Victoria’s Rental Housing Crisis: Is There Really Nowhere to Rent?

Douglas explores how Greater Victoria got into a rental housing crunch, the economic impacts ... and the steps being taken to fix it.

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After almost a year of working remotely from Vancouver for the Victoria tech startup Checkfront, Alex Mereeb was offered a position at the company’s head office, starting July 1, 2016. He made several trips to the capital to scout out a home but couldn’t find a one-bedroom apartment downtown at a price that fit his budget.

“… I decided to just rent a temporary place that I found online, a furnished apartment, and stayed there,” said Mereeb, a sales manager of Checkfront, which provides a cloud-based booking-management system for businesses around the world. “I was hoping that it would be a couple of weeks after I moved that I would find a place but it turned out to be way harder.”

He eventually found a home in August, a Quadra Village studio costing $890 a month.

“I just wanted to get it over with at some point …” says Mereeb, who turns 30 in October. “I had to lower my expectations a lot too.”

It’s a situation Checkfront CEO Jason Morehouse and other business owners have struggled with as they recruit new workers to their growing enterprises in booming Victoria. The city’s current rental vacancy rate of 0.5 per cent means few housing options for new hires.

“I know there’s a lot of buzz around growing particularly tech in the downtown core, but I see the housing component as a tricky one,” Morehouse says.

His team of mainly millennials seeks homes close to work and within walking distance of coffee shops, bars and microbreweries — all things that VIATEC, the organization leading the local tech industries’ marketing efforts, has been promoting, Morehouse points out.

Housing on the Way

The good news is that for the first time in three decades, new market-rental apartment buildings are being built en masse in Victoria in addition to hundreds of units of social and subsidized housing. According to the real-estate website Citified.ca, 2,340 rental units were under construction this summer in metro Victoria, with another 2,980 in planning. Of those, 527 units are being built downtown, with another 948 planned for that precinct.

“If all goes well, in about two years, the rental vacancy rate should be back to about three per cent as opposed to the 0.5 percent that it is right now,” says Victoria Mayor Lisa Helps, who estimates a third of the buildings under construction downtown are for rental.

For businesses and their employees seeking homes, those units can’t be built fast enough.

“We’ve got six or seven postings online right now for open head counts, and we’re looking outside of Victoria,” says Morehouse.

“I know a lot of companies are trying to attract experienced talent from other markets, be it Toronto, Vancouver. But if they can’t find housing, it’s kind of a moot point.”


57.2%

of Greater Victoria business owners surveyed believe current shortage of housing is making it difficult for them to attract employees outside of Victoria. 19.2% are unsure and 23.6% said this was not a difficulty.

Source: Chemistry Consulting Group survey of 250 Greater Victoria business operators from 10 sectors, mid-July to mid-August 2017. For full report, visit chemistryconsulting.ca.

Multi-sector crunch

It’s not just the tech sector that is feeling the crunch. Ironically, companies building the new rental housing are also having troubles with their employees finding places to live.

Rory Kulmala, CEO of the Vancouver Island Construction Association, estimates that the association’s approximately 430 members are short 200 to 300 workers in Greater Victoria alone. It’s not the only factor causing a shortage, but it’s a big one.

“One of the evaluating factors is: are there places for these people to live? And the answer is no, or they’re just not available,” he says.

A company might bring in a worker from up-Island for the short term. “But are you going to bring somebody from Alberta to live here? You might find that a pretty hard stretch,” he adds.

Construction is also competing with all other economic sectors for scarce housing. “If you can get more houses or more accommodations built,” Kulmala says, “does it give a bit of a relief valve? Yeah, it starts making Victoria attractive again to move to and it gives construction companies an ability to attract new entrants to Victoria.”

And while the construction sector is managing to keep up with the frenzied pace in Victoria, which Kulmala says is record setting, firms are straining their resources.

“In some instances, it means it might take a little bit longer for projects to get done,” Kulmala says.

If companies have enough workers, they can accelerate the pace of construction because they can put more people on the job. “You can only make a worker work so long before he says, ‘I’m only doing my shift and I’m going to go and enjoy my life,’ kind of thing,” Kulmala says.

His solution isn’t barracks style-housing for workers, an idea Victoria’s mayor has floated.

While he does give her credit for outside-the-box thinking, he wonders if previous councils couldn’t have prevented the rapid shrinking of the vacancy rate, which he admits caught him by surprise, had they processed development permits in a more timely manner.

“Five or six years ago, when these were in front of councils, what were they doing to drive development?” Kulmala asks.

Then again, he doubts the current boom will last after major projects like the McKenzie Avenue interchange and the region’s long-awaited sewage treatment plant are completed.

“At some point, things are going to get quiet and we’re not going to need 15,000 construction workers in our region,” he says. “We’re going to need 12,000.”

How Did We Get Here?

In 15 years, Victoria hasn’t had a vacancy rate higher than 4.1 per cent back in 1996, according to Canada Housing and Mortgage Corporation (CMHC) figures. From 2004 to 2008, the rate averaged 0.5 per cent. The highest it has been since then is 2.8 per cent in 2013.

While many people are confident the rate will rise in the next few years as new rental units are completed, concern remains widespread that it won’t be enough to ensure a healthy supply of rental stock. Among the measures Victoria city council has taken is a six-month moratorium on apartment building demolitions in order to devise a strategy for ensuring tenants aren’t “demovicted” and affordable housing isn’t lost.

Critics of that move include policy consultant Tex Enemark. In a recent article on The Tyee, he wrote, “when silly municipal councils stop demolitions willy-nilly, they compound the problem.”

Enemark, who worked for CMHC in the early 70s, blames Canada’s rental housing woes on changes in federal tax treatment of rental properties that began in 1972. Two decades later as a deputy minister in the B.C. government, he helped revamp B.C.’s Residential Tenancy Act, including relaxing strict rent controls that proved “a disincentive to be a good landlord,” he says in an interview with Douglas.

He has a lot to say about rental-market economics. The following snippet from his remarks does as good a job as any at capturing his position: “… they want to treat rental housing, private-sector rental housing, as though it were a public utility. Well, it’s not a public utility and if it doesn’t make economic sense, nobody will build it.”

Among the defenders of Victoria’s moratorium is Kelly Newhook, executive director of the Together Against Poverty Society, which believes housing is a human right.

Newhook doesn’t buy the argument that the city’s stock of 50-year-old apartment buildings is deteriorating into squalor. She’s visited a friend who lives at the Beacon Arms, the complex that sparked the moratorium, “and it’s actually quite a beautiful building,” she says. Nor does she agree that creating more market-rental stock results in a trickle-down effect of affordable units becoming available as more affluent renters move to high-end rentals.

Mayor Helps, meanwhile, clarifies that the moratorium doesn’t apply to rezonings or applications. But it has acted as a “wake-up call” for everyone concerned, including developers.

“Now everyone is awake and we’re all in the same boat, pulling the paddles in the same direction towards solutions,” she says.


66%

of Greater Victoria business owners surveyed indicated they’ve had to raise salaries in order to attract staff and management due to the region’s low unemployment rate and the higher cost of housing.

Source: Chemistry Consulting Group survey of 250 Greater Victoria business operators from 10 sectors, mid-July to mid-August 2017. For full report, visit chemistryconsulting.ca.

The impact of Airbnb

Victoria councillors have also acted on concerns about the impact of short-term rentals, such as Airbnb listings, on the long-term rental housing stock. On September 21, city council approved new regulatory rules for short-term rentals and an enforcement strategy, along with disallowing short-term rentals of less than 30 days in transient zones. These zones permit hotels, motels and bed and breakfasts  — and make up much of downtown.

Frank Bourree, president of Chemistry Consulting and GT Hiring Solutions, calls the regulations a good first step.

“We’ve been facing this challenge of ridiculously low vacancy rates here for a few years and it’s just gotten more and more severe as a result of the property values driving landlords to opt for the Airbnb option, where they can generate more money,” says Bourree, who estimates that the region has more than 1,700 Airbnb listings (Airbnb estimates 1,500).

Bouree would also like to see short-term rentals contributing to the hotel/tourism tax and maintaining appropriate insurance to protect renters.

Problems with Policy

Enemark says Canada’s rental-housing woes could be largely solved if the federal government rolled back its tax treatments on rental properties to what they were in the 50s and 60s when many of the country’s rental apartments were built.

Among the more damaging changes was dropping “a very attractive tax shelter” of 10 per cent annual depreciation on wood-frame buildings to five and then four per cent. The government also removed “rollover” provisions exempting rental-building owners from being taxed on their profits if within the calendar year they reinvested those profits in rental housing.

“By doing away with rollover, which was the biggest catastrophe of them all, you remove liquidity in the market,” Enemark says.

Subsequent federal initiatives, such as the controversial Multiple Unit Residential Building (MURB) program, did replicate some of the eliminated incentives, which meant rental apartments were still being built into the late 70s. But by the 80s, MURB had morphed into a tax boondoggle and the program foundered. Subsequent tax changes — such as the introduction of the GST, which discriminated against landlords — stripped investors of any incentive to finance rental housing.

In the late 90s, Enemark examined the impacts of these collective policy decisions on Victoria’s rental housing market and calculated that it added $113 to the monthly cost of a rental apartment compared with that of a similar motel unit. Nearly 20 years later, the cost has likely doubled, he figures.


$912

Average cost of a one-bedroom suite in Greater Victoria in 2017, a $22 increase over the second quarter of 2016. Two-bedroom suites increased from $1,160 to $1,188.

Source: Colliers international

Finding a Business Case

Despite the still-unfavourable tax treatment, investors are discovering a business case, in Victoria at least, for financing construction of new market-rental housing. The reason, notes Saanich architect Paul Hammond, is simple: vacancy rates are low and rents are rising.

“But it doesn’t mean those rents are going to be affordable,” Hammond says. “They’re going to be market rents.”

His firm, Low Hammond Rowe Architects, has designed several rental complexes, both market and social housing, in recent years and has several more in design. Hammond has even seen cases of developers switching in midstream from a condo project to a market-rental project because of the high rental demand.

Until this spring, a 36-unit building that Hammond’s firm designed for Empresa Properties on Burdett Avenue was wending its way through rezoning as a condo project. But Empresa has ditched that plan and is preparing to return to Victoria council with a proposal for a rental building of potentially a few more units, says Empresa president Karl Robertson.

“There’s so much demand for a product like that, it’s a good long-term investment to hold on to,” Robertson says.

Empresa is also applying to CMHC for a grant in exchange for setting aside 10 per cent of the units as affordable housing, Robertson says.

“That it’s coming back with rental is awesome because that really is the demand,” Helps says.

The uptick in building rental units began in 2012 with historically low interest rates, a situation she doesn’t expect to last forever. “So my fear is we’ve got to get as much rental built in this time as we can,” Helps adds.

Divergent Interests

Such proposals often run into public opposition. A high-profile example is the plan to redevelop Christie Point in View Royal. Council recently approved a rezoning proposal by Toronto-based Realstar Group to build 473 new rental units to replace 161 apartments built in the 60s on a peninsula that juts into Portage Inlet.

Among the opponents are the Portage Inlet Protection Society, which worries development will despoil a bird sanctuary, and Christie Point Advocates, which argues that compensation offered to tenants wasn’t generous enough, according to news reports. Realstar has offered new units at existing rates to residents who have lived at Christie Point for at least 10 years, as well as cash to the other residents.

View Royal Mayor David Screech, who cast the deciding vote, says the existing buildings need replacing. He says he understands “the pain of the people who have to move” and that local governments need to do everything in their power to help them obtain housing. However, he adds, the leading argument against Christie Point’s redevelopment has been from people who simply don’t want change.

“To me that’s just not an acceptable argument,” Screech says. “There you have a private landowner. How can you possibly tell them that you’re not going to allow them to change their property at all and, in fact, you’re going to require them to essentially provide social housing — by not changing?”

As the owner of Greggs Furniture & Upholstery in Victoria, Screech has witnessed the impact the city’s rental housing crunch has had on his 13 employees. “It’s probably their number-one concern, with what we’re able to pay and keep our business viable: that they’re not going to be able to afford housing close by the store,” he says.

Because Canada has a shortage of trained upholsterers, he has recently been emailing a potential hire in Mexico. “But obviously I would be responsible to find him a place to live, at least short-term,” Screech says.


26%

of Greater Victoria business owners surveyed noted the shortage of housing is having a serious or significant impact on their ability to attract and retain workers. In total, three-quarters of respondents believe the shortage is having some level of impact on their ability to recruit and retain talent.

Source: Chemistry Consulting Group survey of 250 Greater Victoria business operators from 10 sectors, mid-July to mid-August 2017. For full report, visit chemistryconsulting.ca.

An Entire Region Affected

Nor is the rental crisis restricted to downtown Victoria. Employees at manufacturing plants near Victoria International Airport have so much trouble finding housing nearby that three-quarters of them commute to work, mainly from Langford, notes John Juricic, owner of Harbour Digital Media and executive director of the Sidney-North Saanich Industrial Group. The group represents about a dozen companies, such as Viking Air, Scott Plastics and Nicholson Manufacturing, that collectively employ about 3,500 people. Their biggest problem: lack of affordable housing for workers.

“It is an under-the-radar barrier to business development in the region,” Juricic says. “It is maybe the most significant barrier.”

Many salvos are chipping away at that barrier. They include rental townhouses nearing completion on Tsartlip First Nation’s land on Stelly’s X Road. Called The Meadows at Brentwood Bay, the project’s units were slated for occupancy this spring and summer at monthly rents of $2,000 to $2,200.

Closer to the region’s core, View Royal recently approved two new apartment blocks, Screech points out. And downtown, in the last two years, Vancouver-based Townline has leased 394 rental units on the former site of the old Hudson’s Bay building in Victoria. In late July, Chard Developments had a “topping” ceremony for Yello, a 209-unit, purpose-built rental apartment tower on Yates Street. And the Azzurro, a Greater Victoria Rental Development Society project on Blanshard Street, was making appointments for rental viewings at press time.

Rents for Hudson Walk One started at $1,395 for a one-bedroom, up to $3,295 for a penthouse, says Chris Colbeck, Townline’s VP of sales and marketing. Rents are similar for Hudson Walk Two, the third rental building on the site, now fully leased.

At the time Townline was planning the first of those three buildings, Hudson Mews, the company was considering developing more condos, which it had built earlier on the site.

“And we made the business decision that there was a bigger demand at the time [for building market-rental units] which we were accurate on,” Colbeck says.

He admits, though, that Townline’s nearly 400 new units haven’t “put much of a dent” in Victoria’s rental vacancy rate, although he adds that’s it’s encouraging that more rental stock is finally being built.

Aside from the market-rental projects, a lot of social or subsidized rental housing is under construction or in design in Victoria. Architect Hammond says much of that is made possible by the federal Liberal government delivering on its promise to provide money for affordable housing, which landed with B.C. Housing, a provincial commission that reports to the minister responsible for housing.

The Greater Victoria Housing Society (GVHS) and Pacifica Housing each have hundreds of units either built or about to be built. GVHS has 765 units at present, including some, like the Townley, that are non-subsidized. Another 275 units in four projects in the works will push the society’s inventory past 1,000.

Meanwhile Dean Fortin, Pacifica’s executive director, said it has 150 units in the pipeline on top of about 1,200 already occupied.

“There are long lists of people waiting for affordable housing,” says Fortin, who estimates Pacifica’s vacancy rate at 0.02 per cent.

A former Victoria mayor, who lost to Helps in 2014, Fortin won’t comment on what former council colleagues are doing to address the housing crunch. But he does share the optimism of Helps.

“The larger piece is this: Victoria is a very desirable place for people to come,” Fortin says. “So I think this challenge is going to be with us for a long time. Having said that, I don’t think we should be discouraged in trying to meet it. Let’s go build housing.” 

 This article is from the October/November 2017 issue.