A landlord hiked rents again and again. Canada's housing agency rewarded him every time

Everything seems to be getting more expensive. Food, gas and housing prices are on the rise while paycheques are slow to keep pace. 

The CBC News series Priced Out explains why you're paying more at the register and how Canadians are coping with the high cost of everything.

In the year after the final tenants living in a rundown pair of apartment buildings on Victoria Road in Dartmouth, N.S., left for good, many of their units have been transformed with granite countertops, stainless steel appliances and subway tiled kitchens.

Those renovations have also seen advertised rents double, far beyond the reach of former residents like Edward Greek, a 58-year-old on social assistance who lived for six years in a $550-a-month bachelor unit.

Since his eviction in late 2020, he said he has stayed in 10 different places, including a spell at a homeless shelter and at three different hospitals due to medical issues.

"I've been shuffled around, shuffled around, shuffled around," he said. "It was very hard on me."

It is one of the latest in a string of so-called renovictions in the Halifax area by Adam Barrett, the 36-year-old head of BlackBay Real Estate Group Inc. There's indications it's earned him a big payday. After refinancing the Victoria Road properties, mortgage documents suggest one of his companies has pulled out upward of $1 million in profit.

But listed in those records is another notable piece — one that's received little public attention in the debate around the escalating rental crisis in parts of Canada. Each time one of more than a dozen BlackBay apartment buildings has been renovated and rented out at much higher rates, the company has been rewarded by a federal Crown corporation whose stated goal is to "make housing affordable for everyone in Canada."

The Canada Mortgage and Housing Corporation plays a large role in the financing, and refinancing, of apartment buildings across the country, from small, six-unit properties to high rises that house hundreds upon hundreds of people.

It does so by insuring tens of billions of dollars worth of mortgages for eligible multi-unit rentals. That lowers the risk for banks and other lenders, enticing them to offer building owners lower interest rates, higher loan amounts and longer periods to pay the money back.

But the Victoria Road project illustrates how that financial support system can become uncomfortably intertwined with situations that seem counter to the purpose of CMHC, and even to the mandate of the federal minister who has overseen the housing agency since 2019.

In December, Prime Minister Justin Trudeau instructed Housing Minister Ahmed Hussen to develop a plan to prevent renovictions, and devise a post-renovation surtax for cases where rent increases are deemed "excessive."

Tammy Wohler, a Halifax legal aid lawyer who has represented hundreds of renters in residential tenancy cases, calls CMHC's role in renovictions "tragically ironic," given its affordable housing ambitions. 

"The push for affordable housing should not take affordable housing away from those already living in it," she said.

It's not clear how often CMHC is insuring multi-unit mortgages on properties where rents have significantly increased. The agency said it does not track such statistics, and under access-to-information laws would only release a heavily redacted spreadsheet that obscured details of thousands of apartment refinancings it insures each year.

But mortgage documents can offer insight into individual properties. In the case of Barrett, since 2019, his companies have bought and renovated, and then refinanced with CMHC insurance, at least 15 apartment buildings in the Halifax area, totalling roughly 200 units.

The projects follow a typical pattern, according to the records. A short-term mortgage is obtained, with the money often carved up between the actual purchase price of the building and a portion set aside to cover a percentage of the "capital improvements."

After renovations bring higher-paying tenants, the value of the building rises and the property then qualifies for a higher mortgage, but one with a very low interest rate because it is insured by CMHC. The first loan is paid off, and whatever remains, after taking into account money the company itself has put into the project, amounts to profit that can then be dedicated to the next acquisition or development in an ever-expanding portfolio.

The records don't offer intricate details of the financial workings of each project. In some cases, the payouts appear modest. In other cases, they appear more significant.

In an email, Barrett said he was not willing to disclose financial details of his company's investments, but said the calculation method CBC News has used is "not accurate" because it doesn't take into account higher-than-expected renovation costs.

"Like most renovations, especially those in older rundown properties, once you start to open walls and investigate things further the scope of the work increases, and therefore the cost increases," he said.

"These cost increases are not covered in the short-term financing from our lender. It is our responsibility to pay for those costs out of our pockets. In some cases, the additional revitalization costs that we pay directly (not covered by short-term financing) are millions of dollars."

The major factor contributing to the housing crisis in many Canadian cities is there are simply too few places to rent, according to John Dickie, the president of the industry group Canadian Federation of Apartment Associations.

The more attractive an apartment building is as an investment, he argues, the greater the incentive for developers to build much-needed new ones and add to the housing stock.

He said many building owners who use CMHC insurance to keep interest rates as low as possible simply refinance for the same amount at mortgage maturity. Others may take out a bit extra to pay for essential upgrades, such as a new elevator.

But he argues there are some cases where a building has deteriorated to a point where tenants must leave to do the proper restoration. The problem, he said, is twofold: there's not enough rental supply generally, making it hard to find a new place to live, and what is out there isn't affordable to those with little income.

The solution, he said, is not to ban renovictions. It is to instead increase income supports, such as Old Age Security, for the poorest Canadians living in the country's priciest rental cities, like Toronto, Vancouver, and increasingly, Halifax.

He also said some measures outlined in the prime minister's mandate letter to Hussen, including taxing "excessive" post-renovation profits, ignore the fact that restoring a building so it is safer, more energy efficient and a nicer place to live is a good thing.

"That mandate letter is written that way because the federal Liberals are very much afraid of losing votes to the NDP and they want to avoid that," Dickie said in an interview. 

"That mandate letter, it is pure politics. The economics of it are completely unsound. The fairness of it is completely unsound, and renters will end up paying for that. That's the truth of this matter."

Nova Scotia temporarily banned renovictions in November 2020 due to the pandemic, but the measure is set to lift when the province's state of emergency ends this month.

CMHC declined interview requests, but forwarded a statement from Hussen, who was also unavailable for an interview. It did not address why CMHC insures mortgages in situations where rents have jumped significantly, but said: "In recent years, renovictions have been a source of concern as they have some effects on the prices of housing markets."

The housing minister said the federal government is focused on helping grow rental supply in the country, something it hopes will give people more options, including those who are currently living in inadequate or unaffordable places.

Frances Jeddore, a 62-year-old retired hospital worker who lives on a pension, was effectively renovicted twice within a year and a half from two different buildings that were acquired by Barrett's companies. 

The first time, she said, she was given a four-month notice that her rent would rise to $1,450 from $725. If she couldn't pay, she had to leave.

The previous owner of the building found her a $700-a-month unit in Halifax at 58 Main Ave., a worn-out, 1960s-era walk-up. Within six months, she said, Barrett's company had bought that building. Renovations began and then one day, Jeddore said she came home to find a note on her door informing her that rent would be doubled.

"Well, I just about dropped to the floor. I was like, 'Are you kidding me?'" said Jeddore, who finally found another place to live after a couple of months of searching.

Another renovation three blocks away at a building on Vimy Avenue led to a standoff in 2019 between Barrett and a number of tenants who refused to leave. At one point, BlackBay said it would forge ahead even if they remained, posting notices that power and water would be cut off daily.

Today, units rent for up to $1,400 for a two-bedroom — double what they were just three years ago. CMHC-insured refinancing on the Vimy Avenue property helped secure a rock-bottom interest rate of 1.47 per cent, locked in for five years.

In his statement, Barrett said his company tries to go "above and beyond" the requirements of the Tenancy Act when residents must relocate, but that "good quality affordable housing is a significant societal challenge that requires immediate government action."

He described some properties he takes over as "derelict" and needing millions of dollars in upgrades.

"I must say, I have sympathy for those who were and are living in buildings that are unsafe, unhealthy, and lack minimum living standards," he said.

In his statement, Hussen noted a move by CMHC in May 2020 to restrict what multi-unit owners can do with the proceeds from refinancings using its insurance.

It explicitly banned using the money to pay out investors, and said it can only be used to purchase or construct residential housing, for capital repairs and improvements, or to pay off a short-term construction loan.

CMHC is launching a new "multi-unit mortgage loan insurance product." It will offer borrowers incentives, such as reduced premiums and longer amortization periods, based on "their level of commitment to affordability, accessibility, climate compatibility, or a combination of the three."

Barrett did not detail what he does with any proceeds that come from refinancings. At least some of his projects have been captured under the new CMHC rules, and Barrett noted the policy in an email to CBC News.

Indeed, the BlackBay holdings continue to grow. His companies have constructed new rentals, including a 26-unit building on Gottingen Street in Halifax and another 40-unit building a few blocks away.

In January, one of Barrett's companies bought a 12-unit apartment building dating back to 1960. On Thursday, a company hired to do interior demolition was outside. 

Tenant Linda Banks said she and others received letters that said renovations would take a year, and power, water and heat could be disrupted. The letter from BlackBay offered cash plus the damage deposit to those who wanted to leave: $2,000 if they were gone by the end of January, $1,500 if by the end of February, and $500 by April.

"The pressure was on," she said.

Banks said she took the money, even though she didn't want to leave the unit she "absolutely loved." She said she and her husband lucked out and have moved into a new place, albeit at a higher rent.

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