Brendon is owner and operator of SMAK Healthy Foods.
The 30 Percent Solution: How to prevent mass evictions now looming on the horizon in the City of Vancouver
There is a looming crisis in the Vancouver rental market.
Many renters, having lost all or most of their incomes in recent weeks, are going to have a hard time paying rent. This is in spite of the recent policy measures that have provided temporary financial assistance to renters.
For many renters in expensive housing markets like Vancouver, the financial assistance is not enough to cover their rent and leave enough disposable income for other necessities.
In the absence of further policy action, then, an explosion of evictions is likely when the “emergency” period is declared over and evictions are allowed again. Thousands of renters will likely lose their homes, as landlords move to evict those who have fallen behind on rent.
Deferred rent arrangements, while a possible solution for some, will simply overwhelm most renters’ finances, especially in light of the sharp economic slowdown that is now unfolding.
Young adults are especially vulnerable, as they comprise the majority of renters.
To prevent an evictions crisis, therefore, a policy plan needs to be established now, without delay.
Such a plan must share the burdens of our current crisis fairly, heaping pain neither entirely on renters nor entirely on landlords. Each side will have to accept losses in the current situation, so that we can find a middle way between righteous calls for a “rent strike” and the unsympathetic position of some landlords, who demand full rent payment on pain of eviction.
With this in mind, the policy plan I put forward is based on a set of principles and assumptions, as noted below*:
The current situation (April 22, 2020):
Canada Emergency Response Benefits (CERB) grant $2,000/month to individuals for four months.
BC Rent subsidy of $300-$500 for the majority of BC renters is in place for three months.
The B.C. government has banned evictions until the State of Emergency has been lifted.
A third of all tenants are currently unable to pay rent in full, approximately 48,000 in the City of Vancouver. This number can be expected to increase with each passing month as savings disappear and lines of credit reach their limits. This data is based on a LandlordBC survey of Apr 2020. It shows that 64% of rents were collected in full on Apr 1. A City of Vancouver survey shows that 63% of its residents expect to pay rent in full on May 1.
The most vulnerable renters are those who qualify for CERB, but do not qualify for the BC Rent Subsidy and whose rents are over $600/month for individuals, or over $1,200/month for couples and families. (The average rent for a single bedroom suite in the City of Vancouver is $2,006.)
Across BC, there could be upwards of 142,000 rental units facing a rent deficit on May 1, nearly 50,000 in the City of Vancouver alone. This is a huge number of individuals and families vulnerable to unprecedented housing insecurities.
The 30 Percent Solution
Given what has been said, the burden of rent deficits by Covid, should be shared by renters and landlords. Not all of the burden should fall on landlords.
Moving forward during Covid, renters will pay 30%-50% of current income in rent, with BC Rent subsidy added on top, directly to their landlords. In many cases this will not lead to full payments, that deficit will then be borne by the landlord.
In City of Vancouver, an expected 37% of renter households will be unable to pay their full rent in May, which is 48,470 households.
Income is inclusive of CERB. Typically, landlord looks at rent agreement based on wages when agreement was signed.
There are two models, to introduce ranges:
Model 1: All renters shall pay 30% of current income plus subsidy, so long as that amount does not exceed the rent owing. In this case, most individual renters will have $900 of their rent paid by governments, up to $1700 for households with children under 18.
Model 2: 50% of current income, plus any rent subsidy, so long as rent doesn’t not exceed current owing. This might be justified on the grounds that:
A- typically rent is a high proportion of income in Metro Vancouver, often more than 50%.
B- given current social distancing guidelines, current spending patters will be less during the pandemic ie: this frees up some income that could be redirected from consumption activities to rent.
In this case, most individual renters will have $1300 of their rent paid by governments, up to $2500 for households with children under 18.
Reasonable people will differ between these two options. It will be up to policy makers and discussion to see where policy lands.
Using this range, we estimate the rough amount of money that the renters will owe, in a variety of situations, and the amount of rents that landlords will receive. Renters could then plan their finances accordingly, as could landlords.
In this modeling, an individual who was making $50,000 in 2019, with no dependants, would pay their landlords $900 per month in rent; at 50% that would be $1300. In that circumstance, that would provide for that renter, between $1000-$1400 a per month in disposable income.
Next Steps
1- Landlord and tenant organizations need to agree that this is a fair way through the current impasse.
2- These conditions need to be legislated as amendments to the B.C. Residential Tenancy Act.
3- CRA data needs to be made accessible to ensure tenants are transparent about CERB and other relief payments they are receiving.
4- The B.C Ministry of Municipal Affairs has to determine how long the 30% solution will be in effect.
Rent Relief Bank
The B.C. Ministry of Municipal Affairs and Housing needs to set up a Rent Relief Bank for marginal landlords, paired with grants and continued programs for tax relief and mortgage deferrals now being made available to homeowners. These funds will be made available for landlords who are unable to secure financing by other means.
The estimated funding required for the Rent Relief Bank: $5.8 million per month would cover the rent deficits of all non-corporate landlords in the City of Vancouver. This estimate is based on 30% of income as rent payment. It is not expected that corporate landlords will require access to a Rent Relief Bank to secure financing.
Conclusion:
These are unprecedented times. Next to food, housing security is vital for peoples’ sense safety and security — and our eventual return to a sustainable economy. These measures will ease the transition from today’s trauma to tomorrow’s healing, fairly allocating some unavoidable losses that now face us.
The 30% solution provides a template for stabilizing the rental market ecosystem in Vancouver and beyond. The 30% Solution can provide a template for anywhere that has a current “evictions ban.” A vigorous debate about this policy option is urgently needed.
Assumptions:
- We’re all in this together: both tenants and landlords have to be prepared to share losses driven by forces outside their control.
- “All or nothing” is not feasible. Rent Strikes are both unlikely and could entail significant damage to both renters and landlords. While it is also unrealistic to expect renters to pay all rent that is due.
- The current evictions ban is in place until the State of Emergency is lifted.
- Most tenants will not be able to pay the accumulated deferred rent when the eviction restriction ends, or even pay rent in full in the near future due to downturns in jobs and revenue opportunities.
- Any renters evicted for not being able to pay their rent will crowd the market for cheaper rentals, squeezing out those with lower incomes who are already struggling to keep their homes. Increased homelessness would seem inevitable.
- Affordable housing is defined as housing that does not cost more than 30% of a household’s gross income
- Government guidance and regulation is necessary: requiring individual negotiations between every tenant and their landlord is fraught with difficulties, costs, complications, excruciating uncertainties and unfairness — there are 131,00 rental households in Vancouver.
- Governments cannot realistically be expected to pay all tenants enough to cover all their rent in full.
- Almost all landlords in B.C. have accumulated significant capital gains from property value appreciation, especially in the last five years, even accounting for the current downturn. Typically they have access to equity and wealth not available to tenants.
- Some landlords will need assistance, a Rent Relief Bank to survive on significantly reduced rental incomes. It’s quite likely that many of these will be recent arrivals in the housing market, typically younger adults and their families.
