On December 13, New Brunswickers finally got some rent control. Unfortunately, it is not going to meaningfully restrain rental inflation. The housing crisis is likely to continue to get worse.
That is because Team Holt largely sided with landlords when they drafted Bill 3, An Act to Amend The Residential Tenancies Act. When faced with arguments that they needed to do more to protect tenants, they doubled down and passed the flawed bill anyway.
To be clear, Bill 3 is going to help some people. The bill provides stability for people intending to live long-term in apartments with landlords who are happy with their profit margins, and who don’t generally evict tenants arbitrarily. Maybe that is most tenants.
But then there are going to be landlords who, as during the temporary cap in 2022, will try to get around the legislation by abusing fixed-term leases, harassing tenants, and threatening those who refuse above-three per cent increases with renoviction or worse.
In fact, three per cent rent increases are just too high in an economy where the central bank aims for two per cent inflation, and where the headline Consume Price Index (CPI) rate is sitting at 1.9 per cent year over year. Why are landlords going to be allowed to raise people’s rents by 100 basis points more than inflation? It sounds like a good deal for the landlords.
The nine per cent pass-through
The deal gets better. Landlords are not actually capped at three per cent. They can apply for above guideline increases of as much as nine per cent on existing tenants.
The nine per cent represents capital costs that can be passed through to tenants. There are problems with this.
First, nine per cent is too generous. Moreover, it is permanent. That is, once the tenant takes on the extra burden, they will pay it as long as they continue to live in their apartment, even after the costs have been recouped.
Worse still, what capital costs should be passed on to tenants? Are tenants not already paying for their landlord’s upkeep of the building? Is that not already included in the rent? For most landlords, it is. But now, New Brunswick’s poorly drafted rent control legislation incentivizes landlords to pass the increases on to tenants.
What about that roof that needs replacing? That cladding that is just fine, but maybe ageing? Tenants could face nine per cent increases every year if a landlord can justify it. And some will.
David Hickey put no measure in the legislation or regulations that would restrict a landlord’s right to pass on capital costs to tenants. All the Tenant-Landlord Relations Office (the TLRO, the old Rentalman’s office) has to do is verify that the capital cost was incurred. There is nothing that limits which capital costs can pass through to tenants. There is nothing that empowers the TLRO to distinguish between superficial/aesthetic capital costs and structural/necessary ones.
That is a big hole in a market where real estate investors are extracting wealth from housing by moving units up-market (it is called repositioning, or “organic growth opportunity”, or sometimes “gain-to-lease potential”). These are often realized just by sprucing up common areas and “refreshing” otherwise livable apartments (read the Management Discussion and Analysis section of any publicly traded real estate firm).
Public policy continues to simply allow investors to extract money from existing housing stock, making it less affordable for more people.
Rent control needs to be tied to units
The biggest gap in the existing legislation is that it applies to tenants, and not to the units themselves. This means that when tenants leave their apartments, landlords can allow the market to set the price.
To be fair to Team Holt, this is a gap in all other provinces. But it is a gap that is going to have to be fixed before the housing crisis can be resolved. When offered an opportunity to show real leadership on a key public policy issue of national significance, the new Housing Minister David Hickey was MIA.
When you leave your rent-controlled unit to look for another place, you are entering the brave new world of the housing market, where finding an affordable rental unit is getting really hard for an ever-increasing number of people.
Folks who can afford $2,500 rents are able to find a place to live—the housing statistics show that the stock of available housing for those folks tripled and, in some places, quadrupled in just five years. Since 2021, it has continued to expand rapidly.
The problem is that for lower-income New Brunswickers, the market is shrinking at an amazing rate. Apartments below $1,000 a month are disappearing— despite their importance to students, people on fixed incomes, workers with low wages or low hours, newcomers to Canada, and many others who need to save money to pay off debts or save up for whatever life project they may be working on.
Because of that, and because of a lack of public investment in affordable housing (critical public infrastructure), the New Brunswick housing system is making tenants poor—similarly to how it is everywhere else in Canada. Foodbank usage is up 90 per cent in Canada since 2019, and housing is playing an outsized and under-recognized role.
The status quo is deliberate self-harm when harm reduction was badly called for. Bill 3 provides a modicum of relief, but it is a small tourniquet. We are dealing with a severed artery: our housing system is making the poor poorer and the rich richer.
And it is not just poor households that pay the price. Middle income households are too. Investment in new, non-market housing at the rate required is going to cost taxpayers a whole lot of money—a lot more than we are allowing investors to squirrel away by failing to adequately regulate the market and protect the public.
Expenses in dealing with the fallout of homelessness and poverty will be much greater than passing legislation to inconvenience real estate investors.
These expenses will take the form of real cash payment (your taxes!), and they will take other forms too, the small daily cuts of living in a community where some people endure crushing poverty. Our liberal culture will make those who endure responsible for their own precarity, rather than recognizing how investor classes have taken what others need, by placid, legal acts that are no less violent for being sanctioned by the law. These relations silently undermine liberal society and its institutions, from education to health care. This is why the middle will no longer hold and our politics are ripped apart by anti-liberal, anti-democratic forces. Folks are angry, often at one another, whom they blame for things that are almost always beyond an individual’s control.
This is really what is at issue here. Team Holt talked a big talk about affordability on the election campaign. But when faced with its first big test, it refused to pass legislation that would be inconvenient to the owners of investment properties.
Alas, we are at a historical moment when the country and the province needs leadership willing to make decisions inconvenient for the few. Whether it is our oligopolistic grocery market, our gamed housing market, or our flailing energy transition, the free market is failing Canadians and leading to much greater long-term costs that could have been avoided through timely legislation and thoughtful public investment.
Team Holt is showing which side it is on. Unfortunately for the majority of New Brunswickers, it is not on ours.
Matthew Hayes is an organizer with the New Brunswick Coalition for Tenants’ Rights and a sociology professor and the Canada Research Chair in Global and International Studies at St. Thomas University.
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