental housing market.  59  Table 4: Possible Policies, Actions and Incentives needed at all levels of Government  Level of government Federal government: 1) Sets taxes and GST  2) Determines rates  Policy influence in the rental market  Federal taxation policies were important in stimulating private sectors interest in rental policies housing in the 1960s and 1970s. Also, the absence of GST on rental housing construction was a favourable incentive for rental housing provision  Possible actions New purpose built rental housing •  The provision of shelter incentives for the building of new purpose built rental stock  •  Reduction of GST on new rental housing  •  Enabling investors to defer CCA recapture and capital gains from the earnings of the sale of their property  interest Interest rates have a direct effect on developers interested in rental housing projects. They are interested in maximizing their returns and so • Providing lower interest rates which is favourable for the cost of financing and cash debt servicing should not exceed operating flow expenses. Currently, rental housing investment is highly unprofitable. Without special Existing Purpose built rentals housing consideration in this regard, purpose built rental • Providing favourable tax incentives to housing will remain unattractive to investors landlords to upgrade properties  • Undertaking research on the existing stock of rental housing 3) Provides access to This enables developers to borrow a significant financing and cost of portion of financing for the housing project. This • Undertaking comprehensive study of the allows for the reduce equity required for the mortgage insurance rental housing market in all major housing project and for developers to borrow Canadian centers money at a lower rate than they would pay other Rented Condominiums wise • No direct control over supply 4) Collects rental Provides rental housing data for purpose built housing statistics and more recently the secondary housing market  60  Table 4: Possible Policies, Actions and Incentives needed at all levels of Government Level of government  Policy influence in the rental market  Possible actions  Provincial Government:  •  Discouraged investment in rental housing  Rented Condominiums  1) Legislation  •  Rent control  Residential Tenancy Act  •  Restriction on condominium rental  Limited regulatory action might be possible such as amending the Strata property Act to allow for more rental units.  •  Rent control  •  Strata Property Act  2) Affordable provision  New purpose built rental housing •  Identifying new ways to partner with federal government. These include assisting to establish taxation and other measures and providing leadership in bringing key players together  housing The Province provides rental assistance to low income families and shelter aid assistance for elderly renters. In addition to funding for housing projects, which includes acquiring and Existing purpose built rental housing rehabilitating SROs. • Developing a rental housing strategy and action plan  Municipal Government 1) Property Taxes  •  Undertaking research on the existing stock and the implications of rent control and Residential Tenancy Act  •  Considering phasing out the system of rental control  •  Encouraging the preservation and upgrading of the existing supply  Increases in property taxes could have an impact Rented Condominiums on the ongoing returns from rental investments. The City has no control over the supply of rented condominiums  61  Table 4: Possible Policies, Actions and Incentives needed at all levels of Government  62  4.2.1. Study Limitations: Level of government Municipal (Continued) 1) Development cost charges  Policy influence in the rental market Possible actions Development cost charges, which assists the City to New purpose built rental housing provide infrastructural services, may have very limited impact on the rental housing provision. • Offering increased densities in exchange for more rental units  2) Land use and creates opportunities zoning regulation development  for  new  rental  housing  3) Rate of change Restricts the demolition and conversion of existing regulations purpose built rental housing  • Reducing parking requirements • Streamlining the development approval process Existing purpose built housing • Continue to develop mechanisms to preserve the existing stock • • •  Undertake rental housing studies Develop a rental action plan identify opportunities to partner with senior levels of government  There were a number of limitations in researching the rented condominium market. While there was congruence between primary and secondary data sources, numerous assumptions had to be made in answering some of the key questions pertinent to this research. The main challenges were the lack of information about rented condominiums in the City; the difficulties in comparing and analysing data sources; and problems in finding investors and other stakeholders to interview. Although this research provided information about the rented condominium market, especially on the challenges and barriers faced, further research is still needed to unravel the uncertainties and dismiss speculations that still exist regarding the supply. Similarly, comparing and analysing data sources, for example CMHC and Census data, was not only difficult but was based mainly on assumptions. Census data does not differentiate between renters living in rented condominiums and those in purpose built rental housing. Furthermore, the data is collected every five years and as such recent changes are not captured. Therefore, several assumptions have been made regarding the implications for rental housing affordability. 63  Additionally, there are numerous privacy and confidential issues relating to the stock of rented condominiums, which made it difficult to obtain information. Rental providers and other stakeholders interviewed were difficult to identify and many of those interviewed were more interested in discussing the need to increase the economics of rental housing than the rented condominium supply market. While this research benefited from the perspectives of rental providers who have been in the rented condominium market for some time, it lacks the perspectives of the short term investors. Understanding the interests and challenges faced by these short term investors is important because their decision could have serious effects on the supply. This is an area that needs to be further explored. Other areas include but are not limited to: •  The implications on rental housing affordability in the City;  •  The extent to which policies such as Landlord Tenants legislations and the Strata Property Act impact the supply of rented condominiums in the City.  CHAPTER 5- CONCLUSION Analysis of this research reveals that the stock of rented condominium is very important in the City of Vancouver. The supply is highly significant and its contribution continues to increase. Increasing the supply of this stock is important as it reduces the competition for higher end purpose built rental housing, making them more available for moderate to low income renters. However, the main dilemma is the growing significance of the rented condominium stock and the continuous decline of purpose built rental housing. This is a major concern given the implications and risks associated with an increased reliance on rented condominiums. There are implications for rental housing affordability and for the provision of a healthy and sustainable supply of rental housing in the City. Rented condominiums are the most expensive form of rental housing and an increased reliance on this supply could have serious implications for rental housing affordability. While the extent of these implications is unknown, given the limitations of the research, it is a burgeoning public policy matter. In addition to this, there are other concerns and risks around the supply of rented condominiums that are major barriers to its sustenance as a major source of rental housing in the City. The stock of rented condominium is not stable and cannot be relied on to continuously meet the rental housing 64  needs in the City. Moreover, measures that are required to secure the supply are unpopular and as such are very difficult to implement. With the exception of amendments to provincial legislations and possibly tighter regulation of rented condominiums, there is very little that can be done by way of government policies to increase the supply. Therefore, focusing on the rented condominium supply as part of a strategy geared at ensuring an adequate and healthy supply of rental housing, while important, should not be the main priority for government. The main priority, as underlined by this research, must be to create the conditions necessary to stimulate a greater interest in rental housing. Improving the economics of rental housing is a key strategy. This includes the provision of supportive rental housing policies, which are geared at creating a level playing field for developers and investors interested in building purpose built rental housing. Carefully planned and implemented government policies and actions could greatly assist in alleviating the long standing problem of rental housing shortage. Overall, these policies and programs should aim to achieve the following core objectives: •  To increase and sustain a healthy supply and well balanced rental housing supply;  •  To increase societal benefits, which include reducing the risks of homelessness and the overall cost to taxpayers for addressing the associated challenges. The federal government, in particular, must play a key role by leading the way in  developing a rental housing policy, supported by the introduction of favourable incentives and tax policies. These include but are not limited to: 1. Tax incentive programs to stimulate greater interest in rental housing; 2.  The provision of financial and other incentives to promote the improvement and upgrading of the current stock;  3. Assisting the province with the development of more strategic social policies geared at helping low income renters. These include social assistance programs. In addition, partnerships among different levels of government and strong collaboration between stakeholders such as community organizations, the private sector and  65  non-profit organizations are critical. This is important to maximize the use of scarce resources, while increasing the rental housing supply. Although the research was hampered by a lack of information and other limitations, several insights have been garnered from it and the work of others, which point to some implications for policies around rental housing in Canada  6. Policy Implications The key policy implications are: •  Stronger partnerships are required among the levels of government to encourage and promote greater interest in purpose built rental housing;  •  Extensive research is needed on the rental housing market, especially research focusing on examining the status of the current supply of rental housing and the significance of rented condominiums in other major Canadian centers, and appropriate policies developed to promote and sustain the provision of rental housing;  •  Government needs to explore ways to partner with rental housing providers and other key players in ensuring an adequate provision of rental housing;  •  Rental housing policies that promote long term interests in the rental market are urgently needed.  66  REFERENCES Alexander. M., & Somerville.T., (2009). Diverse housing and the Vancouver Area’s investorowned condominiums. Presentation at BC land summit. BC government (2005). Rental restriction for residential strata property. Information bulletin financial institutions commission of BC #5PA-05-01. ----------- (2006). Residential Tenancy Act: A guide for landlords and tenants in British Columbia. Residential tenancy branch office of housing and construction standards. BC Statistics (2006). Housing affordability in British Columbia. Census fast facts 2006 Case., K., & Quigley. J., (2008). How housing booms unwind: Income effects, wealth effects, and feedbacks through financial markets. European journal of housing policy vol 8, no 2, 161-180.  67  Carter. T., & Polevychok. C, (2004). Housing is good social policy. Canadian Policy and Research Network Inc. Clayton Research (1998). Economic impact of federal tax legislation on rental housing in Canada prepared for the Canadian Federation of Apartment Association. ---------- (1999). Understanding private rental housing investment in Canada. Prepared for CMHC. City of Vancouver (2005). Affordable Housing. The City of Vancouver Housing Center ---------- (2005). Rental Housing. The City of Vancouver Housing Center. Issue 2006-14 ---------- (2007). Protection of Rental Housing Stock: Rate of Change Regulation. Policy Report Building and Development. City of Vancouver. ---------- (2008). Rental Housing strategy: Process and Consultancies. Administrative report, RTS no. 07640 Canada Mortgage and Housing Corporation (2007). Rental market report, Vancouver and Abbotsford CMAs ---------- (2008). Canadian Housing Observer. Canada Mortgage and Housing Corporation (CMHC) ---------- (2008). Secondary market rental research, Vancouver and Abbotsford CMA ---------- (2008). CMHC apartment vacancy rates and average rents. Housing policy, social development, community services group, City of Vancouver. --------- (2009). Canadian housing observer. Canada Mortgage and Housing Corporation --------- (2009). Housing market outlook, Vancouver and Abbotsford CMAs. Canada Mortgage and Housing Corporation.  68  --------- (2009). Housing now, Vancouver and Abbotsford. Canada Mortgage and Housing Corporation Goodman D., & Goodman M., (2008). The market repositions. The Goodman report for apartment owners. Issue 36 Government of Canada (2002). Capital gain tax cut. Tax bulletin, Department of Finance Greater Vancouver Regional District (2006). Draft affordable rental housing strategy Real Estate Board of Greater Vancouver (2008). Making sense of today’s housing market. REBGV news releases. Oberlander. P., & Fallick (1992). Housing a nation: The evolution of Canadian Housing Policy prepared for the Canada Mortgage Housing Corporation. Ontario Housing supply working group (2001). Affordable rental housing supply: The dynamics of the market and recommendations for encouraging new supply Hamilton, S., (ed), (1978). Condominiums a Decade of Experience in BC. British Colombia Real Estate Association (BREA). Hulchanski, D. (2001). A tale of two Canada’s: Homeowners getting richer, renters getting poorer, income and wealth trends in Toronto, Montreal and Vancouver, 1984 and 1999, Center for Urban Studies research bulleting #2, University of Toronto. Hulchanski, D., (2002). Housing Policy for Tomorrow’s Cities (Dec 2002), Canadian Policy Research Network Lampert, G., (1999). Review of recent reports on rental markets in Canada. Prepared for the Canadian home builders’ association Landcor Data Corporation (2006). A report on condo’s in Vancouver’s West end  69  Paulsen, M., (2009). We need rental today: Toderian. Tyree ht t p : / / t h e t y e e . c a / News / 2009 /03 / 03 /Ren t a lHous i n g / . McClanaghan & Associates (2006). Affordable housing supply analysis final study result. A report prepared for the GVRD Planning and Policy Department. GVRD. Smart Growth BC (2005). Affordable housing policy. Affordable housing policy committee, Smart Growth BC. Smith. L., (1983). The crisis of rental housing: a Canadian perspective. The annals of American Academy of political and social science. Sage. Statistics Canada (2006). Custom tabulator for household maintainer in the City of Vancouver. Yan. A., (2009). Ownership, occupancy, and rentals: An indicative study of condominiums in Downtown Vancouver  70  Appendix 1 Semi Structured Interview Questionnaire Below are some guiding questions that were posed to participants. Section A: Questions for landlords and/ or property manager of rented condominiums in the City of Vancouver. 1) How long have you been renting your condominium? 2) What would you say are some of the reasons influencing your decision to rent your unit(s)? 3) How long do you intend to remain in the rental housing market? 4) What are the factors that you take into consideration in deciding how long to stay in the rental housing market? 5) What are some of the barriers and/ or challenges you face in renting out your condominium? 6) How have you dealt with these barriers? And what kinds of support or assistance would you need in overcoming them? 7) What are some conditions or factors that might hinder or encourage you to stay longer than anticipated in the rental market? 71  8)  How much “on average” do you charge monthly for your condominium?  Section B: Questions for housing specialists and other individuals knowledgeable about rental housing in Vancouver. Investor owned condominiums, along with secondary suites are providing needed accommodation as the more affordable purpose built rental units are declining, here in the city of Vancouver. •  How significant are rented condominiums, as an option for renters?  •  What are some trends observed over the past year in the uptake of rented condominiums by renters? And are more units becoming available?  •  On average, how long do renters remain in rented condominiums?  •  What is the profile of a typical renter of a condominium?  •  What are some of barriers and/ or challenges landlords face in renting out their condominiums?  •  On average, how long do rented condominiums remain on the rental housing market?  •  Given the challenge with rental housing in the city, what policies and programs are needed around condominiums to encourage more landlords become interested in renting out their condominium on a long term basis?  NB: Rented condominiums investigated as part of this study are primarily 100% strata properties in the City of Vancouver.  72  

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