Figures show New Brunswick landlords, developers having big year despite rent cap

Figures show New Brunswick landlords have generated rent increases well above national averages this year despite the province's hard cap on rent hikes.

That undermines one of the two key arguments being used for dismantling the policy. 

Rent increases that landlords can charge existing tenants in New Brunswick this year have been limited to 3.8 per cent by law.

But a series of other factors, including higher increases charged to new tenants moving into vacated units, have helped push average rents in the province up 7.9 per cent over the last 12 months ending in October, according to Statistics Canada.

That's significantly above the average national rent increase of 4.7 per cent over the same period, and second highest among provinces behind Prince Edward Island.

Last week, the New Brunswick government announced it was ending its one-year experiment with the hard rent cap over fears it was preventing landlords from dealing with rising costs, along with concerns the policy is discouraging investment by developers who might otherwise build new units.

In debate in the legislature last Thursday on an opposition motion calling for the rent cap to be extended through 2023, New Brunswick Health Minister Bruce Fitch helped explain the government's belief that the cost of a rent cap to landlords outweighs the benefits it offers to tenants.

It is a "balance" between protecting tenants "and making sure the landlords have an opportunity to meet their costs and meet some of the increasing expenses that they're suffering," Fitch argued in opposing the motion.

But emerging evidence suggests New Brunswick landlords have been, on balance, faring well in 2022.

Thanks to fuller buildings, significant rent increases on new tenants not covered by the cap, and a series of 2022 tax cuts and other concessions granted to apartment properties by both the province and municipal governments, many rental properties have flourished. 

Earlier this month, Halifax-based Killam Apartment Real Estate Investment Trust — New Brunswick's largest landlord —reported that earnings from its apartment buildings in greater Moncton, Fredericton and Saint John all grew at rates above national averages during the first three quarters of 2022.

"Across the board, things are firing on all cylinders," Robert Richardson, Killam's executive vice-president, said about the company's New Brunswick results in a conference call with analysts Nov. 9.

Killam owns 19,527 apartment units in more than 200 buildings in seven provinces, including 5,073 units in New Brunswick.  

In its latest financial filings, the company reported a 7.8 per cent year-over-year increase in "net operating income" on its New Brunswick rentals during the first nine months of 2022 despite the rent cap, well ahead of its national gain of 4.5 per cent.  

The result came from higher average rents per apartment in New Brunswick, more apartments rented per building than last year and limited growth in New Brunswick expenses. 

Killam noted that although tenants renewing leases with the company in the latest quarter were receiving average rent hikes of just 2.1 per cent nationally, including in New Brunswick, new tenants moving into vacated units — what the company calls "turns" — were paying 11 per cent more than previous occupants.   

That helped boost overall rental incomes.

In addition, provincial and municipal tax-rate cuts on apartment buildings in New Brunswick, and a new rule spreading tax hikes over multiple years following assessment increases above 10 per cent, led to a total tax bill increase of "less than one per cent" for Killam, which it said tied with Alberta as the lowest it experienced in the country.

The overall result was an increase in rental property revenue for Killiam in New Brunswick between January and September of $2.48 million against property expense increases of just $403,000, generating the net operating income increase of 7.9 per cent over 2021.

That didn't escape the notice of analysts on Killam's earnings call.

"I just wanted to look at New Brunswick a little bit," said Kyle Stanley with Desjardins Capital Markets in Toronto.  "It continues to be very impressive"

Philip Fraser, Killam's president and CEO, agreed.

"There is population increase in all three [New Brunswick] centres that we operate in and there's lots of jobs for people in those markets and, I mean, you can't ask for much more," said Fraser.

Still, the province remains concerned landlords have suffered under the rent cap this year and worry the policy has discouraged development, an issue that is also difficult to substantiate.   

Statistics Canada reports the value of building permits issued for apartment construction during the first nine months of 2022 totalled $302.3 million.

Significant increase

It's a significant increase from 2021, a point even New Brunswick Finance Minister Ernie Steeves made Thursday during the rent cap debate.

"Since this past August more than 3,500 rental units have been under construction in Moncton, Saint John and Fredericton," said Steeves.

"This represents the highest level since 1990. Residential building permits are up 23 per cent on a year to date basis over 2021 levels. This is higher than the full-year performance seen in 2017, 2018 and 2019."

Pressed by reporters Thursday about what specifically is not working with the rent cap, Jill Green, the minister responsible for housing, said the province believes it is poor policy and there are other ways tenants can be protected. She did not cite specific examples

"Rent caps have been shown not to have the desired effect," said Green. "You look at any article by an economist and they say rent caps don't work.

"If we find without the cap in place that tenants are having problems and are becoming vulnerable we will put programs in place to help them."