Renovation to be carried - Discover the Aviseo study - Part 1

This capsule is the first in a series highlighting the many subjects raised in the Aviseo study presented in May 2023.

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Today, I will be presenting the very first capsule in connection with the recent study conducted by Aviseo conseil on the state of the rental sector.

Why are there capsules on this subject? Firstly, because we want you to discover different facets of this study, which was carried out over the past year. In this first capsule, I'm going to talk to you about the issue of major renovations and the importance of protecting our rental housing stock in Quebec.

At CORPIQ, we're in solution mode, formulating proposals because we're well aware that the status quo is not a solution for all rental owners. As you know, Quebec's rental housing stock is aging. 70% of units were built more than 40 years ago. In Montreal, this proportion rises to 79%. Quebec's rental housing stock is in need of some love and renovation.

Unfortunately, the methods used to calculate annual rent adjustments, particularly for major renovations, no longer work. Firstly, because they were designed at a time when interest rates were at 20%. Secondly, let's not forget that the economic situation and the reality of the rental stock were very different in the 80s. The calculation method currently used to take into account major renovation-related expenses in Quebec is based on a return on guaranteed investment certificates (GICs) for 5 years plus 1%. In the period between 1995 and 2002, for example, major renovations were generally amortized over 12 to 20 years, which was reasonable for rental owners who decided to invest in and maintain their properties. Since 2009, however, interest rates have been low, and we're now talking about amortizations of between 34 and 50 years. This year, things have been adjusted a little, but the reality is that today, as a landlord, when you spend $1,000 on major renovations, you adjust your monthly rents. In 2021 it was about $1.67, and this year it's more like $3.15. Faced with increasing costs and obstacles, particularly in the area of renovation in recent years, the reality of the rental sector has become increasingly complex. Added to this is the obligation to do business with professionals holding competency cards, as required by Bill R-20. It's easy to see that this is an expensive business, and there's no longer any incentive to justify such investments.

The formulas and recommendations of the Tribunal administratif in substance are difficult to reconcile with the objective of maintaining investor interest in residential rental real estate in the existing stock. Clearly, the legislator needs to quickly review these aspects, and the housing ecosystem is in dire need of such a review. Ultimately, the consequences of the status quo are there for all to see, because if we're not able to bring back your investment in maintenance, i.e. major renovation, within a timeframe of 15 to 20 years, the reality is that the stock will continue to deteriorate, and in the end this will generate other types of behavior that we'd like to see less of, such as more regular evictions for fundamental building work because we haven't been able to maintain it over the years, and above all, to put in place mechanisms to achieve these objectives. In fact, Ontario has put mechanisms in place to enable rental owners to make investments and amortize them over the life of the investment, whereas here in Quebec we're based on a calculation formula linked to guaranteed investments that in fact have no connection with the life of the capital expenditure. You know, beyond the fact that we have major investment needs, what the Aviseo study has just shown is that we're also going to have to get on board with the fight against climate change and energy efficiency in Quebec's rental housing stock. So, if we want the 1.5 million rental units to undergo major renovations in terms of windows, insulation, roofs and heating systems that meet high standards and ultimately reduce electricity bills, we're going to have to spend a lot of money over the next decade, and to do that, we're going to have to support landlords and ensure that the rules for calculating rent adjustments, particularly for major renovations, are adapted to this objective as a society.

So, once again, CORPIQ is in solution mode, because we obviously want this stock to be renovated and maintained because it's affordable, but for that to happen, there will have to be programs, but also a calculation formula that will spread out and better amortize major renovation expenses over the next few years, and that's where the report by Aviseo conseil comes in to support this argument with comparisons and data that support our vision for all owners and tenants, who will ultimately be the big winners in terms of better-maintained homes and lower electricity bills over the years, thanks to the improved energy efficiency of these major renovations.

So that was our first CORPIQ info capsule for all our members, explaining a few recommendations from the Aviseo report commissioned last year, and we'll be back in other capsules in the fall of 2023 to present the changes and ideas supported by this document.