2020 rent fixing criteria

The 2020 rent setting criteria will increase the rarity of housing and affect the quality of the offer, predicts CORPIQ

While the vacancy rate for housing units is decreasing in Quebec, the 2020 rent setting criteria disclosed by the Régie du logement will emphasize the problems of availability and quality.

Renovation destroys value

For 2020, landlords that will go to Court will be granted a rent increase of only $2.58 per $1,000 of renovation. This means that they will theoretically have to wait 387 months (32 years) to retrieve an expense, which exceeds the lifespan of the renovation.

"It’s impossible to absorb the renovation costs unless there is a change in tenants that would allow the rent to rise accordingly. The other possibility is that the landlord who is renovating, or the prospective buyer, plan to use the building for a different purpose than residential rental," explains Hans Brouillette, Director of Public Affairs at CORPIQ.

CORPIQ believes that this obstacle will contribute to further reduction in the housing offer. On one hand, landlords who are renovating have every interest in keeping the unit vacant for twelve months, since they can legally increase rent without contestation from the new tenant. Conversely, if the major renovations are not completed, there is an increased risk that the building's longevity will only be possible through its conversion into condos or a tourist accommodation, if it is well located.

Rents are increasing, thus more substantial increases will be granted by the Court

For 2020, the increase for the basic rent (excluding property taxes) that the court will grant in rent fixation will be twice as much as in 2019. In fact, the Régie du logement mainly uses the rate of rent variation in Québec during the previous year; however, rents are significantly increasing, 1,9 % according to Statistics Canada or 3,2 % according to the CMHC.

"This is one of the absurdities of the rent setting method that uses data that is influenced by it’s own numbers," explains the spokesperson of CORPIQ. "When rents increased a little, landlords were penalized with low rates the following year. Now that rents are increasing more, rent setting will allow for more substantial increases.”

CORPIQ proposes that the principle of rent adjustments be based on the cost of occupancy (total cost of use) of the dwellings. The ideal indicator would be the new housing price index, which is currently at 2.7%. If the net income generated by the rents of a building does not follow the usage cost, owners lose interest in reinvesting in renovations. Consequently, the risk of withdrawing the building from the rental market increases; likely being converted to another use.  

"If the Quebec government had applied usage cost to determine adjustments over the past few decades, the current supply would be more abundant and of better quality," says Hans Brouillette.

CORPIQ has made available online its own rent adjustment calculation grid that compares the result of what the Régie du logement's official grid proposes.

The number of disputes will increase

With the shortage of vacant units, more tenants will choose not to move this year and will contest the notice of rent increase. Therefore, less units will become available and more requests will be filed to the Court. These numbers significantly increased during the housing crisis of the 2000s.

Tenants must be cautious before refusing. If the rent increase requested by the landlord proves to be justified, the tenant who refuses to consider the bills presented as evidence will normally be required to pay the rent adjustment and fees that can be as much as $78.

The Minister's intervention is necessary

CORPIQ will submit to the Minister of Housing, Andrée Laforest, its proposals to reform the rent setting criteria. In response to a petition initiated by CORPIQ and tabled on September 18 at the National Assembly, the MP recognized that certain criteria were an obstacle for investment and confirmed that the possibility of amending the regulation was under consideration.

"The rent setting method was developed in the 1970s. It is more than time for the government to update it," concludes Hans Brouillette.

Affordability better than ever

To conclude, CORPIQ emphasizes that rent affordability has improved in Quebec over the past two decades. According to the most recent data published by Statistics Canada, in 2017, the average rent in Quebec ($735) represented 22.5% of the average after-tax income of tenants ($39,200). It was 25.9% in 1996.