What's a 'reasonable' return on a landlord's investment? P.E.I. Greens ask for clear rules

P.E.I.'s Green Party is seeking clarity about what constitutes a reasonable return on a landlord's investment in rental properties, while also recommending legislative changes it says would give landlords more insight into a property's financial risk.

The province's Residential Tenancy Act (RTA) says that when it falls to the Island Regulatory and Appeals Commission to approve a requested rent increase, one of the factors includes "the expectation of the landlord to have a reasonable return on the landlord's capital investment." 

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But there's no clear definition of what "reasonable" means in this context, which led to the Greens' line of questioning in the legislature Thursday.

"When it comes to rental housing, what do you think is a reasonable return on capital investment?" interim Green Leader Karla Bernard asked.

We have a lot of landlords that are selling off properties and a lot of tenants who can't afford rents.— Karla Bernard

Lantz replied that this issue was a "difficult piece of the process" when the King government was developing the Residential Tenancy Act. Changes to the act became law in April of this year.

"It's a complicated question. Financing of an investment in housing properties is sometimes a risky investment, [but] sometimes it's rewarding," the minister said during question period in the legislature.

"It's dependent on market conditions, it's dependent on regulations, but we need it to be a proposition that makes sense for people to invest in.

"What's reasonable in one decade may be unreasonable in the next."

Goal is 'healthy housing market' for all: Lantz

Bernard told the legislature there have been several instances where Island landlords are known to be getting a return of 15 per cent on their investment, and questioned whether that's fair to Island tenants.

She also asked the housing minister to introduce a fixed percentage for a return on investment to "protect tenants from unfair rent increases in the future."

Lantz said he's open to changes to the Residential Tenancy Act that create a "healthy housing market" for both tenants and landlords. He did say the example Bernard cited arose from a unique situation, though.

"The valuation on those properties is extremely low," Lantz told CBC News after question period. "I can tell you that that landlord is not happy that he can't increase his rent more. He inherited those properties. They haven't had a rent increase in 20 years."

When asked whether he'd consider a fixed percentage to limit the return on investment, Lantz said IRAC has the ability to make decisions on increases on a case-by-case basis.

He also added that the income property market has recently become more of a financially risky market to get into.

'It's an easier way to measure risk'

Bernard told CBC News it's "not a very equal playing field" in the housing market for tenants and landlords.

She said putting in fixed percentages for return on investment would give landlords a better idea of how much they would earn from a property before they even purchase it. 

"It's an easier way to measure risk. What we have right now is a very precarious situation," Bernard said.

"We have a lot of landlords that are selling off properties and a lot of tenants who can't afford rents. There's no way to reconcile those two things. With this cap, it just makes it easier for people to measure risk."

The Greens also introduced a bill this week that would restore the moratorium on renovictions for another year, until November 2024.

The moratorium that expired on Nov. 1 was introduced to prevent landlords from evicting tenants so that they could do renovations on a unit. It had been in effect for two years.