The Vice-Chair: This morning the business of the committee is to deal with Bill 121 in the public hearings. I look around and I see a lot of happy faces who are quite familiar with this issue, and I am pleased that the parliamentary assistant is here with us today. She will open the hearings with a statement. I think each of the members has a copy of Ms Harrington's statement.
Ms Poole: Just on two points of business: The first is that we have an extremely tight time schedule during the hearings allocated and I suggest that if committee members are willing, we have an agreement that we start directly on time regardless of whether every caucus is present. That will motivate us, I think, to be much more prompt and will make sure we do not fall too far behind.
Ms Poole: My second point of business is that it has been customary that when the minister or his or her representative makes a speech in committee, the two critics from the opposition parties also are given an opportunity to make some brief comments. I wondered if we were going to be following that procedure today.
The Vice-Chair: Ms Poole made the suggestion that the critics would have an opportunity to respond to the statement by the minister's representative, and I think that would be a good procedure for us to follow, unless there is some objection. None? Good. Have we satisfied your concerns?
Ms Harrington: As we begin these committee hearings, I want to assure you that the government welcomes this opportunity for further public comment on the Rent Control Act. As you know, the proposed legislation is the result of extensive consultation with tenants, landlords, municipal officials and many others across the province earlier this year.
In developing a new system, we have tried to deal with people's ideas and concerns while maintaining the government's commitment to provide a real and permanent system of rent control for this province. I believe we have largely succeeded in doing so, but we are also prepared to make further improvements to the legislation based on what we learn during these hearings.
The tremendous public response we have received to the hearings is a clear indication of the importance of rent control to the people of Ontario. That is why we have already placed so much importance on informing people about the intentions of this government and getting their input.
As you know, we began last February by releasing 20,000 copies of a discussion paper outlining various options on the implementation of long-term rent control. All members of the Legislature received the options paper, which has also been tabled with this committee. In addition, we sent out a newsletter to nearly one million households that explained in plain, everyday language the rent control options we were considering.
The newsletter included a questionnaire which more than 17,000 people filled in and returned to the ministry. This provided valuable information about the concerns of individual tenants and landlords. As well, over 1,200 people participated in public meetings and in smaller roundtable sessions in 20 communities across this province. The Minister of Housing, the member for Wentworth North and myself hosted several of these meetings and roundtable discussions.
This issue elicits strong opinions and emotions from everyone affected by rent control, and I am sure we will have an interesting as well as an enlightening time during these hearings. I see many of you who are already familiar with this committee and its past work, and I know how important these issues are to you and many other people.
In June of this year we continued our commitment to keeping people informed after we proposed the new rent control legislation. Immediately, more than 7,000 information kits were distributed to municipalities, the media, major interest groups and our rent control offices across the province. An additional 3,600 kits were sent out to community leaders later in the month. As well, the minister sent out letters to nearly one million tenant households and 20,000 landlords outlining the major points of the new act.
These information efforts were intended to ensure that as many people as possible were well informed about the proposed legislation. We are committed to providing people with an opportunity to comment on a law that will have such a direct effect on their daily lives.
As members know, the main thrust of this legislation is to ensure that tenants are protected from high rent increases and to ensure that rental housing is kept in good repair. We wanted to put a stop to the 15%, 20% and even 50% rent increases that occurred under the previous government's rent review system. Under the new system, tenants will no longer face large increases in maximum rent. Most rent increases will be limited to an annual rent control guideline which is based mainly on inflation. Rent increases can never be more than 3% above the guideline in any one year.
Tenants will no longer be required to finance luxury renovations, as they had to under the old rent review system. Landlords who fail to comply with outstanding work orders against their buildings will not be allowed to claim rent increases until they clear up the work orders. This is because we felt it was important to address tenants' concerns with inadequate maintenance, and this is obviously a tough stand on this issue.
At the same time, we recognize the reality which a landlord faces in managing an aging housing stock. Thus, the rent control guideline is based on the inflationary changes in a landlord's typical operating costs. The guideline also includes a 2% allowance for capital repairs.
For the first time, the new legislation distinguishes between large and small buildings. Each year, the ministry will set two guidelines, one for large buildings and another for small buildings. The guideline for small buildings, ones having six units or less, will be higher. This is because many people during our consultations stressed that small buildings are more expensive per unit to operate than larger buildings.
As well, the proposed act acknowledges that the guideline may not always be sufficient to cover some costs incurred by the landlord. Landlords may apply to the ministry for increases above the guideline if they experience large increases in municipal taxes or costs of utilities or capital expenditures -- three areas.
The rent increase cannot be more than 3% above the guideline in any one year. If this is insufficient, the legislation allows capital costs to be carried forward for one or two years, depending on the size of the building. As well, the proposed legislation exempts new rental buildings from rent control for a period of five years. We believe this exemption will give landlords a chance to establish viable rental housing and help rent levels to settle in.
We have also tried to make the rent control system more flexible and more responsive to various proposed changes in administration and enforcement procedures. Landlords and tenants will now be able to have their differences resolved through a hearing at the local level, or they can opt for an administrative review by the local rent control office.
Under the new system there will be a strengthened role for the rent registry, which is already gearing up to provide more comprehensive information to landlords and tenants about legal rents. Let me re-emphasize the major benefits which we see arising from this legislation as proposed.
Tenants will have real protection from high rent increases. Landlords will have a system that allows them to plan for and provide the capital repairs their buildings need. If costs go up for taxes and utilities, they can get relief. Stricter enforcement of standards will lead to better-maintained rental housing and the preservation of existing stock. The private sector will have an opportunity to create new rental accommodation and everyone will benefit from a more responsive decision-making process.
During the next four weeks we will have an opportunity to hear comments and concerns about rent control from people across this province. Some will regard the legislation as too lenient. Others will see it as being too tough. I am sure many will have suggestions on how the legislation could be improved, and that is why we are here.
Let me assure members of the committee that we do not believe this legislation, as proposed, is cast in stone. It has always been this government's intention to create a new rent control system for Ontario that provides fairness and stability to both landlords and tenants. We therefore welcome any suggestions from the public or the committee members that will help us achieve these goals. I look forward to working with you over the weeks ahead, and it is nice to see so many familiar faces back.
Rent legislation in this province has always been controversial. I do not think it has ever been more controversial in our history than over the last several years. It has been a fine balancing act between protecting tenants and at the same time preserving our housing stock and ensuring the health of the housing industry. It is a balancing act, some would say a juggling act, and quite frankly, I think, quite a daunting task.
When I sat down several months ago to look at Bill 121, I first formulated what I felt should be the goals of any rental legislation: first, that it should provide rent stability for tenants; second, that it should preserve our aging housing stock; third, that it allow landlords a reasonable return on their investment; and, fourth, that it should be understandable and enforceable.
When you look at those four goals, you will say: "It must be a nice pipe dream. Those are competing demands and in fact they're not realizable. You just can't do all these four things." It is obvious that the NDP government, in what has probably been a major reversal for it in its rental housing policy, has made an attempt to realize these four goals.
When we look at this legislation and we look at the public reaction to it, the first thing one realizes is that it has made both landlords and tenants very angry, for very different reasons. Perhaps this has been a signal that it has attempted to achieve some balance. I do see light at the end of the tunnel. This legislation is far from perfect. There are many things that need improving. Some people do not believe it, but there are actually things that both tenants and landlords agree on about this legislation. I might say they agree on it for very different reasons, but they do have agreement.
For instance, both tenants and landlords have agreed that non-profit housing should be included in rent control. Tenants have said that non-profit housing should be included because those tenants deserve the same protection as private sector tenants. On the other hand, the landlords say there should be a level playing field and therefore the private and public sectors should be competing at that same level. So for two very different reasons, both sides have said non-profit housing should be included. I have yet to be given a reason from the ministry at any time for why non-profit is not included. I can guess at some of the reasons, but they are not for public consumption, at least not on the ministry's side. That is one area where I think many of us are unanimous, that non-profit housing should be included, for both those reasons.
Second, I think tenants and landlords have both had a concern about losing the right of appeal. The right of appeal under this legislation is extremely narrow and is related only to an appeal on a matter of law. I have very strong feelings on this. As much as I respect bureaucrats, I am always very leery of putting any type of power -- and this is an enormous type of power -- in the hands of bureaucrats. Not only that -- it is not an arm's-length process. The Ministry of Housing bureaucrats will be making the policy and then enforcing the policy. They will have the final word from the beginning to the end, with only political input.
I will give you a scenario. What if the minister, for political reasons, makes a certain decision? It may not be included in the legislation but may indicate that there is a direction. Those bureaucrats would have no choice but to follow that, whether it be pro-tenant or pro-landlord, to try to appease some of the anger there. Whatever it might be, I can see decisions being made that are not good decisions, because an enormous amount of discretion is going to be placed in the hands of those bureaucrats.
I would like to see written reasons for decisions, written reasons being mandatory. I do not see any justification for the fact that the system can say, "You've won or you've lost, but we are refusing to tell you why." That should be a basic right.
There are terms, such as "neglect" and "inadequate maintenance," that are in the act but never defined. Again, you are leaving enormous discretion to the bureaucrats. I think there are going to be tenants and landlords who are going to be very unhappy with some of the decisions because the definitions are not in the act. I will be told that they will be in the regulations -- that is always the way it is said -- but I am also apprehensive about the amount of power that is going to be dictated by regulations made behind closed doors, not in public, not with public input and not in what I feel is a democratic way.
The other problematic part about denying the right of appeal in most cases and in having only the one level is that if I were a tenant or a landlord, I would opt for the hearing. Now you have a choice of one or the other and it has to be made at the initial point. At that stage, the tenant or the landlord might not have enough information. They may not request that hearing. They may not even know that they have the right to request that hearing, and it cannot be requested later on in the process. I think there are going to be a lot more hearings being held and that they will be lengthier, because this is the last avenue of appeal. You have nowhere to go after this. Under the old system, where it was administrative and then you had a right to go to an appeal level if you were dissatisfied, you did not worry about whether every piece of information was in. You knew you had a second chance. With this legislation there is no second chance. That is something I think we have to consider when we are looking at this legislation.
The third thing I think tenants and landlords have in common when looking at this legislation is that they say there is confusion in it, there is complexity in it. For all the promises, the government has not lived up to its promise to make it simple and understandable and, most important, fair.
I will give you a few examples. We have in the legislation a provision that there are two guidelines. First of all, this is very confusing for people. I think many tenants are not going to know what situation they fall under. They may be paying an illegal rent simply because they are not aware they are entitled to pay the lower rent.
The second problematic thing about the double guideline is that I think it is based on a false assumption. The parliamentary assistant mentioned this in her opening remarks. I think she said, "It has been recognized that small buildings are more expensive to operate than large buildings and therefore we have made a double guideline." I would like to see the basis upon which they have made this decision. Certainly I do not think the Royal LePage study, which has been cited, shows that, because it is talking about a combination of operating and capital.
Think of it logically. Why would it cost more to operate a small building than a large building? In many ways the reverse is true. In a smaller building, you do not have elevators, for instance. One of the most expensive maintenance items is elevators. You do not have that. It is not the operating expenses that are more expensive in a small building; it is the capital expenditures. The economy of scale becomes extremely important when you are doing capital in small buildings, but with operating there is not a significant difference.
Instead of looking at small and large buildings -- and first of all, I quarrel with your definition of small buildings. I do not think a landlord who has seven units thinks of himself or herself as being a large landlord, quite frankly. I just think that is a very arbitrary number which does not bear any relation to reality.
Second, it is not the size, it is the age of the building that is the most important factor when looking at the operating expenditures. If they had said, "We are going to have two guidelines based on the age of a building," I could understand that. At least it would make some sense. But I have a lot of problems with creating this very confusing scenario with very little benefit at the end of the day.
I got sidetracked. Anyway, I think I was talking about the complexity of the legislation in some of the things, like the formula to determine the extraordinary operating. I notice that this legislation is simpler than the previous Bill 51, certainly in one major way, and that is that anything the NDP did not understand or thought was unfair but did not know how to fix, it just removed from the legislation. I will give you a case in point.
We have something called equalization, which is not to the benefit of landlords; they do not make a penny from it. What it does is equalize the rents for tenants in one building so that they have a better relationship to one another, and yet that is not in this legislation. It is not in because it is complex, and yet I have never had a tenant complain about the complexity of it, never had anybody. They say, "Well, it evens things out." I think you have got to take a look at some of the problems in both the confusion and the complexity of the legislation.
As opposition Housing critic, it is very tempting to just slam this legislation because there are a number of flaws in it, and quite frankly I think I would please a lot of tenants and a lot of landlords by saying, "This is a piece of crap and why don't you start over?" But in all fairness I cannot quite do this.
Ms Poole: There have been gains for tenants in this legislation. There are positive provisions. I think tenants are pleased that cost pass-through is going to be for only necessary repairs, for instance. That was always a big issue with me and with many tenants.
Third, there are provisions for maintenance. We have some concern about the form of them, but we do support the intent. We think there are very problematic features in the way it is dealt with in this legislation and would like some amendments in that regard, but tenants are pleased that maintenance is being addressed.
Now, when it comes to landlords, I think a number of landlords will say: "Please, tell me why I should like this legislation. Is there any reason on this earth why I should like it?" I guess the major thing is not what it does but what it did not do. It did not keep the NDP promise in the election campaign of one rent increase per year based on inflation and nothing else. I think the landlords and the investment industry in this province are united in feeling that would have been the death knell for our housing industry and would have made sure that not a penny would be invested in housing in this province for years to come. They did not do that.
Second, I think landlords are pleased that there has been some provision for capital repairs and extraordinary operating. They may feel that they do not go far enough, that the cap is not large enough, that extraordinary operating does not cover things like interest rates, but by and large at least some attempt has been made to provide for that.
The third one is the five-year exemptions for new buildings. Again, I am not sure it is going to encourage landlords and investors to build one building, but at least it is a hopeful sign that the government was willing to look at ways of increasing the number of housing starts in this province.
The parliamentary assistant took us through the consultation process of this government on Bill 4 and Bill 121, but I think that was a mockery of a consultation. I have never seen such a PR job to pretend and purport there is consultation when it had no meaning.
I will warn the NDP government. I think that I am a relatively tolerant person and I like to be fair, but if we have to endure the same thing that we did under Bill 4 and in the preview to Bill 121 as far as consultation and listening to the people are concerned, then I and my colleagues will stand up in these hearings and walk out.
If you look at the scenario, it sounds fine on the surface. Yes, they mailed to one million tenants, but they did not give the one million tenants enough information to make any type of informed decision. They said, "Write for the green paper."
Do you know that there were hundreds and hundreds of people on the backlog list for the green paper when they already had draft legislation? They were in the second draft of the legislation two weeks before the consultation period ended and there was an enormous backlog at the end of the consultation period of people who were still waiting to receive the green paper so they could comment.
Opposition members were barred from hearings in their own riding. The Conservative critic and myself were invited, after we made a request to the minister, to attend some of the hearings, but we were not allowed to speak -- democracy at its best.
So the PR scam that was engendered when they brought in the Agenda for People during the election campaign, those promises they made which were not worth the paper they were printed on, has continued over their rent control policies over the last few months, and it is not good enough.
We have a real opportunity here. We are going to go into four weeks of hearings. We have an opportunity to listen to people and to make changes that will improve this legislation, and I, for one, am willing to co-operate with the government to get that. The Liberal caucus will probably be wrongly criticized because we are going to attempt to co-operate with the NDP government. But we have two choices: We can roll over and play dead and say, "Terrible legislation, we're the opposition, we've got no right supporting anything the NDP does," or we have a second choice, which is to try to work with them and to improve this legislation and to try to revive the health of our housing industry. We have chosen the second option, and I hope my NDP colleagues on this committee will help by co-operating with us in a spirit of goodwill to try to change this legislation so that we can support it on third reading. We are willing to do that, but only if we feel it is good legislation.
Mr Tilson: It is interesting to come back to this committee and see the same old gang. I understand that the only new player we appear to have is a new minister, and I hope that after she has had an opportunity to review the position of Mr Cooke she will be addressing this committee, and hopefully might even see the light and withdraw the bill, which would save us a lot of time. I can hope.
Mr Tilson: I would like to serve notice on the committee, Mr Chair, of two motions that I would like to bring at a time after you or Mr Mancini have had a chance perhaps to discuss timing with the clerk, and that is the request that two new people, expert witnesses, attend at the hearing.
The first motion is that the members of the general government committee invite a representative from the banking and financial community to attend at the hearings on Bill 121 and offer comments on the proposed rent control legislation.
A similar motion was put forward by Mr Turnbull at the Bill 4 hearings, and that was rejected. I believe there are some financial people from some of the financial institutions who would be prepared to come, and I think one of the major concerns, a criticism that has been developed of the legislation, is the issue of refinancing, the changing upwards and downwards of interest rates and the effect of that on the buildings, the whole issue of financing with respect to providing moneys for capital expenditures, that whole concept, because the financial people are a player in the housing industry. We did not, during the Bill 4 hearings, and hopefully this committee, if it is responsive to the problem, will invite a member from the financial committee, whether it is a trust company or a bank or any other financial institution that gives loans to landlords, to come to this committee.
The second motion, Mr Chair -- and I have no specific time frame. As I say, hopefully that motion would be debated at an early date. I have no idea as to when the appropriate time would be that we could have discussion on it, because obviously the times we have scheduled are filled and there would have to be additional time allotted.
One of the issues, and it was raised by the Liberal critic, is the whole subject of the appeal process, and it is a major change from the previous legislation. My party has taken the liberty of contacting some of the existing rent review people to listen to their comments, and I think it would be inappropriate for them to volunteer to come, but I think it would be most appropriate for this committee, if it is in a position to understand the process -- and I say this with all respect of course; most of us do understand the process of the existing system -- to compare the existing appeal system to the proposed new system.
Accordingly, the second motion I would like to serve notice that I would like to debate in the committee is that members of the general government committee invite Bob Bentley, who is one of the individuals we spoke to, who is a Rent Review Hearings Board member of the northern region, to attend the hearings on Bill 121 and to offer comments on the proposed rent control legislation.
Those are the two motions I am tabling, and perhaps later today or tomorrow you or Mr Mancini could indicate when you are prepared to allow me to discuss that, and also to discuss the subject, if the committee did feel that they were appropriate people who should come to the committee, of when they could make presentations.
I do know, of course, that in the Bill 4 debates we found it most useful to hear Mr Thom. He came one particular evening. There are times available if the committee could see fit to find time for these people.
I will not go into the details that Ms Poole made on her presentations. I agree with most of them, I disagree with some, but it is always interesting to hear the Liberal critic. Of course, they voted in favour of the legislation on the second reading, and I do not know from her comments whether this is a sign she is going to be voting against at the end. We will be anxious to hear the Liberal position as time proceeds. You are the Chair; you cannot -- I know it is tempting for you.
I think our position is certainly much stronger than the Liberal opposition to this legislation is. We believe that there are examples all around this world, and I gave some at the second reading of this bill, to show that rent controls simply do not work and in fact they create a lower quality of life for the tenant.
This legislation certainly does not address the promise of one rent increase that was proposed by the government during the election campaign. I think a lot of tenant associations are most disappointed in that. It does not address the problems of the thousands of the tenants who cannot afford any increases, because I can assure you that there will be many landlords who will just sit by and allow the automatic increases to go forward, whether they need them or not. It does not address the poor who cannot afford any increases. It does not address the problems of senior citizens whose income is limited and who simply cannot afford the increases that this bill is putting forward automatically.
It does not address the problem of providing incentives for private enterprise to construct new housing units. The exemption of five years is a joke. It simply is not adequate. Why would anyone construct an apartment building with the bill that is being put forward by this government? There has not been any new construction and there will not be. Anyone who has money to invest will be investing it elsewhere. It simply will not pay, and this legislation, if anything, goes the opposite way in regard to providing incentives for new buildings to be constructed.
It is difficult of course, and the Liberal critic touched on this, for me to understand the whole subject of non-profit housing. Non-profit housing is not subject to rent controls. It is as if the government has all these rights. The taxpayer in fact is going to be subsidizing the capital expenditures of non-profit housing. The taxpayer is going to be subsidizing lower-interest loans to government housing. The government has access to lower-interest funds, and it is as if the government simply does not trust private enterprise. Not only is it not providing incentives, but it is not trusting private enterprise to get into the housing market or to continue to get into the housing market. If anything, Mr Rae in his statement has made it quite clear that the government intends to take over the housing industry and to have private enterprise leave the housing industry.
This legislation, if anything, is going to encourage the games of New York and the games of other cities that I described in my presentation on the second reading of Bill 121. The government seems to be ignoring the fact of the crises that have occurred in these cities as a result of rent control, and I will be looking forward to hearing from delegations as to whether they agree or disagree with what is going on in other cities around this world which have rent control.
There appear to be more and more vacancies of rental accommodation in the province. It may not be widespread, but certainly there are more and more areas, for whatever reason, where there are more and more vacancies. I can assure you it is not because of rent control. There are landlords who are doing a number of things. They would rather their buildings remain vacant as opposed to lowering the rents, which would put them in a difficult position because of rent control. If anything, it raises the question, why have rent control when more and more vacancies are occurring, because the marketplace will set the rent?
I still have to hear a logical reason why you need to have rent controls on luxury apartments. Why are we providing benefits to the rich? We are not providing any benefits to the poor, but in fact we are providing benefits to the rich. The rich are simply laughing at Ontario as a result of this rent control legislation.
I look forward to hearing the delegations as they come forward, to hearing what the people of this province have to say with respect to this legislation. I hope that members of all parties will learn from that. I look forward to hearing the comments this morning from the various officials of the ministry.
That concludes my remarks, although I do conclude with one question. I will assume that there will be a time set aside in which we can ask questions of the various ministry officials after their presentations.
Ms Harrington: The ministry presentation, I believe, is an hour and 15 minutes, and I hope to get your co-operation with regard to our agenda. We had invited them. The committee had agreed that we would have them this morning and then begin our witnesses this afternoon. We would like to have questions. We did not anticipate this particular portion of the agenda going this long actually. We wanted to get started as soon as possible.
The Chair: What I would suggest to the committee, if there is a consensus, is that it being almost 11 o'clock, if the presentation goes to 10 or 15 after, we can always stay an extra 15 or 20 minutes over the lunch hour for questions, if that is satisfactory. If it is not satisfactory, then we have to take a moment to work out what will be satisfactory.
Ms Harrington: I want to thank the opposition parties for their comments and certainly hope that we will have your co-operation with regard to moving the agenda of this committee forward, because it certainly will help all of us as individuals, I am sure.
First, I want to say that I really look forward to working with our new minister. I am very pleased personally, and I think probably the ministry is, or should be, as well. I hope that Ms Gigantes will be attending this committee as soon as is possible for her, not knowing what her schedule is.
Ms Poole mentioned the publicity of the past while and the public relations or consultation-type process. This is a very difficult process. It can never be perfect. I know that, but I would like to tell you that it certainly has been successful in raising the awareness of what is happening. Just by the number of people who are presenting to us, I think it has been successful.
I want to make it clear to Ms Poole that these hearings that we are now beginning are very meaningful and are a very important process in making sure the legislation is what people in Ontario need and what this government wants to put forward. So I really cannot quite understand why -- I did not catch it -- she would want to walk out, but I am hoping for your co-operation to make this happen, that it will be meaningful and it will have an impact on the legislation.
I would like to respond to Mr Tilson briefly. I was hoping, coming back after being together on and off over the last six months, that the Conservative Party would realize that the government is serious about rent control, that rent control means rent control and that we are here, all of us, members of this legislative committee, to get the best possible legislation.
You mentioned bringing out a banking expert. I have talked to my staff and ministry with regard to having a banking expert comment on the financing of capital repairs within our guidelines -- and I am hoping this will be part of our presentation to you -- and give us some examples about how this would happen.
Ms Beaumont: Good morning. My name is Anne Beaumont. I am assistant deputy minister of housing policy. I want to thank the committee for inviting the ministry to make a presentation on Bill 121, the proposed Rent Control Act.
You previously met most of my colleagues who are here with me today, but let me introduce them. On my right is Christina Sokulsky. Next to Christina is Colleen Parrish and at the end of the table is Scott Harcourt. Bob Glass is sitting behind. All of us will be making presentations to you this morning. You have met all of us before, except Bob. I think the committee has not met Bob Glass. Bob is the executive director of rent review programs, so his people are responsible for the actual administration of the rent regulation system. Terry Irwin, whom you have met, is also here this morning, as is Tim Welch of the minister's office.
What we are going to do is describe to you the legal structure of the act and the major features of it. We will give you some examples which will illustrate how it will affect some particular situations. We will also provide you with an assessment of the workload and the resource implications of the bill.
You may find it helpful to hold your questions to the end of the total presentation, because some of your questions may be answered by later parts of the presentation. To address Mr Tilson's question, we will of course be available for questioning after the presentation or at any time the committee wants us to appear.
Rent control is really only one element in the development of the government's comprehensive housing strategy, together with the better use of government land for housing, improving the quality of life in public housing and the strategies to increase the supply of affordable housing.
Public consultation is under way or is planned in the near future in all of these areas. In addition, the government has established the Sewell commission to review the planning system. One of the things the Sewell commission is to look at is ways to allow for the speedier delivery of housing.
The development of housing policy is based on four fundamental principles: (1) that access to safe, secure and affordable housing suitable to people's need is a basic human right; (2) that housing is fundamental to individual and family wellbeing and the quality of life in communities in this province; (3) that housing contributes significantly to the prosperity and stability of the province's economy; (4) that the responsibility for the provision of housing is shared between all levels of government and all sectors of the economy in society.
As we look at rent regulation as a component of this comprehensive housing strategy, we have reviewed with you prior to your deliberations on Bill 4 the history of rent regulation in Ontario since 1975, and I am not proposing to go through that again. I am assuming you still have that information available to you.
During the last 15 years, we have had three systems of rent review, all of them based on the cost pass-through principle. The current act, the Residential Rent Regulation Act, 1986, commonly called the RRRA, covers virtually all privately owned rental units. The RRRA was amended by Bill 4 earlier this year. That act will remain in place until the Rent Control Act, the RCA is proclaimed.
We have also during your deliberations on Bill 4 provided the committee with information on the private rental stock in Ontario. I just want to remind you of how significant it is in size. There are over one million -- 1,116,000 -- rental units, which are home to two million tenants. About 60% of these units are in complexes of seven or more units.
As Mr Tilson commented, we have had some changes in vacancy rates recently. We have had very low vacancy rates in rental housing over the last 15 years, but these rates have recently improved. The most recent CMHC Ontario vacancy rate is 2.2%, up from 1.4% last fall. This is a move in a very positive direction, but I think as we look at that number we have to recognize as well that 3% is usually what is reckoned to be a healthy vacancy rate. Also, there are differences in cities across the province.
Our housing stock is an aging stock, as most of it was built before the 1970s, and certainly the affordable housing stock is aging, as the newer units tend to be much higher in rent, especially where you have renting out of condos. I would comment generally that in our private rental stock, we have problems with availability, reflected in vacancy rates, with affordability and with the conditions of the stock. These are things we have tried to address with the development of Bill 121.
I want to move on now to deal with that bill. Christina is going to comment to you first on the legal structure of the bill to help you in an understanding of it. It will help you, I think, if you follow along with her comments in looking at page 4 of the handout.
I would like to comment briefly on the organization and structure of Bill 121. I would refer you to the handout that you have before you, and also if you have copies of the bill, there is a table of contents which makes it much easier to locate various sections and parts of the bill.
In brief, the bill is organized into four parts. Preceding the four parts are four sections dealing with definitions and applications of the act and exemptions from the act. There follow four parts dealing with rent control in part I, procedures in part II, rent registry in part III and a general part, part IV.
Part I, entitled "Rent Control," contains various provisions, such as provisions dealing with notice of rent requirements and notice of maximum rent in sections 7 to 9; maximum rent and maximum increases in sections 10 and 11; applications for above-guideline increases in sections 13 to 21; capital carry-forwards without application in section 22; applications to reduce rents in sections 23 to 28; the rent control guidelines in section 12; payment of illegal rent and illegal additional charges in sections 30 to 32; applications for determination of issues in section 33; compliance with standards in sections 34 to 41; failure to file information and separate charges in sections 42 to 45. At the beginning of the part are provisions dealing with the rent that may be charged for a rental unit and when increases may be taken. Those provisions are in sections 5 and 6.
Part II, entitled "Procedure," contains procedural provisions relating to filing requirements, methods of giving notice, parties, making of applications and so forth in sections 46 to 55. Procedural rules respecting the hearing, pre-hearing and administrative review process are in sections 56 to 89, appeal rights in sections 90 and 91 and other procedural provisions in sections 92 and 93.
Part III, entitled "Rent Registry," obviously deals with the rent registry and contains the provisions respecting the requirements for filing statements of rent information in sections 94 to 101; calculation of maximum rent in sections 102 and 103; notices of rent information which are sent by the registrar to landlords and tenants in section 104, and miscellaneous matters relating to the registry in sections 105 and 106.
Part IV, entitled "General," contains a variety of provisions, including a definitions section in section 107; provisions respecting the administration of the act in section 108; duties of the minister in section 109; duties and appointment of the director, inspectors, registrar, rent officers and chief rent officer in sections 110 to 112 and sections 116 to 119. There are also provisions dealing with powers of entry by inspectors in sections 113 to 115. There is a prohibition against harassment of tenants in certain circumstances in section 120; fees for copies in section 122; offence provisions in sections 121 and 124; regulation-making authority in section 125; repeal provisions in sections 126 and 127, and transitional provisions in section 128.
In total, the bill has 130 sections and it replaces the Residential Rent Regulation Act, 1986. The short title of the act, as you will see from section 130, is the Rent Control Act, 1991. The act comes into force on proclamation by the Lieutenant Governor, as is seen in section 129.
I mentioned to you the table of contents which makes the bill certainly more accessible. It is easier to find one's way around the provisions. There has been an attempt to organize the statutes so that provisions dealing with a subject matter are all together and are appropriately titled. I would like to point out that, subject to some exceptions, applications made under the Residential Rent Regulation Act and the Residential Tenancies Act will proceed according to the legislation under which they were made if they were made by the requisite dates.
Ms Parrish: I am the next in the lineup. My job this morning is to give you a very brief overview of Bill 121 and talk a little bit about some of the key provisions of the statute in some greater degree of detail. Essentially Bill 121, the proposed Rent Control Act, covers most private rental housing in Ontario. At a very basic level, it provides for an annual rent increase which is based on inflation and an allowance for capital plus the capacity to apply for up to 3% more in certain circumstances. It strengthens the connection between rent control and provisions for adequate maintenance and it creates a modified administrative system for the administration of rent regulation which increases the capacity to have hearings.
One of the major features I thought I would turn to and discuss is the guideline system. The act, as has already been discussed by the members of the committee, creates two guidelines; one for large buildings described as seven or more residential units and one for small buildings which are the six and fewer.
Essentially what happens is that both buildings get the same allowance for capital, which is 2% rent increase for capital. The difference is that larger buildings do not get quite as much of an increase for operating expenses as the smaller buildings. In other words, the large buildings get a little bit less for operating cost increases and the smaller buildings get a little bit more.
The determination as to the amount that the operating costs should be going up is based on an index that used to be called the building operating cost index and is now called the rent control index. It looks at what it costs to run a residential building and tracks the changes in the costs in the residential building, either by looking at inflation or by looking at actual cost increases over time. So it simply says: What are the inflationary increases in superintendents' salaries, or what is the actual increase in municipal taxes across the province? It goes through a formula and creates an inflationary increase that is the basis of rent increases in Ontario. On top of that, the index is essentially averaged over three years to prevent unusual blips from influencing too much in one direction the rent increase or decreases.
This system, I think, might be best explained if I said, okay, what would have happened today in 1991 if this proposed system were in place? Essentially, the guideline in 1991 is 5.4% rent increase for all buildings in Ontario. If you took the proposal in Bill 121, imposed it in 1991 and assumed that the inflationary elements would be pretty much the same, small buildings would have a rent increase of 5.4%, essentially what they have now. The larger buildings would have a rent increase of about 4.6%. That would be the effect of the change in the formula.
The question does come up quite legitimately as to why the ministry moved down the proportion of money provided to large buildings for their operating cost. The indication is that the proportion of landlords' operating revenue compared to their rent has historically been lower than the amount provided in guideline increases and has tended to be in the 40% to 50% range over time.
We do in fact have a fairly recent study that shows that. However, most of these studies do tend to look at the larger buildings, the seven-plus buildings, and the differential was not as much that the overall costs of smaller buildings are less but as that the per-unit costs are less because there are fewer units. I am sure there will be more questions on this issue. I will be glad to respond to them because I know it is a complex and, to some degree, controversial issue.
I would like to turn very briefly to the issue of the overall cap. Essentially the system allows for a guideline increase, one for big buildings and one for small buildings, and landlords can obtain that increase if they give proper notice to the tenants and do not have to come to the Ministry of Housing to ask for permission. However, landlords can also obtain increases above the guideline if they come to the Ministry of Housing for permission. Any increase above the guideline which the landlord can justify is capped or limited at 3% of the rent so the rent can never be more than the guideline plus 3%.
If I went back to my hypothetical example where I had the big buildings and the small buildings -- for the small buildings, their increase would have 5.4%. They could get another 3%, and therefore could get no more than 8.4%. The large buildings could have received a guideline increase of 4.6% plus 3% for a total of 7.6%. So the cap is based on the combination of 3% plus whatever the guideline is for that year.
The purpose of the combination of the guideline and the cap is to provide protection to tenants and rent stability while leaving funds for capital and maintenance of rental stock in Ontario. The landlord, in obtaining any increase above the guideline up to the cap, is limited as to what the grounds are for application. Essentially, there are two situations in which a landlord can receive an increase above the guideline. The first is for something we call extraordinary operating costs and the second is for capital. I would like to address them briefly, separately.
First of all, extraordinary operating costs: landlords can apply for an increase above the guideline if they have experienced extraordinary operating cost increases for hydro, heat, water or municipal taxes. Those of you who were there during the Bill 4 hearings will find this somewhat familiar. It is essentially the same list as under Bill 4. These costs tend to vary more regionally, and municipal taxes in particular can be a fairly significant proportion of landlords' overall costs.
The second area the landlord can apply for increases for is in capital. What I would like to do is talk about the kinds of capital landlords could apply for in the fully mature rent control system, and then I would like to talk a little bit about the transitional provisions in the statute. The explanation is a little bit clearer if you divide those two things up.
Applications for capital in a fully mature rent control system are limited to two kinds. A landlord may apply for something which we call in the statute eligible capital. It is capital which is necessary to protect or restore the physical integrity of the building. It is necessary to comply with standards related to health, safety or the environment; to maintain plumbing, heating, mechanical, electrical, ventilation or air-conditioning systems; for access for disabled persons, or to increase energy conservation, and landlords may apply for this kind of capital.
In addition, the landlord and a tenant can agree. The landlord can apply, in situations where the tenant consents, for capital improvements that do not meet any of those tests if the capital repair is in the tenant's own suite. So you may have the situation where the landlord and the tenant agree to have new carpeting, or replace all the existing kitchen cupboards that are adequate but old-fashioned with new ones. If that occurs in the suite and the tenant agrees again, they can have these repairs done, even though they do not meet these other tests I have just told you about, ie, they are not necessary to restore physical integrity or whatever. Any capital repair is subject to the overall cap of 3% above guideline.
When landlords are making an application for capital and want an increase above the guideline, they must demonstrate that the 2% allowance they have already been given for capital in the guideline increase every year, in the year they have applied the 2% has been used for capital or is part of the overall capital application. In other words, the landlord must demonstrate that 5%, for example, if he wants 3% above guideline, is being expended on capital.
They must also, in the case of eligible capital, demonstrate that there is no neglect or lack of repair that has forced this particular capital to be done, and that if an item is being replaced, it needs to be replaced.
There are some special rules in the act that deal with the situation where the landlord makes a certain kind of repair and the combination of the 2% in the guideline and the 3% above the guideline is not sufficient to pay for the actual repair the landlord has made. In that situation, there is a provision for what is termed in the statute as carry-forward. The landlord may be in a situation where the cost of the repair is, say, 10% of the rent, and the act provides for a situation in which the landlord can carry forward the excess cost of the repair into a future year. If they are landlords of a large building, seven or more units, they have one year to carry forward. If they are landlords of a small building, six or fewer units, they may carry forward for two years, again reflecting the point that because there are fewer units in a small building the overall per-unit impact of certain capital repairs is greater, and the landlord is given a longer period of time to obtain rent increases to pay for the capital repairs.
I would like to return to the issue of transition capital, which is treated somewhat differently in the statute from capital in a fully mature rent control system. Transition capital is what the act calls capital expenditures substantially completed between January 1, 1990, and June 6, 1991. June 6, 1991 was the day Bill 121 was introduced.
In the case of transition capital, landlords do not have to demonstrate they need the eligibility test. In other words, this list of whether the capital is to protect or restore, or to meet certain standards, does not have to be satisfied. They do have to satisfy the test that the repair is not as a result of neglect, but they do not have to demonstrate the more onerous task that the capital is in fact necessary or meets certain tests, for example, enhanced energy conservation.
I would like to turn to the issue of enhanced maintenance provisions in the statute. The statute has significantly greater emphasis on maintenance, and there is a closer connection between rent penalties and maintenance and inadequate work orders. For instance, the same persons who levy a rent penalty will also make determinations as to whether standards are inadequate, unlike in the current system, where those decisions are made by separate bodies.
There is an ability for tenants to make applications for rent reduction due to inadequate maintenance, and there is also a system for outstanding work orders, that is, work orders in which the landlord has been given time to comply and has not complied. That is what we call an outstanding work order. Where a landlord has not complied with a work order, that could result in a situation where, until the landlord does comply, the tenant may find that he or she cannot take any rent increase until the work order is complied with.
The rent registry is continued in the current statute. As many members know, it has registered most larger building, seven-plus buildings. The act does provide for the registration of the four-to-six-unit buildings and rooming houses, and there are also provisions in the statute for the registration of one-to-three-unit buildings. If a landlord applied for an increase above the guideline, he or she would be required to register the rent at that time, but there would be no automatic registration of that group if it did not apply for an above-guideline increase, for example.
There is a new decision-making process in the statute: There is a first-level hearings system, with appeals of decisions to the courts based on matters of law only. There is the capacity to correct error and so on. Hearings will be provided on request by anyone, landlords or tenants. If not, there can be an administrative review system which may be appropriate in a situation where the only issue in contention is whether the heating bill has gone up, for example. If the landlord and tenants are not disputing that issue, they may wish to resolve their difference simply through administrative review. In fact, they may have no differences.
Last, there is a five-year exemption for new complexes, where the building permit is issued on or after June 6, 1991. When a tenant rents a unit, there must be notice to him or her that the unit is not subject to the protection of rent control. If the landlord does not give the tenant that notice, he or she may lose the exemption for that unit. If the landlord gives notice to the tenants, he or she must indicate how long they have the exemption so the tenants will know essentially what they are getting into, and the exemption dates from the time the first unit in the building is rented to five years later. It is from the first unit, and then you add five years.
There are a number of reasons for the exemption: to recognize that in a startup period in a new building there is a lot of shake-down time; that it is very difficult to determine the rents; that often the building is partially occupied and it is very difficult even to find out what would be appropriate and fair to all the parties; and to encourage the creation of new rental housing stock and the jobs, and so on, that go with that.
That is a brief overview. I should say that my colleague Scott Harcourt is going to take you through a few examples which, by giving you some examples, we hope will show you how some of the provisions of the statute work in a sort of practical sense. I know that just hearing about them orally sometimes makes it difficult to see how they work, so Scott will give you some examples that will give you an overview of how some provisions in the statute work in a practical sense.
Mr Harcourt: Mr Chair, members of the committee, what I am going to do is to elaborate on some of the material my colleague Colleen Parrish has presented. Specifically, I am going to provide examples of extraordinary operating costs, capital expenditures, and then I will briefly take you through the process for issuing a rent penalty order. I should mention that the examples I will be presenting are shown in the handout package, so you may want to follow along there. The material will also be shown on the overhead screen.
The first example is of extraordinary operating costs. In this example we are going to assume that the guideline is 5.4%. That is the guideline in existence for 1991. We are also going to assume that the gross potential rent for the residential complex, the total of all rent in the building for an entire year, is $10,000, so what you can see in the examples are the amounts justified for the various categories: municipal taxes, hydro, water and heating.
Both extraordinary operating increases and decreases are shown. When making an application the landlord must present all costs for each of the four categories, and for each of the four categories the extraordinary operating cost test is undertaken. This is for the purpose of disregarding very minor fluctuations. The test involves whether the cost experienced by the landlord carries by more than 50% of the amount for the particular category which is allowed in the guideline.
For example, if the amount allowed in the guideline is 6% for municipal taxes, an extraordinary operating increase would occur if the landlord's actual increase is 9% or more, and an extraordinary operating cost decrease would occur if the landlord's actual increase is 3% or less. In this example we have an amount justified for municipal taxes of $300; for hydro we have an amount of zero because it did not meet the test; water is shown as an extraordinary operating decrease of $100, and an extraordinary operating increase for heating is shown for $200. The total amount justified is $400. Based on a gross potential rent of $10,000, this relates to a 4% rent increase for the building.
What would the order state? The guideline allowed in the order will be 5.4%. The extraordinary operating cost allowed will be capped at 3%, because you can only have a maximum increase over the guideline of 3%. The landlord will lose the 1% and will be able to pass through the cost increase of 3% above the guideline, and the amount ordered in the guideline will be the guideline plus 3%, or 8.4%.
I am now going to present two examples for capital expenditures, one for large buildings and one for small buildings. The amounts ordered for small and large buildings will vary for two reasons. First of all, the guideline amount is different. Second, the carry-forward provisions are different.
Example 2 will show how carry-forward and the guideline is applied for large buildings. You will recall that large buildings are those with seven or more residential units. For a large building, the carry-forward is allowed for one year. The guideline amount is based on 50% of the rent control index as well as an amount of 2% for capital expenditures.
This example will assume that the guideline is 4.6% each year. This is the amount of the guideline that would apply in 1991 if the rent control index formula were applied as set out in the legislation. We are also going to assume that the landlord justifies an amount of 13% above the guideline, based on capital expenditures alone.
So what will the order state? First of all, the guideline amount will be reduced by 2%. This is the amount of the guideline which is allocated for capital expenditures, so in this particular rent control order the amount will be 2.6% for guidelines. The capital expenditure amount allowed will be 5%. It is the lesser of the total amount justified, which is 13%, and 5%, so the amount ordered will be 7.6% because you need to cap it at 3% above the guideline. The guideline being 4.6%, add 3% and you get 7.6%.
There was 13% justified; 5% was used for capital. There will also be 8% available for carry-forward, so in the carry-forward year the guideline again is reduced by 2%; and the capital expenditure which is allowed is 5%, so the amount which will be ordered in the carry-forward notice again will be 7.6%. After using the carry-forward amount, there will still be 3% allowed in excess of the carry-forward. This will not be allowed. The landlord will not be able to obtain rent increases on this amount. There is only one year of carry-forward allowed for large buildings.
If we look at the overhead, it shows schematically how the rent increases occur over the two years. In both the order year and the carry-forward year the landlord is allowed 7.6%; 10% of the 13% for capital is used, and then the remaining 3% will not be allowed for large buildings.
Mr Harcourt: Okay, this is what happens. Any time you have capital expenditures, you reduce the guideline by 2%. You justify 5% for capital to obtain a rent increase of 3% above the guideline amount, so if the guideline amount is 4.6%, you deduct 2% to get 2.6%. You allow 5% for capital expenditures for a total rent increase of 7.6%. Carry forward to the second year, and the amounts set out in the carry-forward notice would also be 7.6%. It is something a little bit similar to a phase-in, although the premise is a little different. But it is the carry-forward of the capital expenditure, so in year 2 you get the carry-forward of the capital expenditure for a large building. In smaller buildings it would be carry-forward for two years.
Mr Harcourt: In the third example, I am going to show how a carry-forward and rent increases are applied for a small building, one with six units or fewer. As I mentioned before, carry-forward would be allowed for two years and the guideline amount is based on two thirds of the rent control index and 2% for caps.
Again we are going to assume that the guideline for 1991 is applied, and this would amount to 5.4% for small buildings. We are also going to assume, as we did in the previous example, that the landlord justifies 13% for rent increases above the guideline based on capital expenditures. So again, in the order year we will reduce the guideline by 2%, because that is the amount allowed for capital, and we have the guideline allowed of 3.4%. We allow 5% of the capital expenditures, to obtain a rent increase of 8.4%. Then the amount which is available is the 13% less the 5% used in the order year, so you have 8% available for carry-forward.
In the first carry-forward year, 2% is deducted from the guideline and 5% is allowed for capital, so the carry-forward notice will indicate again an 8.4% rent increase, and then there will be a second carry-forward year. In the first year we have used 5% for capital and in the second year we have used 5% for capital; 13% was justified, so for the second carry-forward year we have 3% remaining. For the second carry-forward, we have the guideline of 3.4% and the remaining 3% is carried forward, so the amount allowed in the carry-forward notice will be 6.4%.
In this case, if we look at the overhead again we can see schematically how the rent increases are applied. In each of the first two years we have applied 5% capital for an 8.4% rent increase. In the third year the remaining 3% is allowed and a fixed 0.4% rent increase is applied, so all of the 13%, justified for capital above the guideline, will be allowed for a small building. It has two carry-forward years.
Mr Harcourt: The rationale for only the one- or two-year carry-forward is that it encourages landlords to plan their capital expenditures and carry their capital expenditures over several years; in other words, so that they do not undertake no capital expenditures over a number of years, neglect their property, then all of a sudden, go for very large rent increases based on major capital expenditures. This will encourage them to plan and carry out their capital expenditures on a regular basis.
Mr Turnbull: All right, let me pose a hypothetical situation: You know that your roof is approaching the end of its lifespan, but different roofs last different times. You may have a roof that does not last as long as another one. You have planned that maybe three or four years out you are going to replace the roof, but you spring a bad leak in the roof and the roofer comes in and says: "I am sorry. The only sensible thing is to replace the roof." But you have had a large increase in municipal taxes in that particular year. You are just out of luck.
Mr Harcourt: Certainly, the 5% above the cap or the 3% above the guideline will not pay for all capital expenditures. If you have a very major capital expenditure, it is only meant to pay for part of it. Some of it will have to be taken out of the landlord's own funds.
Mr Harcourt: It will basically cover over a 10-year period an amount of $7 billion in capital repairs. The $4 billion to $7 billion is the amount we anticipate will be needed for the repair of buildings over the next ten years.
Mr Turnbull: Yes, I am aware of that. So you are saying that this adjustment for inflation presumably will allow that amount of capital expenditure. But there is a skew in the whole statistics in the respect that some buildings have had substantial amounts of work done to them already and already have higher rents, and others have had much less work. There is no differentiation in that. What happens in these situations?
Mr Tilson: If the situation Mr Turnbull described occurs, is that then neglect? Because several capital expenditures are required under the guidelines that are being put forward. For whatever reason, whether it is an old building or whatever, you can do all or part of a particular capital expenditure, but there may be another capital expenditure that is required -- a parking garage, bricks falling off. Is that then neglect, which would then result in rents being reduced?
Mr Tilson: My understanding is that if you make an application for the type of thing we are talking about right now and you do not have enough to do something else, a tenant objects or files something and says nothing has been done. The arbitrator or hearing officer or whatever you call him can say that is neglect and the rent is not increased. It is reduced because there is neglect on something else that you cannot afford on this graph that you are putting forward. Has the ministry thought out that possible scenario, given the large number of buildings throughout the province that are quite old?
Ms Beaumont: If I can respond to that, Mr Tilson, I think we have to go back to the kind of comment Ms Poole made in her comments earlier. That is the need for balance and the need for reconciling different objectives, one of the objectives being the certainty around rent levels and the protection from very large and unexpected rent increases. Another objective is the need to maintain and repair the buildings.
The provision of a cap on rent increases and the provision of limits to the amount of increase that can be provided for in the system is the way we have established in this legislation to provide some certainty to the tenant community and to the landlord community. In any system, whether it be with respect to rents or any other kind of matter of public policy in any system where one has a cap, there are certainly going to be situations where that cap causes problems in individual situations.
The Chair: I think with the number of questions that we are having and the interest -- and we are just starting -- I cannot see us adjourning at 12:15 or even at 12:30, so I am going to suggest that we sit through the lunch hour, at least until one o'clock. If the committee wishes, we will have some sandwiches brought in.
The Chair: No, they are not finished, and that is why I interrupted the committee, to tell the committee members that the way things are going, we are not going to get all our work done based on the time that was allotted.
Ms Poole: This is one of the most ludicrous things I have seen in all the days I have been elected a member. I talked earlier about complexity, and I also talked about balance, but please do not misconstrue my words. This is utterly bizarre. If you think one tenant or one landlord in the province is going to understand how this works, it is absolutely crazy.
I just took that second example you gave where the landlord has spent 13% above the guideline on capital repairs. I have calculated what landlords would get as a rent increase if they did nothing in the building and I have calculated what they are going to get over the two years if they did 13% above the guideline. If the landlord does not do any repairs whatsoever, he would get 4.6% the first year and 4.6% the second year, making a total of 9.2%.
If the landlord spent 13%, on the other hand, that landlord, because he did not do additional repairs over and above the 2% allocated in the guideline -- he did not offset that -- it is reduced, to 2.6%. Then the landlord gets an additional 3%, making 5.6%, and allowed to carry that over one year, an additional 5.6%, which is 11.2% over two years. Are you telling me that landlord who has spent 13% is going to get 2% of that back over and above what he would have done if he had not done a thing above the guideline and that this is supposed to be an incentive to preserve our aging housing stock? Give me a break. I would like you to show me where I am wrong.
Ms Parrish: I think perhaps we have given you an explanation which is a little bit more complicated than in fact the principle behind the bill. I should say actually the calculation is incorrect. The landlord in that example would get 15.2% over two years: 7.6% plus 7.6%.
The Chair: Why do we not have a graph that would show that for this? If we cannot do it now, we can maybe have it before we leave, because I think this is going to be a great concern of members of the committee.
Ms Parrish: If I can just say it in the simplest possible way, essentially what happens is that the landlord gets 3% above the guideline. So if the guideline is 4%, you add 3% and they get 7%. If in fact the amount of the capital repair they have had in year one is more than 7%, then the next year they can get more again. So in year one they got, say, 7% -- the guideline plus 3%. Then in year two they get the guideline plus 3% again. If they were a small building, the third year they would get the guideline plus 3% again.
Essentially you just take the guideline, whatever it is -- this year it is 5.4% -- and you add 3%. If the landlord has more costs than are eaten up in the first year by the 3%, essentially you just add another 3% the next year. In your example, it is true that the landlord gets the guideline increase and essentially what you get is 3% more. So you just add 3% to the guideline, and that is the number.
The calculation we were showing you is essentially a calculation designed to ensure that the 2% the landlord already got in the guideline for capital repairs is expended for capital repairs, because you do not want to be in the situation where the landlord does not spend the 2% he already got for capital repairs and then wants more. It is just a method of saying essentially, "Mr or Ms Landlord, if you want to get this 3% above the guideline for capital repairs, you better show that you have spent the 2% or that the 2% we already gave you is going to be expended on this roof or this garage, or whatever."
At a sort of basic level, essentially you just add 3%. This calculation is a method of proof more than a method of calculation. I think I take the Chair's view that perhaps a better graph might be of some assistance to the committee. We will go back and work on that.
Mr Mahoney: That would seem to me to be a disincentive to spend anything over and above it, because there is always a chance, from what you are saying, that they could lose that 2%. It really seems to me to be backward. There is no requirement to justify any capital expenditure of the 2% that is included in the guideline unless you spend more, and then if you spend more you risk losing the 2%.
Ms Parrish: It is not entirely the case that there is no provision in the statute, because there are the provisions that members have alluded to that say you must have adequate maintenance. If you do not, you run the risk that there will be an application that your maintenance is inadequate.
Mr Mahoney: We are not talking about maintenance; we are talking about capital expenditure. You are jeopardizing the 2% that is built into the guideline by actually making application for the additional 3%. There is the possibility that you could not only be turned down for the 3%, but ultimately have your 2% taken away. So you may be better off to stick your head in the sand, shut your mouth, take the guideline and do not spend the capital repair money to get a reduction. You could.
To go away from capital and go back to costs being passed on, I have got to ask first of all if this building is in Ontario, because we have a zero increase for hydro and a reduction in water costs. That has got to be someplace I want to move to. Outstanding. It is Buffalo. Irv Weinstein. All right.
Mr Mahoney: I will. What concerns me here is if the reported rumours of a 44% increase in hydro costs are true, you are saying that if we are to factor that in here and have a 44% increase in the hydro costs, there would be no possible way of recovering those kinds of costs that are driven by, I believe the words you used were "public policy." Public policy drives the cost of hydro up 44% and we tell the landlord, "That's too bad." I guess what comes out of that is that the tenant now gets protected under this system. Public policy drives up the cost. The home owner does not get any kind of protection from that system, never mind the landlord.
How do you justify having something that is in the public policy realm pass on these horrendous costs to anybody, whether it is a home owner or a landlord, and yet there is some sort of magic -- is that not an incentive to sell your house and rent?
Ms Parrish: The response I would give to that is that historically extraordinary operating cost increases among those people who have applied for them have averaged less than 1% of rent increases. It is quite difficult to imagine a situation where you would have consistently large numbers, and that is because even though you may have large increases, these are still relatively small proportions of the overall costs. That has been the case historically in the old system, even where landlords could apply for 13 things and not just four things. I guess the reason this seemed a reasonable amount was that historically it has simply not been the case, and that has even been the case during periods of relatively high fuel oil increases.
Mr Mahoney: I am not asking you to justify whether or not Hydro has historically increased its fees. We know we are looking at massive increases in the cost of hydroelectricity in this province. We know that is coming down the pipe. We also know you are not going to see a reduction in any urban community in Ontario on the cost of water. The realistic example should be more like a $300 increase in municipal taxes, at least a $300 increase in hydro and at least a $100 increase in water.
In former lives I have played a game called maximizing and minimizing. If you want to make it sound like it is not so bad, you minimize the damage to the client, the prospect, whatever. If you want to get them excited, you maximize the benefits. It seems to me you are minimizing it by saying no hydro increase is justified and there is an actual reduction in water. That is just not reality.
If you take the figures of a $300 increase in hydro and a $100 increase in water, which is probably not reality either but at least it is more realistic, you are looking at $900 increase in those costs, which is a 9% increase in costs that nobody, neither the tenant nor the landlord, has any control over. They are simply passed on by public policy. Therefore, as a result of public policy, you are saying this system says: "Okay, you can have 3%. You're going to have to bury 6% somewhere." As a home owner, I would love that in my situation. Can you do it?
Ms Parrish: I think you are forgetting one important feature about what the extraordinary operating cost increase is. The guideline already picks up the fact that taxes will go up 10% or hydro will go up 44% and it will factor that into the base increase. You may have a situation that because water is going up a lot or taxes are going up a lot, that guideline will go up to a higher level. It could be 5.8% or 6.3%.
What the extraordinary operating cost increase is measuring is not whether hydro goes up 44% across the province, which will be picked up in the guideline increase, but whether that particular landlord, for some reason unique to his or her circumstances, is getting more. What the extraordinary operating cost index increase does is say that across Ontario taxes went up 10% but for some reason this landlord experienced a tax increase of 15% or 18%. I do not know why. Maybe it was just municipal, an anomaly in that municipality.
It is not saying what is the absolute increase. It is saying, is this particular landlord in a situation where his or her increase is anomalous compared to everybody else's? If everybody goes up 44%, that will get picked up in the guideline, but if landlord A is in the situation where his or her increase was 80%, then the extraordinary operating cost plugs in at that time.
Mr Brown: On that matter I was interested, and I think most members were interested, in the energy conservation and what I see as being something that all of us in Ontario, and probably in the world, would be concerned with in the 1990s, energy conservation and the Minister of Energy's approach here. Because with the cap the way it is, if you are in a building on which you obviously should be spending money to be more energy-efficient, you are going to be caught in a catch-22. If your building has too high an electrical cost or whatever -- maybe it is oil -- but if it is electrical and disproportionate, you are never going to be able to spend the money to fix it because you have got this 8% cap. You have got 3% you are playing with all the time. I guess the 3% cap is really what we are talking about. There is no way to do it probably.
I am really having difficulty in understanding how the energy-efficiency component is going to work within that 3% flexibility. I think it is going to be virtually impossible. I would like to know if the ministry could table the Ministry of Energy's comments on your rent control document. I would like to know what the Ministry of Energy said when you put your document out for consultation. What did they say about this? What was their view towards the rent control? What input did they have? Frankly, I do not see any and I would just like, for members' knowledge, to know that.
Mr Mahoney: I believe I was just told that a massive increase in some utility, whichever, would be picked up in the guideline. I thought the guideline was set at 5.4% this year and there is a 3% allotment, so that if I used my example, which would increase those EOCs by 9%, then if you were to cover all of the extraordinary operating cost, you would require the guideline plus the extraordinary operating cost over and above the guideline, which would be 9%. You would require 14.4%, but in reality what you are getting is 8.4% because 3% is the cap. Therefore, it was not covered in the guideline at all. For the increased cost of 9% in EOCs over and above the guideline, you would only allow for one third of that cost to be picked up and the landlord would have to eat the other 6%.
Mr Mahoney: Right, so it is 5.4% for this year. We know that. So you are telling me that they will adjust the guideline appropriately if we get hit with a 44% cost of hydro? Are you telling tenants that?
Ms Beaumont: The guideline is calculated based on a whole series of factors. Hydro is one of those. The guideline, though, is also based on three years. It is based on the floating three-year experience of costs. It is recalculated annually. There is a provision in the current legislation which would be carried into this legislation for the guideline to be announced, before the end of August every year, for the coming year.
Ms Beaumont: We can provide you with the comments the Ministry of Energy made. We can speak to our colleagues in the Ministry of Energy on the comments they made on the proposed legislation. We cannot provide you with any comments they made through cabinet process.
Mr Tilson: I have a question just following along with what Mr Brown was saying. If I had a capital expenditure for conservation and I go through the whole process and I am given whatever the legislation allows, whether I am a small building or a large building, and then as a result of the energy conservation there is a saving in the cost of the building, does that then qualify for a rent reduction?
Mr Tilson: Assuming I am doing the type of capital expenditure Mr Brown is suggesting, you do not do those types of capital expenditures unless you are making substantial savings, so if there are substantial savings along the line of the comments Mr Brown was making, am I correct that then the very next year a tenant could apply and say: "You've made substantial savings in your administration of the building because of your energy conservation. We want a rent reduction."
Ms Parrish: Again, it would depend on the factual circumstances. It may very well be that people will experience absolute savings. What they may simply find is that they will prevent themselves from experiencing substantial increases. I am not trying to avoid your question; I am simply saying that it would be a matter of fact. It is potentially possible that in the right combination of circumstances they could have an absolute decrease and that they could meet the test, which is that they have to have a significant decrease, and also that the tenants applied. But you would have to have all those things occur, not just a situation where the landlord was avoiding substantial increases in the future by, for example, switching over to oil or insulating the building or whatever. It really does depend on the factual circumstances.
Mr Tilson: I can tell you that our party is as interested as the Liberal Party is on the whole subject of energy conservation, because that is something the government has been talking about. The Minister of Energy spent a great deal of time on that subject. I echo Mr Brown: I hope we can have some further information on this whole subject and on the issue I just raised, because I can tell you any landlord with any common sense would not make a capital expenditure for energy savings only to realize, to use Mr Mahoney's example, that the risk is there that there would be a rent reduction. I think we should canvass that whole subject.
Mr Turnbull: Just following on that situation, and this is something I raised in the House on second reading of this bill, it seems to me the potential exists that somebody may put in energy conservation measures in a building, lose money beyond which he can claim back because it is beyond the amounts of money that are allowable under the guidelines, and then in addition to that could have a reduction in the rent. It seems to me a total disincentive to work with any energy conservation measures and it seems to be totally in conflict with what the Ministry of Energy is trying to achieve, its stated goals. Is that a correct statement, that such a situation could happen?
Ms Beaumont, I just want to return to this question that was raised before. If you have estimated the amount of capital expenditures you are going to allow over the next seven years, I think it was said, to be $7 billion -- or is it the next 10 years?
Ms Beaumont: I think you heard a variety of estimates from a variety of sources during deliberations on Bill 4. The estimates the ministry prepared are based on a study that was done in the early 1980s, with some adjustment of those figures to the present time. The figures you heard presented during Bill 4 that you are referring to, I think, are the figures from the Fair Rental Policy Organization of Ontario, which had taken the same numbers and made a further adjustment on our already adjusted numbers.
Mr Turnbull: Within that $7 billion, we know that a substantial amount is clustered in those buildings which have not had major renovations to them so far. Yet the increases, the capital allowances, are spread right across the whole of the rental housing stock. How do you justify the fact that you are giving it in areas where they have already got all their capital expenditures through and there are other buildings where they will not be able to get enough capital expenditures through because it is skewed? Or put another way, it should be skewed and it is not.
Ms Beaumont: We have taken those figures of the $4 billion to $7 billion that are required and we have done estimates that would show that the guideline itself plus the potential for increases above guideline for capital can produce, in the gross sense, sufficient money in the system to pay for the repair of buildings. That is not to say that in particular circumstances in particular buildings, where you have a situation with a cap, there will not in fact be the potential for the landlord not being able to get the money out of the system that he may need.
But that then speaks to two issues. One is the issue of the need for planning of expenditures over a period of time. That is something that has been reinforced by both the landlord and tenant community over time. There is also the question that, when older buildings and buildings in need of major repair are acquired by new landlords, this should be taken into account in the purchase price.
The Chair: I need some help from the committee. At the rate we are going, we are going to go right to 12:30 and maybe beyond with just questions, which means the ministry presentation will not be completed.
Ms Poole: I agree. I think the ministry should continue. However, I have 14 questions remaining which I have not started on, so I was going to suggest next Wednesday, August 7. We have nothing confirmed for appointments past 4:15, which would take us to 4:30.
The Chair: Yes. I think we will let the ministry officials finish their presentation, and the clerk and I will find a suitable opportunity for you to come back, even if it is over the lunch-hour. We will have lunch brought in.
Mr Harcourt: Okay. Protecting tenants from high rent increases and protection of tenants from inadequate maintenance are the two central provisions reflected in the legislation. The legislation deals with compliance with standards. It reinforces the role of municipalities in enforcing property standards bylaws by requiring compliance with work orders which are issued and forwarded to the Ministry of Housing.
There is also a parallel process, in compliance with work orders which are issued by the province, where the provincial standard applies. In both of these cases, the result is a rent penalty order. Example 4 deals with the process for issuing a rent penalty order when there is non-compliance with a work order.
I should note that the ministry does not get involved until the period of compliance has expired for a particular order. For example, if a work order is given by the city of Toronto and the landlord has 60 days in order to make the repair, the ministry will not get involved until after that 60 days has passed. At this point the ministry will issue a notice of possible rent penalty. The notice of possible rent penalty can be rescinded, but only if there is compliance with the work order. In other words, it cannot be challenged on the terms of the work order at all.
The rent penalty order then can be issued 30 days following the issuance of the notice of possible rent penalty. When the rent penalty is issued, it will continue until the landlord establishes compliance. While the rent penalty is in effect, guideline increases cannot be taken, nor can notices of rent increase be given. This will eliminate the confusion where a tenant receives a notice of rent increase when there is a rent penalty and does not know whether to pay it or not. Any notices of rent increase which are given by a landlord when the rent penalty is in effect will be voided.
What I wish to stress about the process is that it is much more streamlined and expeditious than in the previous legislation, and that the onus is much more on the landlord to demonstrate compliance, not upon the tenant to prove that there is non-compliance. It is also much more automatic in nature. For example, it is no longer necessary to do the "substantial" test. Under the previous legislation, there was the test that there had to be substantial non-compliance with a standard. That no longer applies. Any work order will be involved.
Just before closing, I should also mention that the rent penalty order is only one side of the maintenance issue in the legislation. The legislation also provides for tenant applications on the basis of inadequate maintenance. In this case it is also being strengthened. Rent increases can be disallowed or rent increases can be actually reduced if it is severe enough.
Mr Glass: My name is Bob Glass. I am the executive director of rent review programs. I would like to present the potential administrative workload and financial impacts of Bill 121, and more specifically, I would like to review five areas. I would like to talk about the effects of the proposed legislation on applications received by our offices, its effects on organization, its effects on client services, the implications for the rent registry, and finally the overall budget for rent control. The figures I will present are our best estimates based on the legislation as proposed.
In terms of application resolution, we have an overhead, and I believe there are materials in your packages. Currently, rent review services reviews about 9,000 applications annually. We have broken these down on the chart in terms of the type of application.
We have analysed Bill 121 in terms of our current experience with the Residential Rent Regulation Act, and we estimate that we will be receiving more applications; in total, about 12,400. But there will be some significant differences in the applications themselves. Specifically, we expect more tenant applications for rent reductions as a result of inadequate maintenance. We expect more applications for capital improvements. However, the applications themselves will be for smaller increases than is currently the case. There will be no applications for financial-related transactions. There will be more applications for predetermination of eligible or ineligible capital improvements. There will be significant activity around the issuing of rent penalties for maintenance neglect.
During the first two to three years after the introduction of rent control, the Rent Review Hearings Board will continue its operations. During this time, the hearings board will complete a backlog of about 1,200 appeals that it has on hand and will hear any outstanding appeals carried over from the current legislation, the Residential Rent Regulation Amendment Act. Also during this period rent control will have to deal with an estimated 2,000 applications for capital work done between January 1, 1990, and June 6, 1991, as was explained in Colleen's presentation. Finally, the Residential Rental Standards Board will have to wrap up work orders and complaints that it has received prior to the proclamation of the new legislation. In short, there will be a considerable overlap between rent review and rent control.
A final note on applications: Bill 121 provides landlords and tenants the opportunity to have a hearing. If either party does not request a hearing, applications are administratively reviewed. Based on our experience with the Residential Tenancy Commission, which pre-dated the current legislation, we expect the percentages illustrated on the chart of hearings and administrative reviews to be held. In terms of organization, rent review currently consists of 584 staff and order-in-council appointments in three distinct organizations, with staffing as illustrated on the second overhead. The salient changes from rent review to rent control will require that we develop expertise in two areas, because the proposed organization will consist of one branch within the Ministry of Housing. The two areas are holding hearings under the Statutory Powers Procedure Act and evaluating maintenance-related applications.
Work has already begun in jointly orienting staff in all three current organizations with each other's work. Cross appointments were approved for three of our staff to join the hearings board as board members recently, and six more positions for board members are being advertised as developmental opportunities. More cross appointments at an administrative level are being planned.
Over 170 of our field and headquarters staff are currently engaged in an intensive review of the operational and policy and administrative requirements of the proposed legislation. It would be our intention to fold the standards board and hearings board into rent review programs. The extended transition period would allow us to do this comfortably without staff disruption. A transition team involving management staff and staff from the Ontario Public Service Employees Union representatives has been in place since the beginning of July and is looking at the staffing implications.
Rent review services currently handles over 650,000 calls per annum, making it one of the largest information services in the provincial government, and there is a trend line. About 54% of our calls are requests for information on landlord and tenant matters, not rent review, and under rent control we would expect at least as many calls.
We have planned some steps to strengthen our client services program. We will have to rewrite most of our literature and forms and procedures manuals, and we will do this in plain language this time. We are reviewing our hours of services. Hearings would be held evenings and weekends, where required. We started an after-hours telephone service about a year ago, and it receives about 2,000 calls per month. Based on its success, we are investigating extending our local office hours generally. Last, we will continue our educational grants, as landlords and tenants will require significant orientation to the new program.
The registry, as Colleen pointed out, will build on the current registry, as proposed under the new law. There are 1,116,000 rental units in the province. The majority of these are in larger buildings and they have already registered their rents. A number of smaller buildings have also registered their rents with us since 1987 voluntarily or they have come in for rent review. All told, the registry contains information on 691,000 units across the province.
The proposed legislation requires that we continue to register and establish legal maximum rents for buildings at size four to six units. That is about 240,000 units in all. This will be done during the transition period from rent review to rent control. It will generate about 12,000 rent rebate applications across the province, based on previous experience.
The balance of units, about 170,000 of them in buildings with one, two or three units, will be added gradually, either as landlords apply for rent increase above guidelines or when we investigate rents at the tenants' request, as is provided under that legislation.
The current budget for all current activities related to rent review is $33.5 million. Our estimates of activity under Bill 121, that is, client service requests and the registry, remain essentially the same. A hearings-based system requires somewhat more time to process an application than an administrative review, and there will be more applications. On the other hand, eliminating a second level of review, ie, the hearings board, eliminates one whole organization. At this time we expect a slight decrease in the total costs of the program at maturity.
A final word, on the transition period from rent review to rent control: As I indicated during the presentation, after the proclamation of Bill 121 the hearings board will continue to operate, the standards board will deal with any outstanding work and there will be a short period of increased tenant rebate activity when the four- to six-unit buildings are registered.
Finally, there would be a series of one-time costs associated with rewriting our information materials, staff training and reprogramming our internal software for rent review calculations. The exact cost will depend very much on the final form of Bill 121, obviously, and the timing of its proclamation.
Mr Glass: It would be in about year three. We expect two things to happen. First, there is the transitional issue that I described, the transitional problem as we wrap up old applications and move into new ones. The second issue is the issue of hearings. You noted that there would be requests for a lot of hearings. Our experience with the Residential Tenancy Commission was that initially when the Residential Tenancies Act was proclaimed, there were a lot of requests for hearings. People very quickly found out that their problems with landlord and tenant matters could not be dealt with. They were not subject to rent review and rent control, and the number of hearings, the percentage of applications that came to hearings, then decreased. So it is about year three, we think.
The Vice-Chair: Good afternoon, ladies and gentlemen. This afternoon the work of the committee is to conduct public hearings on Bill 121. We have 15 presenters this afternoon, which is a very tight schedule, and the committee has decided we will start whether there is a quorum of all three parties or not. I expect the members to be along shortly. The members did not get away from the committee until a half-hour late this morning, so that may explain some of our difficulty. All testimony is, of course, on Hansard and members have a chance to review that.
The procedure will be that we provide each presenter with 15 minutes. That presenter has the opportunity to speak for the entire 15 minutes or any portion thereof, and then the members will ask questions, if they so wish, for the balance of the time. We will have to be fairly strict with the time allocation or we will not be able to hear the 15 presenters this afternoon.
The Vice-Chair: With that, I will start the presentations with Richard Saliwonczyk, who represents Don't Empty Mimico Apartments. Introduce yourself and the group you represent, for the purposes of our Hansard recordings.
Mr Saliwonczyk: My name is Richard Saliwonczyk and I am the spokesperson for DEMA, which stands for Don't Empty Mimico Apartments. DEMA is a community organization of working-class tenants living in affordable apartment buildings in southern Etobicoke. One of our main objectives is to preserve the stock of affordable rental apartments in our community. Many of us have been a part of the Mimico community for a number of years and have a stake in its future. The main objectives of DEMA are the retention of affordable rental homes on the Mimico strip and the improvement of property maintenance in the community. DEMA is pleased with the proposed Rent Control Act, but we feel it does not go far enough in protecting the affordable rental housing stock. We also feel it does not go far enough in establishing adequate enforcement and incentives for landlords to maintain their buildings. I would like to begin with the points about the proposed rent control act that DEMA supports.
DEMA supports the capping of maximum legal rents, the yearly guideline plus an extra 3% each year. This means tenants will no longer face increases of 20% to 30% in one year. The second thing we support is that landlords can no longer get increases to pay back the money they borrowed to buy a building, or because they are not making enough profit. A landlord will no longer have the option of increasing the rent on the basis of changes in interest rates, or financial or economic loss. This measure is important for tenants because it means tenants will no longer bear the brunt of a landlord's speculation or financial mismanagement. A landlord will also not be able to get increases for the equalization of similar units in the building, hardship relief, below-market rents, or maintenance.
This change will mean tenants do not have to pay increased rent so the landlord can make an even bigger profit. Another positive change for tenants is that the legal rent can be reduced if maintenance and repairs are inadequate. However, landlords will be able to get increases of between 8% and 10% a year under this proposed Rent Control Act. Tenants' incomes will unlikely increase by that amount. Low-income tenants and tenants who are on fixed incomes, such as seniors and social assistance recipients, will not be able to keep up with these increases. This will cause erosion of affordable rental housing which will cause even more economic eviction in south Etobicoke.
Another major concern we have about this proposed legislation is that the bill does not go far enough in terms of maintenance and repairs. Sections 36 and 37 set out maintenance standards and procedures for inspection which apply to prescribed areas of the province. We believe all of Ontario should be considered a prescribed area with the same minimum maintenance standards. We also feel there should be more inspectors at both provincial and municipal levels. In Etobicoke there is a critical lack of enforcement of municipal health and property standards which indicates the city's politicians' lack of concern for the 10,000 to 15,000 tenants who live on the Mimico apartment strip. This problem will become even worse with the loopholes in Section 37 of the proposed rent control legislation. In subsection (1) of this section the inspector, it reads, "may make and give to the landlord a work order requiring the landlord to comply with the prescribed maintenance standard." This should read, "The inspector shall make and give the landlord a work order." Also, in subsection (3) of this section, the landlord may apply to a chief rent officer for a review of the work order. This step is unnecessary and will cause further delays in getting action on urgent maintenance problems.
DEMA believes strong enforcement of maintenance and repairs is critical to protect the affordable rental housing stock. If landlords are allowed to let their buildings deteriorate, they can use this as a justification under the Rental Housing Protection Act to demolish or convert to luxury condominiums. In south Etobicoke, on the Lakeshore, this is a critical issue to tenants because landlords have been neglecting their buildings for years and are using this to pressure city council to redevelop their properties into luxury condominiums like Marina Del Rey or Grand Harbour. Tenants have little input in these decisions and we are worried they will lose the homes they have lived in for many years.
In conclusion, we agree with some aspects of the proposed rent control legislation but the law should go further and the Rental Housing Protection Act should be strengthened to prevent landlords from circumventing the rent control legislation. Thank you.
The Vice-Chair: Thank you. I think we will proceed in the normal way that we used during the last hearings on this matter and rotate in terms of party. Each party has approximately two minutes. We will start with the Liberals this time.
Ms Poole: You have given a number of comments about maintenance and I would assume, from the position in your paper, that maintenance is a very serious concern of yours. Have you looked at the legislation and the maintenance provisions in it, and thought about what might happen if the rules are so stringent that the landlord just refuses, that they are willing to accept the rent penalty because they are saying, "You are not giving us enough money to do the capital?" They just throw up their hands. Do you see any solution to that type of scenario?
Mr Saliwonczyk: First of all, the problem in south Etobicoke is that the landlords have not been maintaining their buildings for a number of years. This is before the legislation. So it is their own personal attitude to begin with. This thing about maintenance, I feel, is another form of land speculation to get around the proposed rent control legislation, because if they can let their buildings deteriorate far enough that it is an eyesore, the people in the community are blaming the tenants. They are saying the tenants are not keeping the buildings tidy, they are dirty, filthy, they are a disease. That is actually what some of the people in the community are saying today. But it is not their fault, the landlords are just letting the buildings go, and under the Rental Housing Protection Act a municipality, a city council can decide if the demolition of a building is a depletion of the affordable rental housing of the area.
Ms Poole: You have mentioned in your brief that in Etobicoke it is a particular problem to get the work orders enforced. I have certainly heard that about many municipalities. What do you see in Bill 121 that is going to help enforce those work orders?
Mr Saliwonczyk: This is my opinion. I feel there should be minimal provincial standards all across Ontario for all municipalities, and if municipalities wish to upgrade those standards they may. Also, I feel that -- this again is my opinion -- the municipal inspectors should be reporting to the province, because a lot of times the municipal governments pay lipservice to the provincial regulations.
Mr Tilson: I was interested in your comments with respect to the personal attitude of landlords. There is no question, sir, that it is a problem which may never be solved. There are bad landlords; there will always be bad landlords. There are bad tenants, and there will always be bad tenants.
What our party has been concerned with with respect to this legislation is, where are we going with respect to the quality of life of the tenant? You could tell me horror stories -- and we have heard them during the Bill 4 hearings -- of the terrible ways in which certain landlords treat their tenants, and we even heard some terrible situations from landlords as to how tenants treat their landlords.
Notwithstanding that, there have been comments made in the press, privately and in the House that there is no incentive to landlords to maintain their buildings, to buy new buildings, to construct buildings, to put capital expenditures in. I do not know whether you were present this morning, but one of the issues came up this morning in the debate that there will be no incentive for landlords to even make application for capital expenditures because of the fear in doing that that the rents will be reduced because of some other technicality, because it is becoming more and more of a technical piece of legislation.
Realizing that lack of incentive -- and I hope you would agree with that; if you do not agree, please tell me -- where is the tenant headed as far as the quality of life in the province of Ontario is concerned?
Mr Saliwonczyk: I can only speak for what I see in southern Etobicoke. In 1984, or 1985 approximately, there were a number of apartment buildings on the Mimico strip on Lakeshore and they were being run poorly by the landlords. Tenants were able to purchase them in the form of non-profit co-ops, and today they are much nicer, a lot cleaner. The tenants really do a good job for themselves.
My other point is, getting back to the quality of life, that in Etobicoke, the average income for a male is $27,000 and for a female $15,000, approximately, and household income is $47,000. Marina Del Rey and Grand Harbour are building units in there that are $500,000, which people who have lived in the community for a number of years cannot afford. If the developer were to build for the average income of the community, which is $47,000, that may be a possible solution.
Ms Harrington: The previous questioner asked where tenants are headed, and I am very glad you answered that one example is making the co-op and having those people take pride in what they are doing and improve the whole neighbourhood and be in charge of their situation and be in control.
You were talking about south Mimico. I am not really familiar with that area, but driving between here and Niagara Falls I go through there and I can imagine what is happening to the real estate, the actual land values. This is something that happened long before we came into government. The price of land in Ontario has been driven high by development and speculation, and this is what we are facing. So I would like to tell you that we are committed to having people live in Ontario where they want to live and there being opportunities not just in one part of Toronto but across Toronto for people of all incomes to live.
I do not want to see people like yourself being priced right out of Toronto. That is why we are here, that these neighbourhoods remain viable, that they remain mixed-income neighbourhoods, not just totally high-rise condos like up Bay Street here.
Your point about loopholes in section 37 is something I personally would like to look at. You have done a very good job of saying exactly which word is wrong. I would like to assure you that we will close those loopholes and that maintenance is extremely important in this bill.
Mr Bassel: Good afternoon. My name is John Bassel. I am a member of the board of directors of the Ontario Home Builders' Association. With me today I have Mr Andy Manahan, who is a staff person in the policy division of the Ontario Home Builders' Association.
I have been asked by Mr Al Lipfeld of the Ontario Home Builders' Association to come here to make a presentation on behalf of the rental housing industry and the rental housing stock in Ontario vis-à-vis Bill 121.
The Ontario Home Builders' Association represents about 4,000 companies and individuals who are in the business of providing rental accommodation, both ownership-rental accommodation and rental accommodation, the management thereof, investment in it and so on. The association believes strongly that the private sector does have a substantial role in the existing housing, and most certainly in the existing rental housing and in rental housing in the future under the proper conditions.
We are pleased to present our views on Bill 121. I have to start by saying that the media pose the bill as a compromise between landlords and tenants. I do not view it as such at all. I believe the bill, although it may have some short-term appeal, is a recipe for long-term disaster, for the following reasons.
First of all, there will be an erosion of the capital or the equity in these buildings, which will have an impact not only on the landlords but on lenders and others who are interested in the rental housing field. There is a great jeopardy to the lenders in this province. As a matter of interest, and it may be of interest to this committee, I was asked to speak in Ottawa at the trust companies' annual meeting on the subject of lending in the rental housing field, particularly in the Ontario market -- this was before the draft of this bill came out -- and I was able to advise them. They are really worried about all of their real estate investment, and for them to have further jeopardy because of what may happen to them as a result of this legislation is something that many of them can ill afford. So they feel they will be -- and they will be, in my view -- in jeopardy as a result of the way this bill is written.
In the long term the bill will restrain the landlords from having the ability to maintain their buildings -- I firmly believe that, and we will get into that if we have time -- and to restore buildings to a more viable condition.
The uncertainty that will be created as a result of the passing of this bill: There are certain uncertainties as to where the rent roll will be, whether it will be up or down, and it is basically the structure and the wording of the bill that causes this. It will cause landlords and others not to know where they are going with regard to their borrowing and their operation of the buildings. The bottom line is that what this bill appears to be creating is a very hostile environment which will not be good for either landlords or tenants.
In the detail of what we are talking about, I want to talk about the fact that 50% of the rent control index is broken down between small buildings and large buildings. The fact of the matter is it really should be broken down between old buildings and new buildings, because the old buildings, since they have been suppressed in their ability to command rent for a long period of time, have a reduced rent, and their operating costs are much greater than 50% of the gross revenue. So on an annual basis, the landlord will suffer a loss -- either an increase in loss or a decrease in profit; it depends on where he is in his operating stream -- because of this provision. It seems to me that it would be more beneficial all the way around to look at the index in another way. I will have a recommendation on that if I have time.
I have already referred to the fact that there is an erosion of capital, and that erosion is a result of inflation. This guideline at the rate of 50% of operating does not give any recognition to the fact that in the return on investment, on any capital investment, any equity investment, there has to be a component for inflation in it. This legislation precludes that, so the bottom line is that the $1,000 that is invested today will be worth substantially less in 1999 dollars because of inflation. I know that is a fairly difficult concept to say in a few words, but I could expand on it later, not necessarily today.
There is a provision in the act for the private sector to build rental housing, and it is provided that the rental housing be exempted from rent review legislation for a period of five years. At that time it would come into the fold, so to speak. The problem with the way that is worded, first of all, is that it is worded in such a way -- and the Minister of Housing I think put it pretty clearly in a speech I heard him give where he said that we are going to give the buildings five years so they can get to break-even. That is where the big problem is, because nobody is going to build a private sector building if he is going to wait five years to break even and then he is going to be clamped down on. He will never be able to make a profit on it. Indeed, no lender would lend him the money to build that building.
This may not appear to be significant, but I believe it is significant if one looks back at the CMHC statistics on the private sector rental housing that has been built in this province since 1985. I think the number is in excess of 50,000 units, so it is a significant contribution to the rental housing stock in the province. If legislation causes a situation where this housing will not be built, I think you will find that what you are really saying is that the provincial coffers are going to be responsible for building every single rental unit for every person, regardless of his means, who comes into this province and does not choose to buy a home. That means that everybody who comes in here, based on the numbers I am seeing -- and hopefully it is true that there will be an influx of people into this province -- it means that the third sector will have to provide all the housing for all those people. I do not think that is either good business or a proper thing to happen when you have a private sector that is prepared to do these things under the proper scenario.
I was concerned about subsection 13(7) and section 25 vis-à-vis the rent review officer who is obligated to look at the maintenance of a building before he rules on the ability of a landlord to obtain an increase greater than the guideline. The reason I am concerned about that is, the way section 25 appears to be worded, it is a very subjective thing and it is not one of those things that is subject to any sort of external, unbiased, so to speak, look at the thing. Unfortunately, under section 90 the right of appeal from any ruling is only on subjects of law. If either the wrong evidence is given or the opinion of the particular administrator who looks at it is erroneous in any way, there is no right of appeal, so it does create a real problem for landlords.
I was going to talk about the capital improvement section of this, but I know there will be many speakers during the course of these hearings who will deal with this problem. Let me say only that what I said about the 50% for the guideline applies even more so for the capital improvement requirements, because the older the building, the more money it needs for capital improvements, and of course, since its rent is low, the 3% or 5% or whatever is going to be allowed is a smaller absolute number, so the landlord of the older building will have fewer dollars to spend on capital improvements under the legislation.
1. The appeal procedures should be modified to take into account all factors, not just questions of law. I think it is obvious that for both sides, if there has been a mistake made in questions of fact, there surely to God in this country of ours should be a right of appeal from that.
2. Interest rate changes should be the subject of adjustments to rent; that is, up or down. That is particularly to make sure that our financial institutions and others are properly protected and the people who invest in those institutions are properly protected for the security of their money.
4. The operating cost component of the guideline increase should be adjusted to appropriately reflect the operating cost ratios of pre-1976 buildings and post-1975 buildings. In other words, instead of large and small, it should be pre and post. If I am making myself clear, the operating costs of pre-1976 buildings, I am informed -- and I think I have been involved in this industry long enough to know what I am talking about -- are closer to 60%, and the post-1975s are less than 50%. If you do not do that, you are just causing a recipe for the landlord to gradually lose his building, lose the ability to maintain it, and I do not have to go into the details of that.
The next item is the rent. The exemption period of five years for new buildings should be adjusted to give effect to the concept of maximum legal rent being the economic rent for the building or for the complex when this building goes into rent control at the end of the fifth year. In other words, the concept of economic rent should be in there. Otherwise, you will not get anybody to build buildings. I do not want it to be said five years from now that the government allowed the private sector to build buildings and nobody built any, without having received the warning that the private sector just will not be able to under the scenario the way it is worded now.
I think the other thing is, you have a date of June 6, 1991, as the building permit date for buildings. I do not see any reason why any unit or building that has not been previously occupied, either as a rental or as a condominium unit, should not be allowed the five-year exemption, particularly in view of the fact that there are many condominium units in a very badly distressed market out there right now that are being rented for really low rents at this point in time in order to defray part of the costs and a lot of small people are -- am I running out of time?
The concept of the standard of maintenance being inadequate should be rethought completely. I think the concept of the maintenance standards being inadequate is so subjective. If I am providing a product that I am renting or selling for $50 and you are providing one that is selling for $150, it should not be that both of those products should have the same degree of goodness, so to speak.
Item 9, and this is the last item: The rules for capital improvements must allow sufficient funds to be available to maintain the buildings. On the basis of rough and ready calculations that I made, I do not believe this to be so.
The Vice-Chair: I would like to thank you for your presentation, and a perfectly timed presentation it was, because the time has unfortunately expired. I am sure the members may choose to explore it privately with you.
Mr Tilson: Mr Chair, I have a question for you. As a result of his comments, I would like certain information from the ministry, and I do not know when the appropriate time to ask for that is. I am thinking specifically of the issue he raised with respect to the reduction of the guideline. Do you want me to stop?
The Vice-Chair: I am just thinking about this. We have 15 presentations we have to do today. Just to be fair to the presenters, I wonder if we could make a list of these. There may be more information that is required, and perhaps at the end of the day those -- does anybody object to that?
The Vice-Chair: The next presentation will be from CST Corp, Mr Richard Cole and Mr Joel Slan. Welcome, gentlemen. You have seen the way the committee operates under my rather draconian hammer. Perhaps you would like to identify yourselves for the purposes of Hansard and provide the committee with your information.
Before we go into our comments, I would like to offer my congratulations to the new Minister of Housing, Evelyn Gigantes, and wish her Solomon's wisdom in trying to undo a riddle that maintains a good stock of housing in this province, makes it possible for the landlords to make some return and keeps rents at a place that the residents and tenants in buildings can afford to live there. It is a terrible problem.
CST Corp is a long-term investor in rental units. We have 800 units. We acquired the company in 1977 from the Farlinger family, who built the buildings in the 1960s. The buildings have really only had two owners in the entire history of the buildings. The buildings are now in better shape or at least as good shape as at the time when we acquired the buildings in 1976. Our policy has been to maintain the buildings at all times and to try to maintain very good relations with our residents. We prefer to call our tenants residents.
We have a written brief that we have submitted. I am going to try to hit the highlights of it and hope that the members of the committee can refer to our brief if they want to see some of the reasons and some of the detail.
In 1990, we planned a major maintenance program, a capital program, where we would have expended $5 million over approximately a three-year period. We expended $2 million in 1990 and we received rent increases under the old legislation covering about $700,000 of those expenditures. Approximately $1.3 million of those expenditures were caught by Bill 4 and we have not received any rental increases for those expenditures.
Before we deal with the specific recommendations, we would like to make some general comments on why we think Bill 121 is inappropriate, not in the interest of property owners, not in the interest of tenants, nor is it in the interest of the general community.
The provisions of the bill do not permit a satisfactory standard of maintenance. The whole regime is too restrictive. It is not only the cap, it is everything that goes together with the cap and the deductions before you apply your expenditures to get your rental increases.
It seems odd that the new government would like to penalize the sector of the community that is providing most of the affordable housing. The private rental sector is probably the most efficient way of providing affordable housing, and I think a study of the industry would indicate that.
In Ontario, the rental stock is aging. Most of the buildings were built in the 1950s and 1960s and the maintenance needs of the buildings are increasing. At the same time that we are having a recession, the new government has introduced legislation which is going to stop that maintenance program and going to cut back on employment. We estimate that our modest program, on the basis of $50,000 expenditure for each man-year of employment, would have provided 100 man-years of employment. We have had to cut out 60 man-years of employment because the standards were changed and we cannot go forward with our program. I leave it to economists to estimate how many indirect jobs were lost and what this impact would be over the entire rental stock in Ontario.
First, we agree with the previous presenter that the guideline is unrealistic for older buildings. The assumption is that 50% of inflation would allow a landlord or property owner to sort of stay even and not lose each year. In any building where the operating cost ratio is more than 50%, this is not the case. Our experience indicates that all of our older buildings have operating cost ratios well in excess of 50% and approaching 60%.
As buildings become older, the annual level of maintenance increases. This provision is penalizing those owners of buildings who are providing affordable housing. The ratios are high because the rents are low and the maintenance is high. We have looked at how this standard should be applied and we feel that older buildings tend to have low rents. Our feeling would be that buildings over 20 years old deserve specific relief.
I will deal now with the phase-in from Bill 4. CST has been unfairly treated by Bill 4. We had completed substantially all of our capital program by the end of June 1990 and had applied for rental increases by the end of July 1990. The new government brought in retroactive legislation that effectively disallowed rental increases for items completed well before the new government was elected.
In dealing with Bill 4, the former Minister of Housing promised that the permanent legislation would alleviate the retroactive effect of Bill 4. In our case, we would have received rental increases of about 5% of our rent roll in 1990. Under the proposed changes we may receive 3% increases some time in 1992. This, in our view, is grossly inequitable.
Our second recommendation would be that amounts not covered under the old legislation and caught by Bill 4 should be phased in at 3% per year up to a period of three years, without deduction of the 2% supposedly in the guideline to cover major maintenance in any year. We feel this is fair, because we are having a delay. There was 1% in the old legislation to cover major maintenance in the guideline, and I think this approach would be equitable.
Bill 121 can be interpreted to conclude that the government is not interested in an economically viable private rental accommodation industry. We do not think this is the case, because any sound overall economic analysis of the factors would lead government policy advisers to conclude that an economically viable private accommodation industry is essential.
Most other forms of housing are quite expensive compared to private rental housing. Co-operatives are expensive both for the government and the residents. If the government reviews its files for any recent co-operative, it will find that on a monthly basis it must subsidize these projects by an amount that is approximately equal to the rent on private sector rentals, and in addition, the tenants have to pay monthly rentals that are very similar to private sector rentals. I believe the government stated that it would cost $15,000 per year to create new co-operatives in its program. This is a very expensive approach. I do not think this province can afford it on a long-term basis.
Government-owned rental housing is also expensive. Private landlords do many of the things without compensation. The government rental sector must hire executives to run them. Often the private rental sector provides executive input without charge.
Getting down to the specifics, we feel that the 3% cap is unrealistic. The owner is forced to invest only receiving a return on 60% of the amount invested. This will not cover interest. Our recommendation is that the cap should be adjusted upward if there is inflation and that it should be stated as a percentage of the guideline. Our second recommendation in this area is that the regulation should permit a three-year program, with only a single deduction of 2% for expenditures that are deemed to be covered by the guideline increase.
We agree that property owners should be penalized if work orders are persistently disregarded. However, we recommend that a rent freeze due to work orders should be instituted only if and when it is shown that the landlord has not made a reasonable attempt to comply. Second, complaints initiated by a single tenant should only impact on that tenant's unit and should not be used to give a roll-back of the entire rental of the building.
Property taxes are our largest single expense. These have increased more than anything else. We think both landlords and tenants are being unfairly treated in this area. We recommend that legislation should be amended to take property taxes out of the guideline and make property taxes a burden to the tenant or a reduction of benefit to the tenant. Second, we feel that a mechanism could be introduced to make it possible for property owners to finance necessary capital expenditures out of property tax reductions.
One of the things that struck me is the fact that having sat through Bill 4, I saw the complete reluctance of the NDP to accept the validity of any of the statements made by the property owners. In fairness to the NDP, they probably felt the tenants were ignored by us. Neither is true. How do we come to terms with the fact that you cannot finance repairs unless you get the money? Really I am asking you how I can communicate with my colleagues on the other side, because I saw Mr Mammoliti shaking his head, suggesting that the private property owners are not the most effective deliverers of low-cost rental housing. Notwithstanding that, we know that the cost of non-equity co-ops, on a per-unit basis, is typically higher than the average rents of for-profit rental housing.
Mr Cole: I do not think there is a simple answer to that. All I can say is that if the legislation were moderated so that the landlord can make some money, he would have a big incentive to do it as efficiently as possible. We feel that property tax reductions, a change in the property tax and a shift of the property taxes away from apartment buildings would provide a lot of money that could be used to help pay for the needed repairs in the rental stock.
Ms Poole: Thank you very much for your presentation. It has been quite helpful. This morning when I made my opening comments, I referred to the fact that I felt the guideline being siphoned off into two different levels, one for large buildings and one for small buildings, did not make any sense, that it should be based on the age of a building. Just prior to your presentation Mr Bassel said something very similar. He remarked that he felt post-1975 and pre-1975 would be a logical cutoff for this criterion if it were based on age. Do you have any ideas on what the benchmark should be if the government were to change and make it age rather than size?
Mr Cole: We thought of 1975 as being the cutoff point because that is when the new rent control legislation was first introduced, but we also felt it could be a rolling standard and that 20 years or something around that area would also be equitable.
I just wanted to comment on one of the statements you made. You made a lot of interesting statements, and I would like to say that you are right when you say the government is interested in the economic viability of the private industry of rental housing. That is very logical. As you have stated, we have to be and we are, and we do not want to have these buildings changed so much that people are paying much more, in changing the nature of their building and the character of the neighbourhood. We want to stabilize neighbourhoods. We want to make them available for people. But we also want the private owner to be able to have a fair profit and we want to be encouraging people to be involved in that particular market, too, and we are struggling. As you say, the balancing act is very difficult, struggling to try to get that to happen, because in the past there has been so much speculation going on that things are skewed.
The Chair: I am sorry, the time has expired for this presenter. We are already three minutes over the 15 allocated and we are going to have to call forward the next group of presenters. I want to thank CST for coming this afternoon. I am sorry the time was so limited.
Ms Robinson: Thank you. Hello, committee members. My name is Leslie Robinson. I am director of law reform at Metro Tenants Legal Services. We are a legal aid clinic which has represented low-income tenants at rent review and in other legal matters since about 1975, and I have been working as a tenant advocate since about 1975 as well, so I am making a presentation today. I am not going to follow the written notes. If you try to keep up, it is no use.
I offer both the experience of our clinic and my personal experience to meet and consult with MPPs as you are going. I think a lot of times we see people thrown into the legislation. You see it fresh and you might want to have some information on what has happened in the past and what our experience has been under previous legislation. We would be happy to avail ourselves to you to provide our opinions, our expertise and our experience.
I want to say at the outset that we have welcomed the new legislation that has been put forward by this still new government in Ontario. We certainly see Bill 4 as an improvement over the Residential Rent Regulation Act, which we have been working under for the last five or six years, and we see Bill 121 not as preferable to Bill 4, but as an improvement over the past legislation. The primary reason for that is the elimination of financial loss and economic loss pass-through.
Tenants in the last 15 years in Ontario have never understood why their rents should go up when their building stays the same but when there is a new landlord who got a new mortgage to buy the building. Their question always comes back to, "If he wasn't going to make enough money to buy the building, why did he buy it at such a high price?" We really hope that the elimination of financial loss and economic loss pass-through will result in some stabilization in the cost of apartments in Ontario. We saw a lot of inflation in the cost of apartments over the last five years or so, and we believe that a lot of that was due to the pass-through of these costs.
We have taken the position that there is no reason that the cost of rental housing ought to inflate faster than tenant incomes. The reason we take that position is that if the cost of rental housing does increase at a faster rate than tenant incomes, then that housing is becoming more and more unaffordable and more and more inaccessible to tenants.
You will have people come here before you and tell you that rents have not gone up as fast as inflation, but I will tell you they have gone up faster than the incomes of tenants. The unit that cost 20% of an average tenant's income 15 years ago costs significantly more than 20% now. On average, tenants are paying more and more of their income towards the rents, and this is having a direct effect. I have been a tenant advocate for 15 years and have never seen tenants doubling or tripling up in apartments the way they are now, living in unsuitable basement apartments and living with children in unhealthy conditions because they just cannot afford to pay the price of decent housing.
We acknowledge that the vacancy rate has gone up a bit recently and that there has been a bit more room within the market. I have not seen that filter down to people who are able to pay $500 or $600 a month, to women, primarily with children, who are looking for accommodation that is suitable for children and big enough for their families on low incomes. There are still people having extreme affordability problems and extreme problems having access to affordable housing.
We have heard from landlords that rent review is inappropriate legislation, that the problem really is that people's incomes are not high enough, not that rents are too high. We will not disagree with them that there is an income problem in Ontario. We will not disagree that minimum wage is too low and that social assistance benefits are too low. However, tenants have two problems: On the one hand their incomes may not be high enough, but on the other hand their housings costs are too high.
If you create a system that allows rental housing costs to increase as the market will push it up and then start subsidizing tenants to pay the rents, what you are creating is a market welfare system. You are taking public money and transferring it to private sector landlords so that you can artificially buoy up a system that would crash if it were not for the support of that market money.
I think the private sector has to be told the same way doctors have been told by David Peterson's previous government and the same way that you tell educational institutions that they are providing a basic essential for people. Housing is a basic human essential and a basic human right, and if they want to be in the business of providing housing, then these are the rules by which they must operate. Rent increases over and above the guideline amount are not acceptable and landlords can choose whether to operate or not. It may be that there has to be a lot more publicly supported housing, but if you start with the premise that housing is a right, you cannot do anything other than impose regulation upon the landlords who operate in the rental housing business, otherwise you are depriving people of basic human rights.
Earlier I heard John Bassel of the Ontario Home Builders' Association tell you that the private sector will not build under this legislation because five years is not long enough to get up to a reasonable profit level. But the private sector has not been building considerable amounts of rental accommodation in Ontario since well before rent review was introduced in 1975. We heard promises, with the introduction of the RRRA, which was a very generous legislation to landlords, that there would be cranes in the skies. Some landlords felt this was more generous and that they could start building, but we did not see those cranes in the skies.
I would like to suggest to you that the escape of the private sector from the development of rental housing is separate and apart from the introduction of rent review or the severity of rent review legislation in Ontario, and I give as an example the city of Vancouver.
British Columbia tenants lost protection of rent review in 1983, and have not had any rent review legislation in that province since. You would expect, therefore, that the private sector developers would be rushing over to Vancouver and Victoria and into British Columbia to build the rental apartment buildings they are so anxious to build, but what we saw happen to private sector rental starts between 1982 and 1988, which is the limit of the data I have, is a reduction in the number of units built.
In 1982 and 1983 there were over a thousand rental units built in Vancouver. By 1988, there were 315 new starts in Vancouver, and in fact, beginning in the late 1980s, there were more units lost through demolition and conversion than actually constructed, so there was a net loss in Vancouver. Vancouver and British Columbia have been without any form of rent review for about eight years now, so I think you have to challenge the landlords when they say they are going to build, and ask them where are they building. Under what conditions is the private sector building affordable rental housing?
There are lots of jurisdictions in Canada, the US and Europe that do not have rent review or rent controls and have not had them. Can they empirically show you that the private sector is building housing in those places? Without that kind of backup, I do not think you ought to buy it from them that rent review is the reason they are not building housing.
We have provided for you in our brief some of the criticisms and suggestions for improvement of Bill 121. I would like to acknowledge that we have been critical. While we welcome the bill, we do have some problems with some aspects, and I will try and highlight some of those issues.
The first and most significant issue to us is basically the provision for pass-through of capital expenditures. It is our position that this cost pass-through system in Bill 121 is not a significant change from previous legislation that we have had in Ontario. There are some changes to some of the rules; there is a limitation on how much can be passed through, but overall, the system has not changed, and we think the system needs to change. The cost pass-through system on capital expenditures has not worked for a lot of tenants in Ontario over the last 15 years. Tenants who need capital to be spent on their buildings have no way of impelling the landlord to spend the money; and tenants who have been paying rent that includes money that should be going towards capital expenditures have not been able to see that money put aside or contributed towards capital expenditure when the time comes for the landlord to actually do the work.
We think you need to develop a way of treating capital expenditures that not only protects tenant affordability, but also plans for the future and ensures that buildings that are in disrepair now, and the stock as it ages, are going to be kept up. That is a long-term concern that we do not believe is addressed by this legislation, or has been addressed by legislation before this.
The 2% capital allowance in the guideline, we would like to point out to you, accumulates every year, and has been accumulating in the guidelines since 1985 or 1986, when the RRRA first took effect. It is not just 2% of rents that has been put into the guideline for capital repairs for the landlord to contribute. That is an additional 2% each and every year.
The guideline formula under the RRRA allocated 1% towards capital expenditures so, after six years, there is in excess of 6% already in the rents that the landlord is supposedly contributing to capital expenditures, and that will increase by 2% every year. There is no provision in this legislation to say to a landlord who is coming forward with a claim of a capital expenditure, "Where did you spend the money that you collected before?"
You are allocating the 2% in that year's rent towards capital expenditures, but you are not looking at what has happened before, and the effect is going to be that those landlords who actually spent 2%, or a significant portion of it, on capital expenditures, will not have claims to come forward with; those are the landlords who were responsible and did what you hoped they would do.
Those landlords who did not spend the money will have future claims to come forward with; so you are rewarding the people who took advantage of the system. It is backwards; there has to be a better way of dealing with capital expenditures.
We were quite concerned that the proposals for capital replacement reserves that the Federation of Metro Tenants and our organization and others have been supporting and putting forward to the Minister of Housing are not reflected at all in this legislation.
We understand that more than 50% of the responses to the consultation paper that was released favour some form of capital replacement reserves. This system of reserves is required in condominium housing. It is required in non-profit housing. It is government that makes that requirement, and we do not think that rental housing should have a second-class status. We think that money should be put aside every year out of the rents so that capital expenditures can be planned for and so that the money is there when it is time to make an expenditure; and we hope that this committee will look at that proposal again.
We suggest that new buildings under construction may be a good place to start, because they are fresh, and you can require landlords, as you require condominium builders, to put so much money aside ahead of time. You know, even if this Bill 121 passes without significant change, we hope that in the long term you will continue to consider capital replacement reserves as an alternative that we have suggested to the capital pass-through in this legislation.
There is only one other point that I will make in my 15 minutes. It is again about capital expenses and this business of tenant consent. There is a provision that if the work is done inside the unit and a tenant consents to it, the rent can be increased, and there are no eligibility criteria for those capital expenses. They do not have to be necessary. They do not have to be energy-efficient. But if the tenant says yes, then the tenant pays for it. I have a great fear that this is going to have two negative impacts. One is that landlords will start selecting tenants on the basis of whether they will vote yes. There will be a new selection criteria. It will either be covert: "Do you make enough money that you will be able to afford the new countertops and the new microwave and glass on the balconies," or outright, "I will give you this apartment as long as you will vote yes."
The second problem we see with this is that there will be, in some instances, intimidation of tenants by landlords to vote yes for the capital expenditure. We are not generalizing about private-sector landlords, but anyone can be a private-sector landlord, including someone who uses intimidation tactics. We have seen tenants intimidated for a number of reasons, and we hope that this section will not be kept in the legislation and that this will not be another reason for landlords to come to tenants and say, "Sign here or I will kick you out; sign here or I will report you to the authorities," because some tenants have got two families in the apartment or they are collecting welfare or something like that. We hope this will not be another tool that landlords have to use against tenants.
Generally, our main concern with this process is that we ensure that our clients' views are known and understood here. We would like to ensure that our investors have a small but safe return, and that is, I think, what our investors are looking for. We believe that 50% and 60% rent increases under the old system is incorrect. It has been our experience, however, that when those 50% and 60% rent increases were granted, those rents were never collected. The apartments could not be rented for those exorbitant rents.
Our real concern, though, extends to our ability to provide our tenants with a decent place to live. This legislation may hamper our ability to give a decent place to live. More specifically, we have concerns about the annual statutory rent increase. Why was there a change in the formula for the statutory rent increase? The minister said when he introduced the legislation that if the legislation were in place today, the 1991 statutory rent increase for large buildings would be 4.7% and for small buildings, it would be 5.4%. This is a difficulty for us because, under the old rules, the statutory rent increase did cause some financial difficulty for some buildings especially in those buildings where the financial loss and relief of hardship was taken away this year.
We also have difficulty understanding the difference between the economies of scale of running a six-suite and a seven-suite apartment building. Where is the justification? Why is a six-suite entitled to more than a seven-suite building?
Extraordinary operating costs: This is a concern with us. We are very concerned about the elimination of the maintenance category. It has been our experience that the maintenance in a building changes from year to year. For example, if you have a boiler in a brand-new building, the maintenance on that boiler is next to nil. As the years go by, your maintenance increases and increases until you get to a point where that boiler has to be replaced and then you are back down to a nominal level of maintenance. This legislation does not reflect in any way those sorts of requirements.
If you extend this further throughout the whole building, you find that maintenance is not a static item. It changes -- it goes up, it goes down -- and if you have a rent review order, and under the old system it is established that the maintenance per suite per year is about $500 a year, and then the landlord looks at his building two or three years down the road and it is actually costing him $750 per suite per year, there is no allocation, there is nothing. Now, if he continues to spend $500 plus a statutory increase on that particular building then he could be subject to a decrease in rent because the standard of maintenance is no longer there. That is a concern of ours.
Further, the intent of this section of the legislation seems to say, "Well, we want to only give the landlords increases on things that are beyond their control." For the most part, maintenance is something where if it breaks, you have to fix it. The only question is, how? Do you really have much choice in how much it is going to cost to repair an item? Obviously, you want to do it as efficiently as possible but there is still that question: it is broken and it has to be fixed.
Another item which does not seem to have been addressed is one that we found to be a major problem, and that is the escalation of garbage costs. The Metro works department has been increasing the garbage costs significantly over the last few years. I think they went up 50% from last year. They started off at $18 four or five years ago and now they are $150. We have offset these costs with recycling, composting and so on, so much so that we have been able to offset the cost so that it only increases minimally until about this year; and now we cannot go to rent review and say, "Listen, we would like to have an increase because our maintenance has gone up."
This problem is further exacerbated by the fact we can no longer give the tenants a motive to recycle. There is no economic motive. Whether they take it down the hall and throw it in the garbage chute or go downstairs to the recycling room, it makes no difference to them unless you can appeal on an environmental basis, which works in some cases but not in all. So we cannot say, "Well, if you recycle, then we won't have to go to rent review for an increase in rent."
A further problem seems to have happened in the town of Lindsay, which has said: "Right. Our taxes are increasing tremendously. We are going to cut garbage collection from all apartments." This means that the landlord now has to pay for his own garbage collection. Under the proposed legislation, presumably the tax bill would be less now than the province-wide market component because there is no more garbage collection. Therefore maybe the tenants are entitled to a decrease, but the costs overall have not changed or they have gone up.
Finally, I did not see cable TV on the extraordinary operating costs, and this is also something that is beyond the landlords' control. It is set by the federal government: This is the rate, this is what you have to pay, and if we happen to be supplying TV cable to the tenants then we have nothing to go on.
Capital expenditures: We do not agree with the cap of 3%. We think it is unacceptable to expect a landlord to spend $500,000 on an underground garage or a brick facing which would have brought 10% or 15% increase under the previous legislation. Now, you are saying, "Well, you get 3% and 2% or 1% in the following year." The previous speaker was saying, "What happens to this 1%?" That 1%, if not more, generally is spent every year, in our experience. We have to spend it. We have to give a few fridges or a few stoves. We have to replace a hot water line. Every year you have to do something that is of a capital nature, and it does get eaten up.
The other question with regard to the 3% cap is, what is the justification for taking the 2% off in the second year? It is a passover from the previous year. What has it got to do with the capital expenditure that is supposed to be used up in the following year? The minister dealt with the necessity of capital expenditure by insisting that a landlord prove that capital items are not a result of neglect or that these items actually had to be replaced.
The government in a sense is requiring the landlord to go to a consulting engineer and pay him money and say: "This has got to be replaced. Its useful life is finished." So it costs you $2,000 or $3,000 to go and get a rubber stamp on something, whether or not the engineer was required for the actual job. The other option would be to go to the municipality and say: "Well, we have these bricks coming off the wall. We would like to replace them. Can you give us an order so that we can prove to the rent review that we need to have these bricks replaced?" Then what happens? We do not get a statutory increase until the completion of the job. That is just a question, you know. It increases the cost, and why? Is it always necessary?
We have a little bit of difficulty with the change with deliberate neglect. It used to be shown that if there was deliberate neglect on the landlord's part then he was not entitled to capital expenditures. Now, it is simply neglect. Well, if there was human error, is that neglect? Why the change? We do not really understand the reason for that.
Transition of previous capital expenditures: We have an application that was made under the previous legislation. This application under the current legislation will be disallowed because it is capital. But in your proposed legislation and so on, a significant proportion of our capital for this application was spent in October, November and December 1989. The end result is that we will have lost this capital expenditure in terms of looking at it in terms of rent review.
Further, application to reduce rent: Is there a mechanism set up that would disallow tenants or community legal services from arbitrarily applying on a yearly basis for a building for rent reduction on the basis that they think there might be a reduction in costs?
I had a situation where I had to go through the first level and the second level with a tenant because she did not understand the rent review proceedings. We had to have time put aside and a room booked and it was all because she did not understand the rent review proceedings. There was not anything to do but to sit this lady down and explain to her how rent review worked, and we had to go through all this expense and so did the government.
It was not a big deal, but there was no facility to stop that from happening. So is there a facility to stop a tenant from consistently, every year, going back to rent review and saying, "I think the landlord's taxes have gone down, so could you please look at it?" Is the onus on the tenant to supply and go to the municipalities and everywhere and ask for the invoices and then look at them and compare the years, or is the onus on the landlord to come with the invoices and say, "No, sorry, this year, actually, our costs went up?"
There is another problem with standard of maintenance. In this legislation there seems to be the idea that if the landlord does not have enough money to do adequate repairs, then we will reduce his rent, we will penalize him. If you reduce his rent, then he has less income the following year, and then he cannot do as many repairs the following year, and you get into a very vicious circle which basically would end up with a poor-quality building.
We see all sorts of buildings throughout Toronto where there has not been sufficient maintenance put into the buildings, and they are in terrible shape and they should be brought up. Yes, maybe the tenant should not be paying for that deliberate neglect, but on the other hand, if there is not the money, for instance, with the pulling out of the financial loss and relief of hardship, you have a lot of landlords who do not have the money who thought they would have the money and now they do not and they are stuck.
Discontinuance or withdrawal of services: The problem we see with this is if you have a landlord who has a super and an assistant super and the assistant super is responsible only for cleaning the building, that is what he does. Now the landlord decides that he would be better served if he hired a cleaning company, a professional cleaning company to look after the cleaning of the building and be done with it. A tenant goes to rent review and says: "I no longer have an assistant super. I have a reduction in service." Does that mean that this is now going to be a reduction in rent? To me it looks like it is.
As far as decision-making and administrative structure, the minister did not address one of the big, big concerns for tenants and landlords, and that is the time delay question in issuing orders. We have waited two, three years for rent review or rent appeal decisions, back rent of $6,000 to tenants.
The Chair: I do. I advise every person who sits before the committee that they have 15 minutes and that it is their option to leave time for questions and answers. I cannot unilaterally reduce the presentation of the individuals or groups who come before us. It is their 15 minutes and I am assuming they will decide as has been done in the past, whether they want to use the total 15 minutes or want to leave five minutes at the end for questions. The real problem, and I have said this to committee members time and again, is that there are too many individuals and groups for the time allotted for this committee to work.
Ms Poole: I can appreciate the very difficult job you have, Mr Chair. Maybe one thing that would help is that when there are, say, two minutes left in the presentation time, we could warn the presenters. Then they can either sum up or end there so that they could allow for questions.
The Chair: As a matter of fact, I have been trying to do that and I did exactly that with Leslie Robinson from the Metro tenants. I signalled to her that she had four minutes left and she nodded and she used up the four minutes. I tried to signal this gentleman before he finished, but I could not catch his eye at about three minutes.
I do not think it is the responsibility of the Chairman to sit here and kind of wave my fingers at every presenter. My job is to let everyone know when they come before the committee how much time they have and what they can do with it. I understand very well the frustrations of the committee members when they cannot ask questions and get answers to specifics, but that is out of my hands.
The Chair: You have to understand how uncomfortable that becomes when in the middle of a sentence or a train of thought, I have to tap the table and say, "Excuse me, you have three minutes left." If that is what the committee thinks I should do --
Mr Mammoliti: Mr Chairman, you are the Chair. You decide as to what you should do in that particular case. But I think we are here to listen to the people and our debating on interrupting their 15 minutes is wrong, in my opinion. I would suggest that we move on.
Mr Birnboim: Yes, I would like the latter. My name is Roy Birnboim. In order to facilitate what I have to say, I have prepared copies of part of the text. If I could distribute that and keep one for myself.
Mr Birnboim: In anticipation that the previous gentleman was not able to speak, I was asked yesterday if I would be able to make a presentation along the same concerns he had. I am very happy to do so. Perhaps I should not say concerns that I wish to express, but really anger over Bill 121.
My anger over Bill 121 is not only in terms of what it says in the bill, but also what it does not say. As I indicated, I have given you the written text of the remarks I will allude to in a few minutes, but I would like to preface those remarks by expressing, if you will, my background feeling leading up to this presentation.
As a group, landlords in the past and perhaps currently have criticized rent control since 1975. People have asked: "Well, what's the difference? You are constantly criticizing." I would like to make the distinction, if I may, between the here and now and what was in 1975 leading up to Bill 4.
I believe personally, and I do not speak on behalf of landlords generally, that prior to Bill 4 and Bill 121, the landlords were economically incarcerated in their investment. They were limited in what they could do. It was not portable capital. They could not move it out of the province if they did not like it. They were incarcerated. We did not like it. We thought we could constructively criticize, and we did our best.
I mentioned a minute ago that what concerns me is not only what is said in Bill 121 but what is not said. I will only allude to it quickly, because it has been debated for days on end that Bill 4 brought in retroactive financial loss. Bill 121 ignores that fact and has made this temporary legislation permanent legislation, ie, no recognition for retroactive financial loss.
I raised the issue with the Minister of Housing at the time that I have a building that is reflected in schedule A and I told the minister that it is costing me over $100,000 in financial loss and, because of the retroactive legislation, I am condemned in perpetuity to finance it or go bankrupt. He said to me I paid too much for the building. I said to him I paid arm's length; in fact maybe below market, I would like to believe. He said, "The tenants shouldn't have to pay for your mortgages."
I submit that when any consumer buys a loaf of bread, he pays for the farmer's tractor. I submit that when any consumer buys a pair of shoes, he pays for the factory, and indeed the employees' homes, through their wages. Why should we be treated any differently? It is called fair profit. That is all we are asking for. Not usury, but we do not want to be a scapegoat to a social housing problem that exists. We admit that it exists and we want to talk and try to redress the inequities, but not in this fashion, where landlords are left holding the bag, more or less.
I submit very quickly that if there is some compassion for tenants with respect to higher rents than they can afford, perhaps the minister can look at treating property taxes on apartment buildings in the same fashion as every other home owner building, because the fact remains, depending on the municipality, that tenants pay through their rents anywhere from 30% to 40% more in property taxes than the home owner. That, in my judgement, has been conveniently overlooked.
In order to bring forward the other concerns I have, I would like to refer to the written text, and then hopefully I will have a few minutes for questions. In the overview I have given, and I refer to it as a critique of Bill 121, I say that I believe sincerely that most people, regardless of differences of political philosophy, regardless of whether they are a tenant or a landlord, wish to achieve a balanced and fair social housing program. It should be recognized, however, that social costs are a societal responsibility and should not be the domain of landlords where, as a result, huge losses and bankruptcies occur.
Because of the time constraint, my focus on Bill 121 will be limited to three areas which I strongly believe are grossly unfair and punitive to the landlord. I do not believe these adverse results were intentional, but because of the urgency of the bill by the government, some implications of this bill may not have been fully understood.
The first area is changes in financing costs: very critical, very important. The minister's explanation for removing this category of cost is that it makes the rent control system simpler. Simplicity is a virtue if it does not compromise fairness. The government, under Bill 4, has already reduced the allowable financing to 75% from 85% of the building acquisition cost. Now Bill 121 wants to remove it entirely; financing does not exist. Well, it does. It remains the single most important cost component in a building. When this is removed, where the landlord does not have the opportunity to pass through any increase in financing costs, it leaves him vulnerable to huge losses and, yes, bankruptcy as well.
To be fair, if mortgage rates go down, a mechanism should be in place to reduce the tenants' rents, but if the rates increase, where is that mechanism, where is that ability for the landlord to raise the rents accordingly? There is none under Bill 121. In its present form, Bill 121 represents a roulette wheel for the landlord.
Should rates increase, the lending institutions will not renew the mortgage unless the landlord has the ability to pay down the mortgage. If he does not have the ability to pay down that mortgage, it will go under foreclosure and he will lose his equity.
The COLA clause: I raise that because I think in a sense it is ironic that in this social legislation we have in this province, the COLA clause is a prevalent presence. The structure, however, in the guideline increase formula to allow operating cost increases to form the basis for the guideline rent increase is based on passing through the operating cost increases only. In effect, the operating dollar profit before financing costs remains constant in perpetuity. Inflationary costs in subsequent years will erode today's operating dollar profit, resulting in inevitable landlord losses in real terms.
In an unfettered market system, normal price increases of products and services are factored into and reflect the inflationary costs of those products and services. Unions seek COLA clauses in wage contracts; non-union employees anticipate normal increases in wages each year. With Bill 121, no recognition is given to an eroding dollar profit because of inflationary factors. No COLA, no cost of living to the landlord.
The high-focus category of eligible capital expenditures is worthy of some comment. In that regard I have a backup calculation sheet that I would refer to. Personally, to cap rent increases for capital expenditures in order to mitigate inordinate rent increases is amenable to my sense of fairness. No problem. To shift the cost of these expenditures to the landlord, where no mechanism exists to recover these costs, is punitive and shortsighted.
Much publicity has been given by the government to the fact that the tenant is protected from inordinate rent increases, while the landlord is being given cost recognition for capital expenditures. Not true in this bill. The attached schedule A represents my building, which requires capital expenditures if the structural integrity of the building is to be preserved. The numbers cited in schedule A are realistic in nature and clearly show the fallacy of the proposition that a landlord is able to recover the costs associated with eligible capital expenditures. These numbers are real and expose the vulnerability of the landlord in maintaining the building in a proper manner. Should Bill 121 continue in its present form, the building will deteriorate if landlords cannot borrow funds for capital improvements, or landlords will go bankrupt trying to do the impossible. This landlord will lose in excess of $250,000.
Critics of the landlord's position may say that his profit comes from the building's future capital appreciation. This is also a specious argument, since real estate does not necessarily appreciate. Indeed, since the government introduced Bill 4 and Bill 121, I submit residential rental properties have been reduced in value by between 25% and 40%.
Mr Tilson: Mr Birnboim, I agree with one of your comments, that there is very little reference with respect to the retroactive loss. There is some reference in the transitional period and I submit it is not enough. Can you offer any suggestion for an amendment to the legislation that might appeal to the government to allow for people who have sustained a loss from the retroactive loss?
Mr Birnboim: I believe that in principle it should be recognized, because the decisions and the conducting of the landlords' affairs were based on the then prevailing laws. If the government is concerned about inordinate rent increases, perhaps it should stretch the impact that the financial loss may have over a greater number of years in order to mitigate those increases, but I think that the principle of doing something retroactive, which will incarcerate, as I mentioned, and execute many people in real terms -- there are bankruptcies -- is morally and legally wrong.
Ms Poole: Thank you for your very candid comments today. My question relates to your comment about the cap on capital expenditures. You stated that you really think this is fair, the concept of it, to mitigate high rent increases. How would you like to see the legislation amended so that it would be a fair cap, which would provide some sort of rental security to tenants but at the same time be sufficient to take care of the capital expenditure needs of the landlord?
Mr Birnboim: Again, in somewhat similar terms to financial losses, I think there is no justification for the 2% deductibility and that the capital of 3% should remain as a cap, but just allow it to stretch over a longer period of time so that the tenants are not hit with an inordinate increase in one given year, or indeed in two successive years.
Mr Mammoliti: First of all, just let me say that I had to disagree with you when you talked about the use of figures 25% to 40% of the market decreasing. I would have to disagree with you on a personal note. Second, I think it has a lot to do with the recession and the fact that the market is down at this point.
You brought up something earlier as well that I have to talk about. You gave two examples: bread costing a dollar, and shoes. Let me just say to you that, yes, people go out and buy bread and shoes, but they get something for it, and if the bread is stale, they get another loaf, or if there is a hole in a shoe, they get another shoe. With previous legislation, what did the tenants get if there was a bad landlord or a landlord who neglected his responsibilities?
Mr Birnboim: I believe there are provisions in place today -- let alone with what Bill 121 is proposing -- which would penalize what you referred to as bad landlords, people who do not maintain the standard as they should. I will not say that 100% of landlords will do it, but certainly the vast majority will.
The Chair: I would like to call the next presenter, Goldlist Property Management. You also have been allotted 15 minutes and if you wish, you can retain some time for questions and answers. If not, you can use up the whole time.
Goldlist has been in the business of building and managing apartments since 1958. In 1975, at the time rent review was first introduced in Ontario, we had built over 3,500 apartments. Since 1975, we have built an additional 2,000 suites. All of these units still remain in our portfolio. We do not sell our buildings, much less flip them. Until now, we have been able to manage and maintain these buildings with good, solid management practices.
Bill 121 is a dangerously flawed piece of legislation. This is not a politically motivated statement. I am telling you, as a reasonable person, that Bill 121 is a product of illogical and poor legal drafting. Its vague language, its contradictory sections and its silent gaps leave all who are affected, both landlords and tenants, in a position of extreme uncertainty.
In the interests of time, I am going to present 15 recommendations which I think keep in mind the current government's philosophy on rent control but will perhaps allow and enable proper maintenance of the province's aging rental stock, while keeping intact the government's intention.
In accordance with careful planning and advice from professional engineers, we have designed a capital program which will protect the physical integrity of our apartment buildings. Normally we plan these major capital expenditures to be completed over a number of years. This results in lower annual increases for our tenants.
In one complex of 1,000 suites built in 1969, $5 million was spent in 1990 for such things as replacement of roofs, garage repairs and plumbing replacements. These $5 million of expenditures would have resulted in an increase of approximately 7.4% over the statutory guideline, commencing April 1, 1991. However, Bill 4 blocked the application from proceeding. Now Bill 121 proposes we might be able to claim only 3% over statutory. Because of the bill's confusing wording, we are uncertain whether there will be any carry-forward for the excess we have incurred over the 3% and, if so, whether there will be an automatic deduction of a further 2% from statutory.
All Bill 121 will allow us to recover is a possible $300,000, but not until mid-1992, after we spent $5 million in necessary capital expenditures in 1990. We have to pay $600,000 annual interest on this $5-million debt, not including any repayment of the principal. After just two years, this will be a loss of $1 million.
There is no logic in deducting 2% from statutory for any carry-forward. Mr Cooke had previously stated that each year's statutory increase includes 2% for sundry capitals. If he, or the ministry, deducts 2% in subsequent years for carry-forward awards, it eliminates the 2% available for that year's sundry capitals.
At a recent tenants' association meeting where Margaret Harrington, Gary Malkowski and I were guests, the tenants themselves appeared to agree with our desire to complete the plumbing replacement and garage repairs that were only partially done in 1990 but were stopped by Bill 4. Unfortunately, Bill 121 only speaks of work completed between January 1, 1990, and June 6, 1991. What about this type of work that is done after June 6, 1991, but prior to the passage of this bill? The tenants want to see this work finished, our company would also like to do this work now, but the cap carry-forward rule states that if we did work in 1990, we are prevented from recovering for new capital work done until 1993.
Mr Cooke had repeatedly announced that those landlords who did capitals in 1990 and who were caught under Bill 4 were going to be fairly treated under Bill 121. We are not sure if he fully understands how unconscionable his proposed fair treatment really is.
2. Capital work commencing after June 6, 1991, but before Bill 121 is passed should be covered under Bill 121's rules but using Bill 51's regulations relating to interest and useful life amortization.
4. If, under Bill 121, the rent officer's findings justify an increase above the cap, the rent officer shall order the excess be carried forward without any further deduction from statutory until the excess has been fully recovered.
Amendments such as these will go a long way towards getting many of the unemployed renovation workers back to work now, instead of waiting until 1992. Bill 4 clearly caused these layoffs, and the uncertainty of Bill 121, unless clarified, will not bring them back to work for a long time.
Under neglect, Section 15 creates an unexpected double bind because of the vague use of the term "neglect." According to this section, a capital expenditure is allowed only if it is "required," but will be disallowed if it is a result of "neglect." At what point does a new roof become "required" before it becomes the result of "neglect"? Is there one month between a required plumbing replacement and a neglected plumbing system, or one year, or one minute?
Under energy conservation, Subsection 15(2) of the bill states that a capital expenditure is eligible if it increases energy conservation, while section 24 calls for a reduction in rent if there is a decrease in energy costs. What landlord would want to risk spending money on an energy conservation capital program when the end result will be a reduction in rent resulting from this expenditure? It is almost certain that no lender would advance the money knowing the money will not be there to be repaid.
6. Eligible capital expenditures that increase energy conservation should not be considered for reduction until after the useful amortization of that particular capital expenditure has been completed.
Under work orders, The bill disallows increases in rent if there are outstanding work orders against the building. Sometimes work orders are issued without regard to the availability of replacement parts and seasonal restrictions.
7. Prohibitions against rent increases as a result of outstanding work orders should not take effect until a reasonable time period has elapsed, taking into consideration the particular circumstances, availability of replacement parts and seasonal restrictions.
I have serious concerns with the changes in the calculation of the statutory guideline. The 25% reduction, from two thirds of the building operating cost index down to 50%, will significantly reduce available cash-flow used for normal and necessary maintenance of our buildings. Comparing the operating expenses ratio to income in our buildings where there were no claims for capital expenditures since 1985, it varies from just over 60% to almost 78%. Reducing the statutory guideline calculation is not in the best interests of the tenants, since long-term landlords will have to cut back in certain areas, thereby preventing them from maintaining their buildings at a satisfactory standard.
Furthermore, almost all of the pre-1976 buildings were built in the 1950s and 1960s. In fact, 80% of Ontario's rental stock is over 15 years old. Older buildings have proportionally higher operating costs, especially in the areas of appliances, plumbing, electrical repairs and common area renovations.
9. The per cent ratio of operating cost to revenue -- that is, BOCI -- should reflect actual cost ratios. That is, prior rent review awards over guideline for capital work must not be included in the revenue calculation. These awards distort the actual ratio.
Under extraordinary operating costs, I am further concerned with the 3% cap that includes extraordinary operating costs being grouped with awards for capital expenditures, since utility and realty tax increases are clearly beyond the control of landlords. How are we to deal with instances such as the proposed 44% increase in hydro costs, or the increases in realty taxes for the buildings where market value reassessment results in increased assessments?
10. Any cap established over statutory should relate only to capital expenditures, and any increase as a result of extraordinary taxes and utilities over which the landlord has no control should have no cap.
Under administrative procedure, I feel the legislators should really look at this area carefully. We are confused as to why, if there was so much complaint in the past about decisions by administrators, a recommendation has been made that there should be a single hearing before a single rent officer. We do not understand how that could end up in a proper decision every time. If a substantial error is made but it is not one relating to law, one of the parties will be adversely affected. It may be the tenants and it may be the landlords. It is going to lead to even more frustration with the rent system.
On the face of it, this is a breach of fundamental principles of our democracy. Why should the government put itself in this position? Either allow for an administrative review, following which an appeal is available, or ensure at least that the single-hearing process be held before three rent officers.
12. Unless requested by either the landlord or more than 25% of the tenants, a rental application shall be reviewed by an administrator and such decision may be subject to an appeal on questions of law and fact.
15. Any hearing shall be limited to the issues in the application but can be expanded to issues raised by either party in written submissions filed within 60 days after the application was first made.
We are proud to be landlords and only want to stay in this business. Today the Premier came to a crossroads and made those adjustments in his cabinet he felt necessary to provide better leadership for the province. So also do I hope that the Ministry of Housing, under the direction of the new minister, will recognize and implement those adjustments necessary to permit the buildings in Ontario to operate properly under Bill 121.
Mr Turnbull: Mr Griesdorf, thank you. Excellent recommendations. I do not have to ask you a lot of questions because you have obviously done your homework, you understand the legislation and you have made sensible proposals.
Mr Griesdorf: Certainly the remortgaging is going to cause a problem for those people who have not planned well enough in advance, especially with respect to increased mortgages. We ourselves were faced with one where a long-term mortgage expired at 10.25% and we actually made the choice to go for a one-year term at 10.50% because we could not afford a longer-term mortgage at 11.25%. We are making perhaps uneconomical decisions in order to comply with the rules in Bill 121, recognizing that we cannot get an increase. I am concerned about those people who will have such increases.
Mr Abel: The list of recommendations that you have given tends to be beneficial to the landlord, and we do appreciate that information. I was just wondering if you had any recommendations that you feel would be beneficial to the tenants.
Mr Griesdorf: I think Bill 4, and even some recommendations that were made last year, address that -- the idea that the tenants get involved in certain capital expenditures that might be done in their own suites. Our organization has often met with tenant organizations to try to find out what it is they would want in the building. As a matter of fact, we have even put in certain changes; for example, we gave temporary parking areas for tenants when they had to be removed from their garage. So we deal with the tenants' associations.
I think communication goes a long way. I just hope we are not working towards going from Bill 51 to Bill 4 to Bill 121, where we are cutting out this communication and instead have controversy. I would like to see better communication in order to solve those problems.
Mr Griesdorf: I think you are talking about just through rent increases. I feel that providing a cap on annual increases, for whatever the purpose -- whether it be a combination of capitals and a combination of extraordinary cost increases which may include unusual interest increases -- would protect the tenant. I feel there is somewhere a level of consensus that could be reached that the tenant could be faced with a maximum increase with all of these combinations.
It is very restrictive to try to group everything under one limit of 3% and then hope all these things can be covered. We can look after maybe the planning for the capitals. We cannot look after things that we have no control over, such as taxes, utilities and interest.
Ms Dean: Fifteen minutes is not long enough to even touch the highlights, but first I would like to make a sort of snivelling appeasement gesture by saying that tenants are very grateful to this government for ending the depression. I do not think this government has taken sufficient credit for doing so, because it is saying that it chose in the budget to fight the depression and not inflation. It is failing to point out that it had already shot inflation right through the forehead with Bill 4. We have heard from provincial premiers for years that the only inflationary pressure in the country that was keeping interest rates as high as they were was inflation in the rental housing market in southern Ontario. So when you do the right thing, we are capable of seeing it and we are capable of saying so. I hope you are appeased.
Bill 121 is not the right thing. STA is a group of Scarborough tenants who were chosen by the ministry to be its Scarborough consultation group. We met each other one night and were given 10 minutes to speak to consultants on lines that were laid down for us before the meeting begin. We kept meeting and we produced the document that you see before you, which I hope you will read.
This has been distributed to several thousand Scarborough tenants. The response from tenants is: "This is us. This is wonderful. This is us." We had a senior civil servant who said, "This is the best-written, best-reasoned social democratic document we have seen in 20 years." The response from the NDP is to phone around to constituency offices and say: "This is trash. Don't read it." I hope you will.
The NDP has a problem with it because, as opposed to tenant advocates, tenants get mad and tenants get rude. We have tried to speak for tenants, and we have tried to speak to some degree in their voice. There are a couple of statements in here which the NDP does not like. One of them is, "The government is proposing to violate our human rights," and one of them is, "This is not the best rent review legislation we have seen; it is the worst." I would like to address those two points rather than the substantive parts of this, because that seems to be our sticking point in our dialogue with the NDP.
First, internationally, shelter is recognized as a basic human right. The UN recognizes it as a basic human right. The federal Tories have joined in that consensus, which we think is sort of funny. The provincial government has joined in that consensus, which we would hope was more serious. But we see that in fact people have some trouble with that concept. They have some trouble with relating the right to housing to other things they are accustomed to thinking of as basic human rights.
I think that perhaps where you go to solve this problem and be able to see that in fact housing should be right up there with the right to food, the right to health care and the right to education, which at least some members of our society do now recognize as rights, is by seeing where they stand in the life of an individual person. A person who has received a notice to pay his rent or move out will sacrifice food to do that. If you ask the food banks, they did a survey in February. They found that 75% of people going to food banks were two-income families, and 71% of all their clients surveyed identified rent increases as the budget pressure that drove them to the food bank. So food is a basic human right, but it is one that tenants put second to paying the rent.
Health care: I have been to a doctor who came to Canada from a social democratic country, who quizzed me really carefully on whether I was going to fill a prescription and finally said that it took her a long time to learn when she came here that when she wrote a prescription, people would not fill it if it was going to be so much money that it meant they could not pay the rent.
Education: There are an awful lot of wives who have dropped out of their English-as-a-second-language class to go to work to pay the rent. There are a lot of kids who are going to be pulled out of school to go to work to pay the rent. There are a lot of kids who are going to be working nights and weekends, when they might be studying, which is going to compromise their education, to pay the rent.
I think some consequences should flow from recognizing housing as being that important to the rights of people. One is that you do not do a balancing act between housing, which has been recognized as a basic human right, and the right to maximize profits, which may be a basic human desire but has certainly not been recognized as a basic human right by anybody except all of the landlords who are coming before you. Mind you, they are still trying. I believe there is still a charter challenge going. There have been a number of them. They have been trying to get the courts to agree that maximizing profit is a basic human right, but they have failed. I think the balance of society believes that profit is something that you earn if you are lucky, and if you make an investment and you lose money, which I have done, you do not go to Amnesty International.
Another consequence, I think, that should flow is that housing policy should not be sacrificed to send a signal to business, which Conrad Black is not going to listen to anyway and is not going to care about anyway, or that this government is prepared to back off its policies in response to consultation with business. I believe that is what has happened, because what would have addressed the situation we are in now and would have done it more or less adequately, certainly would have improved the housing crisis, would be the policies you promised us. These included costs no longer borne, which are described in the blue paper in some detail, some of the provisions that might have been made, which was part of the NDP-Liberal accord. In 1985, the NDP could see this as a solution to the crisis and tried to impose it on the Liberals. They weaselled out of it, but none the less it was policy.
During the election, you were advocating what is sort of the California plan for rent controls -- it is in place in Berkeley, Santa Monica and a few other jurisdictions in the United States -- which includes no cost pass-throughs over inflation. California has a lot in common with us in terms of, first, income spread -- a lot of people pretty wealthy and a lot of people working in the grape yards -- a lot of in-migration, a lot of inflationary pressure in the real estate market. The plan that was adopted as policy before the election has been tried and been successful in a constituency a lot like ours. We think at some point you are going to go back to it and we hope it is not after a body count of tenants with what we have now.
We think this legislation is a crashing disappointment because of the timing. If this had been the RRRA, it would have been fine. It would have been the best legislation we had seen and it might even have been adequate legislation. However, it is additive, and this is something that I think the party has trouble grasping. Tenants have no trouble at all grasping it, because I am going to go down and pay the rent tomorrow morning and it is going to contain all of the rent increases that were allowed by the RRRA and any rent increases that are allowed in the future are going to go on top of that, so I am very conscious that this legislation is incorporating all of the things that happened to me before.
People who are paying 5.4% this year who paid a 66% increase last year, like the people in the building across the street from me, are going to be well aware that they are paying a 66% rent increase still. It has not disappeared. In fact, people's rents contain the increases that were put through in the early 1980s when their landlords remortgaged at 20% and 21%. The landlords have since remortgaged at 12% or 11%, but the rents still contain the 20% financing cost, which they do not mention when they are talking about their remortgaging this year.
Because this stands on the shoulders of all the preceding legislation, we judge it by two simple things: How much rent are we going to pay tomorrow? If we have to go out and find a place, what are our chances of finding a place we can afford to live in? By those two criteria, we are calling this the worst, because it is standing on the shoulders of all the other legislation that has gone before it and therefore is incorporating it. The fear has been expressed to us that opposition members might use that statement to wave in the face of the government, and I have suggested that, should they do it, we would be happy to hold a press conference and tell them what we thought of the proceding legislation, although some hints of it are in the paper.
This allows for a 17% rent increase over two years, a 25% rent increase over three years, or more, depending on what the guideline is. I think the rental housing market now cannot stand that. It is going to economically evict more people than anything that has happened before. It is too late to put a ceiling on. I mean, the ceiling already comes on. An apartment building that has had a 50% rent increase cannot have another one.
I mentioned 3895 Lawrence Avenue. It just had a 65%, 66% rent increase. It varies a little bit because there was also equalization. The tenants there hired an electrical engineer to come in and inspect the building for the $500,000 worth of electrical repairs that were part of that application, and the electrical engineer reported they had not been done, but they were none the less passed through to the tenants. That place has been advertising one-, two- and three-bedroom apartments vacant for about eight months now.
Tuxedo Court has 850 rental units. In December they had an appeal decision on the 1988-89 rent review decision. The landlord had been awarded 14%. In December it was raised on appeal to 24%. Last month they got their decision on their 1989-90 application, which was 22%, plus of course in January they got their 5.4%. Now under Bill 121 the landlord will be back with another application for a further increase based on work done in 1990, up to June 1991. So their rents in effect went up 50% in six months. A lot of tenants have left there, the parking lot is practically empty, but some tenants cannot get out. They are getting notices for $1,200 per month. They are going to try to rent a place for $750 and they are told they do not qualify because their income is not high enough to pay $750.
They are trapped in there. They cannot escape. Their lives are being trashed. They have arrears now for these rent increases for two and three years that amount to thousands of dollars. Their credit is wrecked. This is another reason why they cannot get out, because if anybody does a credit check, their landlord is showing them as thousands of dollars in arrears. If this were 850 people laid off, the government would be sending a team in there to help them relocate.
I do not want to go into details -- we have gone into them intimately -- but I would like to refer you particularly to two things in here. One is our preamble, which is talking about the extent of the housing crisis. One thing I would like you to note in there and take a look in the paper yourselves is that there are several hundred people per day advertising in the newspapers to share their accommodation with a stranger. These are two-bedroom apartments with one bedroom for rent, three-bedroom apartments with a master bedroom to rent. This is no longer a bunch of houses down around the University of Toronto the way it used to be in my day. People are doubling up and worse.
A lot of these people, if surveyed, are then going to be paying less than 30% of their income for rent. I think we have dealt for ever with the 30% standard as an index of whether we have a crisis or not. I think if you read the analysis of that and the application to some sample budgets, you will never again be able to use it. We think two thirds of renters have affordability problems, not just the one third who are paying more than 30% of their income for rent; 30% of your income for rent is fine if you are a bachelor and you make $30,000. It is pretty bad if you have four kids and you are making $15,000. There is no way you can meet that standard.
The other thing is the section on what is currently in the rents and what is in the guideline. Again, we are talking additively. I think Leslie touched on this earlier. We go year by year and dollar by dollar, so there can be no question about the mathematics of it, what is in the guideline now.
The extra 2% that is thrown on top of the cost inflation index, which the NDP was really funny about when the Liberals first suggested it -- they were saying this will be a capital cost allowance. I remember David Reville saying: "Anything's possible. Sure, the landlord might spend it on capital. On the other hand, he might spend it on a trip to St Moritz."
This extra 2% amounts this year to $70 per month, on average, for Ontario rents. We are showing you bit by bit how we got to that figure. That amounts to $2 billion that tenants have collectively paid over cost inflation since 1986. The Rent Review Advisory Committee was told, "At the end of a couple of years, if you think this money is not going to be spent on capital expenditures, we'll go back and take a look." Well, the years are up and it is time to go back and take a look. We have paid them $2 billion and they have not spent it.
My name is Jonathan Krehm and I want to thank you for the opportunity of appearing here today. I am one of the owners of the O'Shanter Development Co Ltd, a family business which manages some 2,800 apartments in Metro Toronto. We have been in residential property management for over 25 years. In our organization I have overseen our rent review department for the last nine years. In that capacity I have acquired experience and some knowledge of Ontario's rent control regime.
The first thing I would like to do is correct some facts or statements made here that are not entirely true. It was stated that in Vancouver there is a serious problem because there has been no betterment of the rental market after ending rent controls. After the end of rent controls in British Columbia, rents in the Vancouver market fell for the three years following the ending of rent controls. This year, the vacancy rate in Vancouver is 2.3%, up from 0.9% in October 1990. The market in BC is functioning properly, and let us not pretend otherwise.
The other thing that was stated is that tenants' rents as a percentage of income have fallen and that tenants' affordability in this province has been deteriorating. For many tenants that is the truth because rent controls or rent review have never addressed the problem of affordability. But CMHC statistics have been kept since the late 1970s that show very clearly that on average tenants now spend 17% of their income on rent as opposed to the 25% they did in 1978.
Mr Cooke has pulled a masterful stroke in presenting this legislation as if it involved concessions to the rental industry. The process set up in this bill is radically different than in previous rent control legislation. This is above all a regime to reduce rents. In theory, a landlord can apply under section 13 of the act for an increase above the guideline. If he or she reads the fine print and understands the mechanism that such an application triggers, what emerges is frightening and unpredictable.
Section 13 unfolds as follows: A landlord may apply for an order increasing the rent by more than the guideline. Such application may be based on an extraordinary increase in municipal property taxes, hydro, water, heating costs, certain eligible capital expenditures or for the cost of a new service consented to by a tenant. Proper notification and explanation are mandatory. Rent increases are to be taken only once every 12 months. All units are to be considered. Then the trap door opens.
"Before making an order on an application under this section, the rent officer shall consider whether the amount of the increase should be limited or the maximum rent reduced because of any of the matters set out in sections 25 or 26, and,
"(a) if the landlord has based the application on section 14, the rent officer shall consider whether the amount of the increase should be limited or the maximum rent reduced because of any of the matters set out in section 24."
When we go to sections 24, 25 and 26, we discover these are the sections which define the grounds for a tenant to make an application to reduce rent as set out in section 23 of the bill. In other words, if a landlord makes an application for a rent increase, he triggers an application for rent reduction. Please note the wording of subsection 13(7), "Before making an order" on an application under section 13, the rent officer "shall consider" whether the rent shall be reduced.
Let us look at these reasons for rent reduction. Sections 24 and 26 are reasonably straightforward. If a landlord experiences an extraordinary cost decrease in taxes or utilities, or if he or she discontinues or reduces a service or facility, the rent may be reduced. However, section 25 is a catch-all. It states, "The tenant may base an application on whether the standard of maintenance or repair of the rental unit or of the whole residential complex is inadequate."
Let us look at these words "inadequate maintenance." What do these two words mean? Perhaps anything one wants them to. Such open criteria will become an incentive for tenants to prevent maintenance being done and for the less scrupulous to vandalize both common areas and even their own apartments. There is extensive evidence that such provisions in other jurisdictions work exactly in this manner.
"The solution is always the same. Sooner or later, someone will come up with the bright idea, `Why don't we let tenants enforce the housing code by giving them power to withhold rent, or even receive permanent rent reductions, if the landlord doesn't maintain his building?' And so, procedures for rent reductions and rent strikes will be formalized.
"What political leaders do not want to acknowledge is that, in both the short and long run, tenants are generally far more interested in not paying rent than in worrying about the overall condition of the building. Tenants will demand rent reductions for the most trivial complaints. Since the rent board is almost always loaded with tenant activists, the whole process soon becomes a kangaroo court. (When Berkeley landlords finally elected one property owner to the rent board, the board decided she was not allowed to vote. Ownership was a `conflict of interest.')
"In Santa Monica, the rent control board has voted such awards as a $35-a-month rent reduction because a tenant's garbage disposal broke down on Friday night and the landlord didn't have it fixed until Monday morning. Another tenant was awarded an $81-a-month reduction because eight of the little rubber prongs on the dishwasher were broken. Still other tenants have gotten $25 rent reductions because the plastic covers on electrical outlets were cracked.
"Finding building code violations soon becomes a sport, one that rich and poor alike can play. The affluent will form committees and comb their buildings with righteous indignation. The poor may just continue to break things out of habit. Either way, the rent reductions mount up. When trivial violations can't be found, it is always possible to create a few. A broken window, a damaged mailbox, a missing smoke alarm -- all may be worth sizeable rent reductions in what becomes known as the `violations game.'"
Section 25 as presently worded creates such uncertainty that no lender who becomes aware of the potential that all rents in any property could be reduced will consider lending in this sector. That includes mortgage renewals also. As a result of Bill 4, most life insurance companies have already entirely ceased to lend in the residential rental sector in Ontario.
I want to stress this point because if I were a lawyer -- I am not a lawyer, but I do know something about residential finance -- and if I were acting for a company lending on an apartment building, I would put a provision in the default provisions on a mortgage now that if a landlord made an application under this bill without first getting the prior consent of the lender, it would be an event of default, because these are not applications to increase rent, they are applications to first reduce rent, and if you go through that maze, maybe you will get an increase on the lower rent.
Under clause 38(2)(d), a landlord who has received a municipal work order may have rent increases stayed or his or her rents reduced after 30 days. This seems to be intended to prevent the appeal of work orders where such appeal rights exist under a municipal bylaw or the Planning Act.
In cases which involve large construction work either for repair or code-required retrofitting, municipal authorities may often be satisfied with work that takes many months or years to complete. The 30-day rent penalty bears no relation to reality. In 1984 our company, O'Shanter Development, undertook what at the time was the largest residential garage restoration in Canada. It cost $1.5 million and took over two years to complete. The city of Toronto was satisfied with the progress at the time. Under Bill 121, no construction financing would be available because rent penalties could be imposed at any time. It seems that Mr Cooke has decided to replace the economic feasibility of maintaining buildings with police action.
I just want to dwell a bit on this, because when we undertook that work it was very new. My brother, who is a civil engineer, spent over a year researching garage restorations, visiting jobs under progress throughout this province and in other jurisdictions. At the time, there had been several big jobs done in Toronto that had totally failed, both in commercial and residential buildings. People spent millions of dollars and it did not work. What you are saying here is that you will not allow something like that to transpire and you will not allow the economic conditions under which one may possibly look at such work. I think you should possibly reconsider this.
The reduction of the guideline increase by 20% for buildings over six units is characteristically malicious and irrational, attributes we have come to expect from this government. Units are not more expensive to run per suite because of the size of the building. The ratio of expense to income is really determined by the rents in the building. In plain English, the lower the rent, the higher your expenses as a percentage of rent are likely to be.
This guideline reduction brings the increase to well below the rate of inflation whenever operating costs rise more than 4%, most if not all the time. I have enclosed a copy of the city of Toronto's Cityhome budget for the next five years for its section 15.1 National Housing Act projects. These are projects that require them to break even. Please note that for the next five years they estimate an average building cost increase of 7.78% and average rent increases to be 8.28%. This is for 1991 through 1995. It is assumed expenses are 50% of rents and that we will be treading water, not drowning. However, precisely those buildings that have affordable rents will be penalized. I would have thought this government that claims to be interested in affordable housing would be concerned about driving just those landlords who do have affordable rents out of business.
For buildings with expense-to-income ratios of 60% and over, there will be rapid deterioration in their financial viability. Real incomes of the reduced guideline sector will shrink. Declaring that a 2% portion of this guideline rent increase will be for capital expenditures is the sort of sophistry that the demagogues in the government party specialize in. We are going to reduce the income of the industry by $30 million to $40 million per year and work that the industry could not afford to do beforehand will now be done. Please tell me how.
In addition, the elimination of appeals, except in points of law, to the courts is offensive to those who have any concept of due process. I do not have time to discuss the search and seizure provisions of sections 113 and 114, something I would be surprised to see happen in a democratic country at all. Or the unworkability of the capital expenditure allowances. Recovering a maximum of 60% of one's costs is not viable.
I did not dwell on the capital expenditures because I would not make any. I cannot go to a financial institution to lend me money when I may be making an application to end up with lower rents, and they would not lend me the money if they understood the situation otherwise, and I would not want them to understand anything but the whole truth. So I do not think there are going to be any applications. If that is what you intend, come out and be straightforward. If you do not want landlords to apply for capital expenditures, come out and set up a system that does not have that in there. Do not pretend there are applications that people cannot make.
Making landlords seek tenants' consent who can then unilaterally withdraw it is simply unfair. Those are the provisions for work done on apartments. You get the tenants' consent to do something, you go out and spend the money and the tenant withdraws his consent and your application disappears. What is the fairness in that? Someone agrees to something, a contractual arrangement, and they have unilateral rights under law to withdraw their consent? What is this? This is not fair ball.
Others, I know, will go over these aspects of this bill in detail. The thinking behind this bill is quite clear: Premier Bob Rae in an interview in the spring of 1989 that appeared in the Federation of Metro Tenants' Associations bulletin stated, "You can't talk about rent review till you talk about the structure of ownership, and that to me is what needs to change in the rental housing field."
In answer to the question, "How do you get the current private rental stock out of the hands of the larger owners?" He responded: "You make it less profitable for people to own it. I would bring in a very rigid, tough system of rent review. There will be a huge squawk from the speculative community, and you say to them, if you're unhappy, we'll buy you out."
These irresponsible, vindictive statements outline a strategy of vandalizing the economic feasibility of over one million apartments with the object of gaining a price advantage that the government cannot even exploit because it does not have the money.
Is this Mr Rae's idea of partnership with the private sector? Please, prove me wrong. Amend subsection 13(7), remove section 25, restore the guideline to its present level and if you really do not believe in private sector rental housing, buy us out.
Mr Mammoliti: Mr Krehm, you sing like a bird. It is fascinating listening to you. One quick question: Have you ever, in your professional life as a landlord, taken the 1% or taken your profit out of your buildings and used it for investment elsewhere?
The Vice-Chair: We will have the next presentation from the Eighth Street Tenants Association, with Jacquie Buncel and Kuldip Battu. Welcome to the committee. As you know, you have 15 minutes to make your presentation. The Chair is forced to cut you off at that point. If you wish to have an opportunity to discuss your presentation with the members, you will have to allocate your time accordingly. If you would introduce yourselves for the purposes of Hansard, that would be appreciated.
Ms Buncel: Good afternoon. My name is Jacquie Buncel and I am a community legal worker with South Etobicoke Community Legal Services. Mr Kuldip Battu is a tenant who lives at 139 Eighth Street. He is involved in the tenant issues in his building.
We are here this afternoon to speak on behalf of the Eighth Street Tenants Association. The Eighth Street Tenants Association is a group of tenants which works to address issues in six buildings which are owned by the same landlord. These buildings are 135, 139, 143 and 147 Eighth Street and 148 and 170 Islington Avenue in Etobicoke. Other tenants from this association wanted to be here this afternoon, but they were unable to take off time from their jobs to come.
I am going to spend the next few minutes telling you about the problems which the people who live in these buildings have suffered under the current rent review system. I am also going to tell you about why we feel the new proposed Rent Control Act will prevent some of these abuses from happening in the future but will not address all the problems these tenants have experienced. Then Mr Battu will tell you something about his experience of living in these buildings.
South Etobicoke Community Legal Services is a community legal clinic which provides legal assistance to low-income individuals in the south Etobicoke area. We work with tenants and tenants associations and one of the tenants groups which we have been involved with for several years is the Eighth Street Tenants Association. Our clinic has represented these buildings in rent review cases in the past and we are currently representing them in a rent review case on their 1989 and 1990 rents.
The buildings which this association represents consist of about 240 units. The tenants who live there are low-income people who come from diverse multicultural and multiracial backgrounds. Many are new to Canada and many have limited ability in the English language.
Under the current rent review system, the landlord of these buildings was able to increase the rent over 30% in a two-year period. In 1989, the rent review office of the Ministry of Housing approved a 12% increase to cover his financial loss. Then the landlord applied for a 27% increase to cover capital expenditures involved in carrying out renovations to the buildings. These renovations included replacing windows, painting hallways, installing hall carpets, light fixtures and fire extinguishers and replacing the roof. No repairs were carried out inside the apartments of the tenants. For this, rent review approved a 21.7% increase for 1990. He also applied to rent review for another increase in 1991. Fortunately, his application for this increase was stayed by the introduction of Bill 4.
In the fall of 1990, when their 1989 and 1990 rent review orders came out, the tenants living in these buildings found that they owed over $1,000 in rent arrears due to these increases. They are angry because even with these increases the landlord is still not maintaining their apartments in conditions that are fit for habitation.
Many tenants are forced to buy their own fridge and stove because the landlord will not supply them. Many tenants have to endure flooding in their apartments because the landlord refuses to address the need for repairs to the drainage system of the buildings. There are also problems with cockroaches and mice.
The tenants are concerned that while the new proposed rent control law, Bill 121, will provide them with some protection in the future from such extreme abuses of the rent review system, it will not go far enough in maintaining the affordability of their units or ensuring solutions to the problems of inadequate maintenance and repairs.
Another element of the proposed bill which will help them in the future is the provision that financial or economic loss cannot be passed through to the tenants in rent increases. They will also not have to pay if their landlord applies for the equalization of similar units in the building, hardship relief or below-market rents. However, under the new proposed law many tenants will have to pay increases of 8% to 10% year after year in the future. Their rents will continue to rise above the inflation rate, exceeding their wage increases. As long as rents are allowed to increase faster than the incomes of tenants, the affordability of rental housing will continue to be eroded.
While the proposed rent control law attempts to limit capital expenditures which can be passed through to tenants to necessary expenditures, this definition is lengthy and includes items which should be construed as operating costs. The definition in section 15 of eligible capital expenditures is loosely worded and would include expenditures such as driveways, brickwork, electrical wiring and fixtures, plumbing, windows, doors, painting, elevators, worn carpets, drywall, roofing, energy-efficient appliances and other similar expenditures.
These are many of the capital expenditures which were approved by rent review for the Eighth Street and Islington Avenue buildings. Thus the tenants could be forced again to bear the financial costs of capital expenditures which did not benefit their units directly and which should be part of the landlord's ongoing maintenance and repairs.
Landlords are allowed a 2% allowance within the annual guideline to be spent on capital expenditures. Landlords should have to account for this that they have spent the money they have collected on capital expenditures for the past seven years, which is the length of time they are required to keep records for income tax purposes, when they apply to rent review in a future year for any increase based on capital expenditures.
Another aspect of the proposed law which might work to the disadvantage of the tenants of the Eighth Street buildings is the provision for rent increases if a tenant in a particular unit consents to a capital expenditure which would affect his or her unit. Landlords might pressure tenants to make these agreements and discriminate against tenants who would not agree to this expenditure, especially for tenants, like many of those in these buildings, who are new to Canada and whose knowledge of the English language might be limited. The potential for landlords to abuse this provision is enormous.
Finally, the proposed law does not go far enough in dealing with the serious problem of inadequate maintenance and repairs. For the Eighth Street tenants, maintenance problems are a paramount concern, as Mr Battu will be telling you. The existing system of municipal health and property inspectors is completely inadequate in getting action on maintenance and repairs. There is no long-term action from city inspectors to deal with the concerns of tenants in these buildings.
The proposed rent control law does not address the inability of many tenants to have local housing standard bylaws enforced and to get work orders issued. In addition, there are many opportunities for long delays in the rent penalty process that is being proposed.
Recently I have paid more than $1,000 of arrears for my rent review. This is from 1989 onwards. I went to India last year in September and there I got my leg fractured. I came back in January and then I was asked to pay more than $1,000 on that capital expenditure.
Recently I have been to one the meetings for capital expenditure and there I saw he had charged for carpeting. He installed some carpet. There was no necessity for this expenditure because this carpet was not required. Whatever he charged -- about $77,000 just for carpeting -- if anybody were to go and see it, it is of such poor quality that I think it cost less than $3 a yard. Nobody there questioned whether the carpet actually cost so much or whether the quality asked for in the contract was there or not. Nobody is to verify that. Kids make it more dirty. Previously a sweeper, a cleaner was there. He used to clean the floor. Now nobody comes to clean the floor. It is so dirty now.
For roof replacement he has charged I do not know how many hundred thousand dollars. There is a difference between roof replacement and roof repair. He has charged for roof replacement. He has put it there. The wording is twisted -- "roof replacement" and not "roof repair." No roof replacement was done.
Before these expenditures are incurred, who looks at whether these repairs are required or not? Only the landlord and the contractor. Whether the thing is worth so much or not, the bills are simply produced and cheques are made and they confirm that, "Yes, this is done," when actually the job is not done. Who confirms how the payments are being made? I do not know.
He has said that some doors are to be replaced. They are to be installed, not replaced -- new doors, security doors. I have been paying for those doors since 1989 and so far, no instalment of doors has been done. I am paying for that. Who confirmed it? No one. Simply, he produces a bill at rent review and says that these things are there and that he made the cheque payments on them. How, I cannot understand.
Similarly, he charged for the fire extinguishers. Fire extinguishers are not placed in all the buildings; 10% are not there. If there is a fire in the building, it will be due to the electrical connections, because this building has only two-prong connectors, not three. I buy a fan, a refrigerator, a VCR or a TV; how am I to connect these things? I cannot do that. When I go to the market and say, "All right, I want this thing," they say, "You can take an extension," but it is illegal. If there is a short circuit, or something happens, who is responsible for that? These things are not looked into.
He is spending so much money for renovations. There was no necessity to replace the windows. They were very good windows. He says he has to do this and he says there is plastering and some painting to be done outside. Inside he is not doing any painting. I have been there for the last 10 years and no painting has been done -- never -- and he says outside painting has to be done. He says it is done, but it is not done. It is still incomplete. The payments have been made and I have paid for that. Then about security with our doors, he says all the tenants are to purchase these keys. They have to go to that particular shop and get the keys made. That time I got the keys made. A key cost $14. He said, "How many of you are there?" I said myself and my wife. He said, "All right, but just two keys"; $28 of no use; they are simply lying there. The doors have not been installed. This was one and a half years back.
Regarding this, I have seen in the guideline that they say repairs. There are some procedures laid down. They say you report to the landlord or the superintendent and then if he does not complete your job order, you report to the building inspector. If he does not take care of it, then report to the authorities and all that. I do not know that, there is no pollution there. If some immediate repairs are done, what is to be done? These appliances he has supplied, I do not know how long ago they were purchased, about 110 years, but they are useless. Suppose something goes wrong with the fridge and I keep on reporting to the superintendent and then to this inspector and it takes 15 days. The job is not done. How will I keep all my things there?
Mr Tilson: The comment was made that incomes are not keeping up with rents. I challenge you on that, because if you look, figures that were given by CMHC for the last ten years have indicated quite the contrary. From 1979 to 1987, the average annual percentage increase in income was 7.4% and for rents for a two-bedroom apartment was 7.4%. It was the same. For 1987 to 1989, the average annual percentage change in income was 10%, with the average annual increase for rent dipping to 6.5%. For the ten-year period of 1979 to 1989, the average annual percentage change in income was 7.9% and the average annual percentage increase in rents was 7.2%. I suggest that you check your facts with respect to that information because those are figures that have come from Canada Mortgage and Housing Corporation.
Ms Buncel: -- and rent increases, but from my experience in working in our clinic, I would like to point out to you that the most common problem we deal with is economic evictions, and that is for tenants who cannot afford to pay their rent mainly because they have had a very large rent review order placed on them and they cannot pay the retroactive rent arrears.
Mr Tilson: Mr Chairman, I would like to speak on a point of order. I am having a lot of difficulty with the procedure that is being followed this afternoon. We are here to listen to delegations. We are here to listen to what individuals have to say. We are here to ask questions of clarification. Perhaps I may say something and a delegation may say, "No, you are wrong," and correct me. We are here to ask questions of clarification.
It may well be that we do not understand what an individual is saying. We are here for a large number of reasons. This afternoon either there are no questions being allowed, or one party at a time is being allowed to ask questions. It is totally wrong and unfair and is becoming a mockery, as far as these proceedings are concerned, as to what this committee is going to be able to develop as a recommendation to the Legislature. We will not be able to properly prepare a report simply by sitting here and listening to delegations without being allowed to question them and ask questions of clarification. I am asking members of the committee to revise the procedure. We have set 15 minutes for each delegation, but surely to goodness each party can ask at least one question of a delegation.
Mr Mahoney: If we take time to debate this now, we are just going to be further in a jackpot. I suggest we finish the day's proceedings, as unacceptable as they are to me as well, on the basis that we have been functioning, or not functioning, and that the steering committee look at some way to review this process. Obviously the solution is more time.
Ms Harrington: I just want to comment on behalf of the party. I was talking to Ms Poole outside and we both have this problem that we are not satisfied with the proceedings, although I must recall to everyone that it was this committee that decided 15 minutes per presenter was adequate, having had 20 minutes before in February -- 10 for the presentation, 10 for questions for individuals. We are going to have to find another way of doing this and I hope the subcommittee can do it.
The Vice-Chair: As you are aware, the Chair is at the direction of the committee. If it is acceptable, we may discuss it at the end of the day. We still have five presenters who need to be heard before 6 o'clock and I suggest we follow what I see to be a consensus, the same pattern for today and have it discussed later.
The Vice-Chair: The next presenter will be Fred Sukdeo. Good afternoon, sir. You have been here for a bit, I think, so you have seen the way the committee has proceeded. You have 15 minutes to make your presentation. You can use that time as you will. If there is some time left, the members have an opportunity to discuss your presentation with you.
Mr Sukdeo: I am happy to have the opportunity to present some thoughts on this very important bill. I wish to remind members that housing, by United Nations charter, is a right and not a privilege and as such any government that really represents the electorate has to take those requirements into consideration.
I wish to bring to your attention that the function of rent has its supply and demand ramifications, and that the price mechanism we identify, or which is being identified in the society, is a result of the market economy which has its own equilibrium based on market forces. Any extenuating circumstance within the society or within the economy can very well shift the equilibrium of the price, whereby the whole concept of rents and rental norms can be amended.
In order to stabilize what can be the skewedness of any shift in the rental parameters, it is important for a state to intervene. If you were to take the Keynesian model of state intervention, or the neo-Keynesian model, you would find that it is important to fix certain norms where there are parameters of maximum and minimum. In this particular case, the present government is the determinator in fixing a norm.
One has to take into consideration that this government was elected by the people of this province and has a very clear mandate to ensure that rents have certain levels. It must reach levels which are commensurate with the affordability of people, and obviously the government has to take into consideration that there are many cross-sections of the population that are subject to rent increases. Averages obviously are very important, and I have heard the figures which have been given. We know how averages are built up. Consequently, we must be aware of the fact that the vast majority of the population of this province are tenants, a very substantial proportion. You have the figures. These tenants have been subject to rapacious landlords who have been exploiting them over time, without the consequences of understanding what that does to the total economy.
I wish to advise you that we must take into consideration, from the standpoint of the landlords, what their requirements are. A landlord as a business person, and like any other business person expects something from his investment. If he is a landlord and he takes his money to spend, he is no different from any other investor. In the case of housing, the landlord expects to have an adequate return on his investment, whether that rate of return is 5% or 10%, and we can argue over that, but he ensures he wants that.
Second, the landlord is interested in preserving the structure of his building so it will not deteriorate as an asset. This leads to the other point, that at the time of sale he must have a reasonable return on his investment. His property must be intact. The amortization of the property must not be in such a way that he is going to lose in the long run.
Finally, the landlord, if he is a good landlord, will use his asset as collateral to acquire further capital for investment. This is very important. Many landlords are doing this, particularly the big landlords. They are using their properties and getting further loans and this is not reflected at all in their incomes or in their statements.
If we were to build an econometric model, taking these factors into consideration, and we tried to quantify the inputs that go into these variables, one would find there is evidence that the rental increase should hover around an average of the inflation rate for about three years. This brings us to the point about the average of 4% to 6% in Ontario.
One also has to be circumspect as far as the rental economics of landlords is concerned. They ought to be entitled to rent increases to circumvent any extenuating capital costs, and the bill makes provision for that. However, such capital costs ought not to be a burden on the existing or new tenants, but should be spread over time. There are techniques whereby this can be done.
I wish to make a few comments on the part of the tenants and see what are their rights and obligations. Tenants are expected to pay rent. Nothing is free in this society. Not even our OHIP is free. We pay for it from our taxes. Even our air is not free and cheap. Tenants have to understand that they must pay their rent and that they should put themselves in such a position as to budget their norms, their incomes, to pay for the costs. Prices are not static. Tenants must understand that. All prices are going up. We can hardly think about any commodity or service which has remained static over, say, 5 or 10 years, and therefore tenants have to be prepared to pay. Nothing should be frozen. They must understand they are living in the business world and must put their economics right.
They should also have the right, in most circumstances, to appeal the rent increases. I think this is where the crux of the matter really is. Tenants are not worried about rent increases. They want to pay. They will pay because they know there is an inherent cost factor to living. What is very worrying to tenants is the question of what we call the escalating, rapacious increases.
Therefore I wish to make my final comments on some other factors that the state ought to be concerned about in order to influence supply and demand. If the situation were to be left with the market economy as it stands without the intervention of the state, as I call it in Keynesian economics, we would continue to have the situation where there would be a skewed relationship between supply and demand. Hence price would have its wide range of variations. So the state has to take into consideration its methods and policies to influence the supply of housing stock by incentives to builders, by incentives to renters to acquire a home, and perhaps to reconsider the situation whereby interest on mortgages can be deducted from income tax as an incentive for people to own their own homes.
Finally, I wish to advise you that this is a highly immigrant society and the problems of immigrants are very many, particularly where this one cost, housing, is in their budget. They are here, they are building Canada, and like all immigrants of the past they are having enormous difficulties with these very high rent increases. Your committee ought to address itself to see what it is, as the minority in the scale of affording housing, because these immigrants who are here over five or 10 years do not commit any capital. They are making life all from the beginning, are working hard, and this particular item is taking a substantial proportion of their net income.
Mr Turnbull: The comment was that an owner should have a reasonable return on investment, and you were a little vague. You said "be it 5% or 10%." If you were to take the component of return that you anticipate through year-over-year operations, and you also alluded to a reasonable return on disposition of the property, what sort of measure would you use? Would you use something a point above a bond? There is risk involved, and clearly in my book you need to make more where there is risk than putting it into a Bank of Canada bond. What would your assessment of that return be?
Mr Turnbull: This is a very imprecise discussion, but I just want to get a feeling from you. What sort of return over the normal lifetime -- let us choose arbitrarily 10 years' ownership of a building. What sort of return on average would you anticipate, annualized?
Mr Sukdeo: I think again it depends on the kinds of investment we talk about. Ten years obviously is a different kettle of fish, than if you are talking about property that is 20 years old or five years. Not only that, it also depends on what has been the purchase price and the circumstance of the building, because there are certain investors who may have a good deal. Others may not have a good deal, and therefore they will have to set their norms, their investment ratios commensurate with those objective conditions of the investment. Hence I will have difficulty in giving you a precise figure of 5% or 10%, which you are trying to elicit from me.
Mr Mammoliti: Mr Sukdeo, I appreciate your coming down. I notice there is no organization or anything beside your name. Perhaps you could just let us know whether or not you are representing a whole group of people or a community of some sort. That is the first question.
Mr Sukdeo: Indeed I do represent a community organization in the Jane-Finch area, where I do reside. It is called Guyana Canadian Association. You may wish to know that Guyana supplies the seventh largest source of immigrants to Canada, most of whom are residing in Toronto. I am very much aware of their circumstances and their experiences; hence, I give you a feeling of what their feelings are.
Mr Mammoliti: The second question I have is on your particular opinion on our bill, on our legislation. Do you think, in your opinion, it is a move in the right direction? Are your tenants happy with this piece of legislation?
Mr Sukdeo: Certainly the tenants are very happy with it. They think the bill, as it stands, is a good bill. There are certain deficiencies. I think I heard of some from the last speakers, but generally speaking, feelings are important. The principle is it should be hovering around the inflation rate. I think this is what people are saying, that we want to pay our rent increases, but we want to pay it around the inflation rate. That is the point I think is very important.
Mr Logan: I thought each of you would have received a copy of my original submission. I understand from Ms Deller that this has not happened, but it will happen today. You will receive not only a copy of my original presentation, but a copy of this presentation today.
My argument is fairly simple and straightforward. The purposes for calculating rent increases, the length of time a capital expenditure will last is unrealistically short. Or to say it another way, the capital item lasts much longer than the period used to calculate how much the rent should go up in order to recover the money spent for the capital item. This results in the tenants paying rent increases two, three, four times and more the amount needed to compensate the landlord for capital improvements to his building.
Let me cite a few examples. The drop ceiling is supposed to last 10 years. What can go wrong with a drop ceiling? It just sits there, or rather, hangs there. Nobody walks on it. Nobody touches it. In my building, it lasted over 20 years and was recently replaced. The new one, it is claimed, will have to be replaced again in another 10 years. The owner paid $62,000 for the drop ceilings to be replaced. If these ceilings last for 20 years, he will receive $219,000 in rent increases from his tenants.
The corridor drywall, it is claimed, will have to be completely replaced in 10 years. Can you believe it? All the walls in all the corridors in a 20-storey building will have to be torn out and new drywall installed in just 10 years' time. Why? What is going to happen to it? It is not going to collapse like a wet rag. With proper maintenance for the odd gouge by a shopping cart, it will probably last as long as the building. The plaster walls, which are not nearly as durable as drywall, lasted over 20 years and did not need to be replaced when they were recently covered over with the drywall on all 20 floors. The owner paid $155,000. He will recover about $550,000 in rent increases.
Then we have corridor lighting fixtures. They are similar to the one in my washroom, about three and a half feet long with a fluorescent tube inside a plastic cover. The fixtures they replaced lasted since the building was new, about 25 years. The new ones will need to be replaced in just 10 years according to the owner. I kid you not. That is what he claimed, according to his submission for rent increases.
We all know these fixtures will be like new in 10 years. There is nothing to go wrong. Just feed them a fluorescent tube every month or so and there will be no complaints. But there is one thing that will not change, the rent increase. Even though the owner recovered his capital cost in the first 10 years, the rent increases will go on in years 11, 12, 13, up to year 20 and beyond, as long as the fixtures last. That is the unfair part of the rent increase.
Before I deal with this excess rent increase and what it amounts to, I have one last example to present to you: corridor broadloom. When it was replaced recently, it had been down since the building was new, 25 years. Do you know how long this broadloom is expected to last? Five years. Of course, you and I and everyone else living in the real world know it will last much longer, but in the meantime, the increase that was allowed to cover the replacement cost will go on and on and on for maybe 20-plus years. If it lasts 20 years, as was the case the last time, do you know how much the tenants will have paid in rent increases on this one item alone? Seven hundred and thirty-seven thousand dollars, nearly three quarters of a million dollars on an item that cost $136,000.
As a matter of fact, on just these four items, if they last 20 years instead of the period used to calculate the rent increase, the tenants will have paid nearly $1.75 million to the landlord on items that cost him $419,000, an excess of $1,309,000 paid to him at the expense of the tenants.
In my original paper, a copy of which you now have, I set out in detail the first year's list of 24 capital projects, what each one cost and the amount that could be recovered in rent increases. Over a three-year period there were a total of 42 projects completed before the present government brought a halt to the rebuilding rampage in our building. The projects dealt with earlier were just four of these 42. Now these 42 projects, according to the owner, cost a total of $5,446,000. He stands to recover, through rent increases, in excess of $15 million, or $10 million more than it cost him.
We need to bring sanity into the way we calculate rent increases to cover legitimate capital expenditures. In other words, we have to make sure the calculation reflects the length of time the capital item will really last, and we must make sure the expenditure is needed in the first place. If these two items were done, no one could reasonably object to an owner recovering his costs through rent increases.
If a capital outlay is amortized over 10 years for rent increase purposes and it lasts only 10 years, there could be no argument. The outlay has been properly recovered, no underrecovery, no overrecovery. This is fair to both parties, the owner and the tenant. But an argument will develop and unfairness will result when it can be shown that the same item previously lasted half as long again or twice as long as it is now claimed it will last.
I would like to suggest an alternative better way. Allow the present method of life expectancy to stand, but discontinue the amount of the rent increase at the end of the amortization period. This would be simple and straightforward. We know the amount the rent was increased in the first calculation. If at the end of the life expectancy the item does not require to be replaced, decrease the rent by the same amount as it was increased in the first instance. In this way the owner would recover his capital outlays in the period of years he used in his rent increase calculation, and the tenant would get relief if the item lasted longer than expected.
Ms Poole: Mr Logan, I think you have outlined for members very well the situation as it now stands and as it will stand under the current legislation. During the Bill 4 hearings I introduced an amendment on behalf of the Liberal caucus which dealt with costs no longer borne, which is basically what you are talking about here.
Ms Poole: That is right. Needless to say, my amendment did not go through, but at any rate I feel quite strongly as you do that once the costs are paid for -- and the landlord should receive reasonable reimbursement for those costs -- the tenant should not go on paying for them in perpetuity.
Ms Poole: That is my feeling. That is why I put the amendment forward. The government has said it is willing to be more reasonable and a little more flexible on Bill 121 as far as amendments are concerned, but if you wish you can use 30 seconds of my time to ask the government members -- who promised at the time of Bill 4 that they would consider it with the long-term legislation -- if they are going to consider it.
Ms Harrington: I would like to thank you very much for this very clear explanation of what is going on. It is something we were discussing this morning and I do not think the message got across. I have discussed it at length with various tenant groups across Ontario, or they have explained it to me, the way that increases in rent, the 2% that we were talking about, or the 1% that has been in the bill, are compounding and growing every year. There is this vast amount of money that should be put into repairs.
Ms Harrington: The opposition party keeps saying, or the Conservative Party in particular, "Where is the money going to come from for repairs?" and you have explained it, I think, a lot better than even our staff seem to have done. But we will keep at this. We will explain where the money is coming from for capital repairs, just as you have done.
Now you have said, "Make sure the calculation reflects the length of time the capital item will really last," and I think you have a very good point. You have also said we must be sure the expenditure is needed.
Mr Logan: I want to go beyond that. That was in my presentation in the first instance. I want to go beyond that in what I said at the end of the presentation, which was, Scrub a revision of the period over which the capital item is amortized. Scrub that, because nobody on God's green earth can say with certainty that a ceiling is going to last exactly five years, or exactly 10 years, or exactly anything.
It is nonsensical for us to talk that way. It is easy in legislation affecting income tax, for example, for the government to say, "You in business can amortize your capital expenditures over the period we set down in the legislation," which is different for each item, each type of capital expenditure, as you know. But the government says at the end of that period: "That is the end of the amortization. It is finished. It is done. There is no more left to amortize." So you cannot keep on claiming beyond the five, 10, 15 or 20 years that the item has been amortized.
Mr Logan: You cannot keep on charging it, otherwise the government would be losing tax revenue. What I am saying is, use the same principle. Cut it off at the end of the amortization period that was used in the calculation for a rent increase. It is very simple.
Mr Mammoliti: I just want to say that we have addressed capital expenditure. Ms Poole said something earlier that gave the indication that we did not consider any of her amendments. I would suggest to Ms Poole that we did take all of her amendments under consideration, sir, and that, actually, when we talked about capping, we certainly took that under consideration.
Mr Logan: But why do you not cut it off at the end of the period that the landlord uses in his submission? I do not want to tie the landlord down to five years or 10 years or whatever, but once he has amortized it over that period, why do you not cut it off? You know how much you increase the rent. Just decrease the rent by the same amount. It is very simple.
Mr Latrémouille: Yes, it is. Members of the committee, tonight at midnight, my rent will increase by $42.50 a month for the next 12 months. If my rent were $100 less, the increase would only be $37.10. If my rent were $150 less, the increase would be $34.40. The cost increases which my landlord will face during the next 12 months are not related to the level of my base rent, and yet, for the past 16 years, my rent was increased once a year, not by a fixed amount determined by law, but by a percentage of the base rent in existence on July 29, 1975.
Unfortunately, the equalization of rents -- a measure designed to eliminate gross inequalities in rents for similar apartments -- was twice abolished during these intervening years, first in 1982 by Bill 198, and the second time in 1991 by Bill 4. Now, under Bill 121, there is absolutely no mention of base rent equalization. Only separate charges may be equalized.
If it is fair for my neighbours to pay the same amount for the same parking space, for the same basic cable service, why is it not fair for my neighbours to pay the same amount for the same living space? Yet Bill 121 will entrench this injustice created by Bill 4 earlier this year. As a result of the elimination of equalization, rents for identical apartments in my residential complex have now reached differences of up to $200 a month.
Equalization of rents is not the landlords' ploy to get more rents. Equalization of rents is not a device to gouge the poor or to benefit the rich. Equalization of rents is a measure to correct large differences between rents for similar or identical apartments. These differences have been caused by the rent review system in force in Ontario since 1975. Had all rents been equal then, they would be unequal now because of the idiotic rent review mess created and improved since 1975.
The Rent Review Advisory Committee, RRAC, recognized this and proposed to the government a modified method for equalizing rents in Ontario: a 5% phase-in to soften the blow on tenants paying the lower rents for the same accommodation, one of the few redeeming features of Bill 51. This 5% phase-in was one of the victims of Bill 4, and Bill 121 does not propose to reinstate this reasonable measure. Had I been allowed by your committee to present submissions on Bill 4 earlier this year, I would have given you the petitions from my neighbours adversely affected by Bill 4 and a brief historical overview of the problem of unequal rents for equal apartments. I am told that this forms exhibit 218 in your archives. But the majority of the committee refused to hear me and many others on Bill 4.
Today, I leave you with this thought. The easiest way to eliminate illegal rents in Ontario is to reinstate rent equalization in the context of the whole building review. When you abolished equalization through Bill 4, you made sure that all future rent increases would be based on the existing rents, not necessarily on the lawful rent. Where there is an illegal rent, therefore, a higher rent, the increase shall be greater. But with a phased-in equalization, a higher illegal rent is automatically rolled back over time to the same level as the other lawful rents.
If you care about illegal rents, if you consider that the same accommodation should have the same price, if you are convinced that equalization is revenue-neutral to the landlord, if you consider that, with respect to a given residential complex, equalization makes all rents no more or no less affordable, please amend Bill 121 to bring back equalization.
Mr Tilson: You are obviously emphasizing one particular point, and I think that is something we should spend some time on, because that certainly has been a major complaint during Bill 4, and it remains one. Tenants who have contacted my office have expressed that exact view, that it is simply creates an unfair situation.
They go one step further when they talk to me. I would like to hear your comments on that. In other words, it appears from Bill 121, and any other type of rent control legislation, that there is a uniformity of percentage increases across the province. That is assuming that everything is the same; that everything is the same in the city of Toronto and the city of Windsor and the city of Ottawa, that the financial situation of each individual apartment building is the same, that the landlord is the same, that the tenants are the same, that the age of the building is the same, that the cost of living in each individual municipality is the same, that there are no economically depressed rents, which of course gets back to your area. So my concern is exactly the same as yours, only I go one step further because I look at the overall issue of rent controls. At first blush, tenants will think, "Great, my rents are going to be frozen." Of course they are not, because there are automatic increases. But there are too many inequities. I would like to hear some of your comments. I would like you to go beyond what you have been talking about in your paper, in your presentation, as to the attempt to be uniform around the province, and perhaps the impossibility of the uniformity.
Mr Latrémouille: I am not saying the whole system should be uniform. I am saying what the legislature found to be appropriate when it passed Bill 51; that is, that where there were inequities in rent only because of historical reasons, not because of any other factor, then they proposed the method to eliminate those. Now, assuming that in a given building this has been done, then, yes, in a given city the economic conditions may be different from another one. But we are no longer just speaking of equalization; we are speaking about regional differences from one metropolitan area to another. I do not think the rent review system ever distinguished between a particular location -- as a matter of fact, there was a criticism at the beginning that it was a Toronto problem, and therefore why should it apply to Ontario. The first people who wanted rent review in Ontario were saying, "Just put it in place for Toronto because that is where the biggest problem is." Then people from Ottawa said, "Well, yes, we have a problem too." Finally the government said okay. By the way, if they did that, they might be accused in the courts of passing discriminating legislation, and the courts might strike down the legislation because it is unfair to certain cities. That is part of the answer to your query. There are regional differences, but the Legislature never legislated those differences for fear of having the law declared illegal on the basis that it was discriminatory.
Mr Latrémouille: I am just referring to the inequity created by the system concerning rents for equal or similar or identical apartments. I am not referring to any other inequity that might have arisen through the passage of time since 1975. So I am not discussing the issue that certain units are exempt from rent review, others are not. I did not discuss that at all. If I were to address the issue of whether government should be in the housing business or not, then that is an entirely different discussion.
Mr Tilson: Then dealing with the specific issue you raised, and I am pleased to hear that, because many people come with 1,000 issues, have you any thoughts as to how the government could resolve that?
Mr Latrémouille: I would not be innovating, but it seems that the Bill 51 solution was the closest to being fair. That was a long-term smoothing out of the inequities, not to hit individual tenants unduly, so there was a phase-in, a 5% cap on those increases to make sure nobody would be hit with 40%, 30% increases just by the reason of equalization. That was in Bill 51. There was a new wrinkle added to that: if a tenant applied for equalization, then a landlord had the right to apply to equalize the whole building. That was a new feature of Bill 51, whereas before, if a tenant applied for equalization, then the commission would deal only with that and that would not deal with the entire building. Basically, all I want is a form of equalization to make sure that the $200 difference in existence today in the building where I live for identical apartments -- every month tenants living there at the moment pay rents which are $200 apart for no other reason than the legislation.
Ms Poole: Thank you for your presentation today, and I hope this time you have more luck than last time trying to get the change. We have had several people today who have presented and not understood what equalization meant. They have made a comment which started out something like, "One good thing about Bill 121 is that increases which the landlord could get, such as for equalization, financial loss, depressed rents," they put it in that big long list as though the landlord was going to make more money out of it. Perhaps you could explain for the committee that there is no net gain at all, zero, to the landlord; that it is a matter of, if one tenant is paying $600, and another tenant is paying $400, the rents on the two apartments will be equalized to $500 in that.
Mr Latrémouille: It is extremely difficult for a tenant who is receiving an order that lists all those items to say, "Okay, but this one is revenue neutral whereas the others are not." He or she just looks at the list and says, "I am getting this for that; I am getting that for that; therefore I am paying more." Yes, it is true that equalization is revenue neutral. It is difficult to see in an order because it is part of the order; it is listed as one of the items which the commission or the board or whatever considers, but if it were separated, then maybe tenants would understand it is revenue neutral. They would know that certain rents would be increased less whereas their own is increased a little more because of that. But that is not a gain to the landlord. So, if there was a separate calculation for that, they would immediately see that the landlord is not getting one penny more because of equalization. But the way the question was framed in this consultation document you referred to this morning, the questionnaire, was, "Should landlords be allowed to apply for equalization of rents?" That sounds like, "Should they get more money because of equalization of rents?" Tenants should be allowed to apply for equalization of rents, and it is a revenue neutral measure even then.
Mr Mammoliti: I would like to agree on one of the things that you said, that the rent review system that has been in place for a number of years is no good and has not been any good; it has just been a headache. I agree with you; it has been. The point about equalization is a good point. The problem we have with that is that a lot of arguing goes on. Not that there is not already. Somebody mentioned earlier that our piece of legislation would cause chaos between landlords and tenants. I would say the chaos has been there for years. There have been war zones in some of our buildings for years, and rent review certainly has not done anything for that particular problem. Again, with equalization, the problem is that there is a lot of fighting, not only fighting between landlords and tenants, but tenants and tenants. What I have found over the years as well is that the odd landlord here or there would stick his or her nose into it, and perhaps try to weed out the tenants he or she does not like, perhaps telling that other tenant that this particular person is paying this amount, and that sort of thing. That kind of fighting goes on a lot.
Mr Mammoliti: Yes, it is. The problem again is that there is a lot of fighting and it is pretty hard to address that through equalization. We believe the previous legislation -- what is the matter? Is there something on your head there, Mike? Perhaps a mosquito or something?
Mr Putman: My name is Thomas Putman. I am with Realstar Management. Realstar is a privately owned business whose operations are concentrated in the provision of residential accommodation to more than 14,000 families, most of whom are in Ontario. Realstar has built or invested in buildings in Metropolitan Toronto, Mississauga, Windsor, London, St Thomas, Kitchener, Guelph, Niagara Falls, St Catharines, Collingwood, Barrie, Oshawa, Port Hope, Brockville and Ottawa.
Realstar's business philosophy is simple: the long-term ownership of residential rental properties. I am appearing before you today because of my concern that the proposed Rent Control Act will endanger our long-term philosophy. While I have many concerns with the proposed legislation, I would like to concentrate on three specific issues: capital expenditures, the statutory guideline amount, and the changes to the administrative processes.
With respect to capital expenditures, Realstar has always emphasized the long-term care of its properties. Between 1987 and 1990, Realstar spent over $12 million in capital improvements to maintain and improve the quality of their buildings. In fact, $5 million of those capital repairs have been affected by the retroactive legislative changes of Bill 4. The majority of this work was concrete restoration of our underground garages.
The provisions for the treatment of capital repairs as provided in Bill 121 are inadequate to meet the needs of our tenants. The families who live in our apartments are typical average working Ontarians. They expect their homes will be kept structurally sound, mechanically efficient and cosmetically attractive.
There are many studies on the magnitude of the capital repair program necessary to maintain the integrity of Ontario's rental accommodation. The problem is large. Some estimates place the total at $10 billion. As long-term owners, we are not able to avoid the problem. Capital must be spent on our buildings or our tenants will suffer the consequences of deterioration.
The 3% cap on increases proposed under Bill 121 does not provide sufficient cash flows for us to finance the repairs. Under Bill 51, if an owner were to spend $1 million on a garage repair, as we have done several times, he would receive a $150,000 annual rent increase. The increased cash flow would have serviced the bank loan or mortgage obtained to finance the repairs. Under the proposed Rent Control Act, the cash flow would increase only $62,000 per year, which would only pay half of the financing costs of the $1-million loan.
Realstar has not been able to find a bank or a trust company who will lend us money if we can only make half the payments. The families who live in our buildings rely upon us to do the capital repairs. Bill 121 is telling the tenants that their rent increases will be low, but that major repairs cannot be done. This is simply unacceptable to our tenants and ourselves.
With respect to the annual guideline increase, Bill 51 provided for operating cost increases of two thirds of inflation plus 2%. All capital expenditures were extra. Bill 121 provides for 50% of inflation plus 2% for capital.
I cannot help but remind the government that during the last election it promised that rent increases would be tied to inflation. The Bill 121 formula delivers far less than inflation; 50% of inflation is 50% of an election promise.
The proposed guideline for operating costs is inadequate to offset the increase in costs. One should be reminded that between 1990 and 1991 the inflation rate actually experienced by Realstar in operating costs was 10.5%, due to the GST and higher municipal taxes.
One of our greatest concerns about Bill 121 is the changes to the administrative procedures. Bill 121 eliminates the internal appeal function carried out by the Rent Review Hearings Board. This is a harsh and totally unnecessary elimination of a basic human right. Realstar has found the appeal process to be very important for both us and our tenants in resolving various rent review issues. In our experience, most appeals concern issues of fact and not law. The appeal process has proved to be an effective and cost-efficient alternative to the courts. The limited right of appeal to Divisional Court as provided for by Bill 121 may be considered adequate for a large landlord who can afford the $20,000 legal bill, but it effectively eliminates the appeal rights of small landlords and most tenants.
Bill 121 creates the position of inspectors and provides for broad search and seizure powers. Realstar is very concerned about these changes because they alter the role of the government in the landlord and tenant relationship and we question the long-term viability of the government's approach to rental housing.
In past legislation the government's role has been that of an arbitrator. There was no need for inspections, because the burden of proof remained on the applicants. If a landlord failed to provide proper documentation, the minister issued an award in favour of the tenants. Under Bill 121, the government's role has changed to that of a policeman. Despite the lack of evidence of need for this change in role, the government appears to have abandoned any effort at obtaining compromise between landlords and tenants. Instead of attempting to ease relationships, the government seems intent on creating new conflicts between the parties.
A further comment regarding the creation of inspectors is that a casual observer cannot help but draw the conclusion that if the government feels the need for bigger and better policemen, it must have already reached the conclusion that relationships between landlords and tenants are going to deteriorate in the future. The government in essence has admitted that the long-term effects of Bills 4 and 121 are disastrous and they must arm the bureaucracy to deal with these newly created problems.
A more productive alternative is to amend the legislation and make it workable for both landlords and tenants. To use an analogy, landlords and tenants are like an old married couple. Their marriage may be rocky, but they cannot get a divorce; they are dependent on each other. Landlords and tenants need a marriage counsellor, not a policeman.
In summary, Realstar feels Bill 121 is a harsh and bureaucratic response to the problems of affordable housing. The long-term effects of Bill 121 are socially and economically irresponsible and will inevitably lead to greater intervention by the government in the residential rental industry. This intervention will be harsh for both the tenants, who will see their homes deteriorate, and the taxpayers, who are ultimately going to foot the bill. It is most regrettable that compromise and consensus are so politically unfavourable these days.
First of all, your concern with regard to creating conflict: In the last paragraph here you reiterate it again as being politically unfavourable. That is certainly not the intention. I think it has been stated quite clearly by the minister and the ministry in the last while that we want to see the landlords and tenants, as you say, work together and get a relationship that is a real partnership. It has not been, in many cases. The scales have not been in any way equalized in a relationship where they can talk and understand what is happening. I certainly would like to disagree with you on that point.
I would like to carry forward to the ministry two other things that you mentioned and have it report back to us, because they certainly are legitimate concerns -- if I can remember them now; it is getting rather late in the day.
The first one of course was how you would pay for, for example, an underground garage. That is very important. We intend that repairs be done, and these are necessary repairs. We believe that it is not just the tenants who have to pay; it is the landlord's investment as well and a portion of that cost is from the landlord, from the past years. I do not know exactly where to tell you that money is, but I am saying that a portion of that is your investment as well as the tenants' investment, as well as the programs the government has to provide for necessary repairs. I would like to hear back from the ministry on the financing of those kinds of repairs.
Mr Turnbull: Mr Putman, following on the remarks of Mrs Harrington, there is a built-in assumption being made by her that all landlords are making money out of their buildings. Could you give me a rough guesstimate as to what proportion of landlords, with the size of buildings that you have but not necessarily as many in their portfolio, how many are making substantial amounts of money out of their buildings?
Mr Putman: It depends what you mean by substantial. What I would consider substantial is a 10% rate of return on my money, and I would estimate perhaps 75% or 80% have achieved that kind of profit level.
Mr Turnbull: Here is my problem, and once again I direct it to the fact that I recognize that my colleagues in the NDP, generally speaking, are not from a business background. I want to be able to put it in words that are not my words. I want to try to persuade them of the reality of: If you are making a loss, where do you get this money to fix the garage?
You are saying partly from the tenants, partly from the landlord. If he has already put his life savings into buying a building and he is making a loss, and he bought it not with the expectation of continuing to make a loss but with the expectation of acting within the existing framework which was under Bill 151, for example, and he started doing some capital repairs, the knee-jerk answer is, "Well, if he is not making any money, he has made a bad buy." You compare it with any other real estate investment and on a per-unit basis apartments are cheaper than any other investment, so it is not a bad buy in my estimation. Where would you imagine you would get the money? You alluded to trust companies. Expand on what the trust companies have said to you in terms of financing repairs.
Mr Putman: Right now Realstar is not able to find a bank or a trust company that would finance that kind of repair, and they will not do that simply because the landlord is not able to generate the cash funds to repay the loan.
That completes the hearings that we have scheduled for today, but I understand there are a couple of items of interest that committee members wish to bring forward for discussion. Mr Duignan, you have an item?
Mr Duignan: I would like to bring up the issue about the condition of this room and see if we can get something done about it. As Chairman of the standing committee on the Legislative Assembly, I have brought up this issue before with legislative services to see what can be done about air-conditioning in the committee rooms. They are supposed to monitor this on a fairly regular basis.
I suggest that you as Chairman of this committee and I as Chairman of the Legislative Assembly committee write a joint letter to Barbara Speakman and ask her, as a minimum, at least to put two window units in here and see if that will alleviate some of the problems in this room, or anything else that can help us here.
Ms Poole: They have a big air-conditioner in some of the rooms and we have had to turn it off because the noise gets too much. What they have been able to do is turn it on, get the room cooled down before we go in, and then at lunchtime do it again. At least it provides some relief.
Mr Mammoliti: I have always been a fair person, my whole life. I believe we should be fair in this particular case as well. I know there are five committees going on. There are only two rooms that are air-conditioned. Perhaps we can take turns. We have been in here for three days. Perhaps somebody else can sweat it out for a day and we can enjoy the privilege of cool air tomorrow.
Mr Tilson: Mr Chair, in your absence I asked a question of one of the speakers with respect to the reduced guidelines. It is being alleged, of course, that the reduced guidelines, which are 50% of the building operating cost index, are insufficient. It is being alleged because in most buildings, especially older buildings, the costs exceed 50% of revenue. I wanted to ask the staff if they would have any statistics available to justify this rationale, which is a major change, from the two thirds to the 50%. They may not have that information available now, but if they could make it available.
Ms Parrish: Yes, we do have a report that is fairly recent. It was done by Royal Lepage. It was done for some other reasons, but it does have a chart that shows operating costs over time. We have it right here. If I could give it to the clerk, she can distribute it and we could work with you all the time, so you can ask questions after you have seen the chart. It is right at the beginning.
Mr Drainville: Just a personal note. I know I said it to the Chairman, but the rest of the members of the committee should know that I have been subbing on two committees because cabinet ministers were moved up and there is a bit of a problem, but tomorrow is my last day on the committee. No cheers, please. I will be moving permanently to the select committee on Ontario in Confederation. I just thought the members should know that.
Mr Abel: This concern was brought up a little earlier. It was about the lack of time allowed for questions. I think we all agree that there should be some time set aside to ask questions. We were just wondering if it was possible that the Chair could direct the presenters or instruct the presenters to the fact that they would be allowed 10 minutes to speak and that would leave at least a minute and 40 seconds per party to ask questions. I wonder if we could get unanimous agreement to instruct the Chair to do so.
Clerk of the Committee: You can do that if you like. I just would like to point out to the committee that the instructions I was given to give to the witnesses were that they would be given a 15-minute time allotment and they should reserve some of that time for questions from the committee, which is what I have done. Every witness scheduled has been told that, to reserve some time. Some of them may come with the idea that they are going to speak for 12 minutes and leave three minutes for questions or take up the entire 15 minutes. I just want you to be aware of what the witnesses have been told up to now.
The Chair: If they wish. Not every witness cares to get into that process. They come here to make their presentation and it is all they wish to do. That is why I try to remind every presenter. Mr Brown?
Mr Brown: I was just going to say the same thing. It is very difficult being in this chair and having to restrict people, yet the difficulty is that a lot of these people will presume they had 15 minutes and maybe were going to leave a minute or two. Some people take longer to read their 10-minute brief than they think it is going to. A lot of people would feel uncomfortable if they came here with the idea they were going to speak for 15 minutes and end up being told, "You've got to condense that to 10."
Those may have been fair instructions if we had given them before, but I am uncomfortable with it too. I think there are some points that need to be clarified as we go along, but I do not know what the tradeoff is. I am not sure that at this point we could have the Chair instruct them and it would be fair to the presenter. I think the Chair could make the suggestion they leave five minutes for questions. It would be just a suggestion.
Mr Tilson: I must say I congratulate the clerk for cramming in as many individuals as she has in the list. I do not know how many were left off, but in the number of days that are allotted, I think we are doing very well. Certainly a system similar to what Mr Abel has suggested, with some flexibility, I think -- in your absence, I was the one who started this issue, for the various reasons I think members may want some dialogue to clarify an issue or to simply ask a question. They may not understand what the witness has said. I will not repeat what I said, but certainly I would agree with Mr Abel that, subject to be being flexible on it, I suppose, perhaps the Chair should be directed by the committee to put forward a similar position to what Mr Abel has indicated.
Mr Abel: I think we are working towards a solution to this problem. Considering the circumstances -- I feel we should, yes, certainly be flexible -- could the Chair not make suggestions to the presenters that they should leave some time and maybe put a limit to it? If we say, "Okay, you can have up to a maximum of 12 minutes," that would at least leave one minute per party to get at least one question in, but we would leave it open and say, "If you can leave five, that would be fine," 11 minutes would leave a minute and 20 seconds and so on. I worked out a little chart here, so much for each presentation and so much for each party. Would that not be workable, leaving them the option and saying, "You must complete your presentation after 12 minutes, leaving at least one minute per party"?
The Chair: I can tell you from some of the hand signals that I have been trying to give some of the presenters, they had no intentions of stopping until their brief was finished, and if it took 15 minutes, that is what it took. A couple of times I found myself actually feeling embarrassed. Here I am trying to wave to them and nod, and a couple of people I have had to interrupt in midsentence. I think I should continue the process where, when the witness sits down, I tell them they have the 15 minutes as granted by the committee and if they wish they should refrain from using all the time so that questions and answers can take place. If I do more than that, I think I am interfering with the witness.
Mr Tilson: I would agree. It is a delicate issue, and there may be the odd witness who does not even want to hear from us, and that is fine. Put yourself in the position of the witness. Maybe I am wrong, but the bulk of them would want some indication from the Chair when time is up.
Mr Duignan: On Mr Tilson's point, I agree. We have to work out a compromise here, maybe a suggestion of saying they have up to 15 minutes to make the presentation; however, we would suggest that, "If you could limit your presentation to 10 minutes, that would leave five minutes for members to ask you questions, if you so wish," something along those lines. They may choose to not exercise that option.