Why big Halifax landlords are reporting average rent increases above N.S. cap

It’s been three years since Nova Scotia imposed a two per cent rent cap, yet rents have been rising faster than they have in decades. 

Examining the public financial records of some of Halifax’s largest landlords — companies that own buildings like the Park Victoria Apartments and Quinpool Towers — sheds some light on why that is.

Since the rent cap was implemented in November 2020, two of these companies have reported year-over-year average rent increases in the municipality that were higher than the two per cent threshold.

Killam Apartment REIT (Killam) reported an average rent of $1,324 for its Halifax rental units in September, which was 4.3 per cent higher compared to the previous year. That’s according to the company’s management discussion report, which was released in November.

Meanwhile, Canadian Apartment Properties REIT (CAPREIT) reported an eight per cent increase over that same time, with average rent in the municipality rising from $1,380 to $1,490.

Killam CEO Philip Fraser told CBC News in September that while people renewing their leases have received increases within the cap, the company’s average has been pushed over the cap because they’re able to boost rent to the “market” rate on units when new tenants move in. Nova Scotia’s rent cap doesn’t apply in that situation.

Fraser said about 22 per cent of the company’s units in Halifax saw turnover to new tenants in 2022, and Killam increases rents to the market rate because it is dealing with expenses like oil and gas costs that are “increasing way faster than we’ve ever seen.”

Nationally, Killam reported a 15 per cent increase in rents on units that turned over during the first nine months of 2023, while CAPREIT reported a 27 per cent increase. 

Of the roughly 19,000 units Killam owns across Canada, 30 per cent are in Halifax. It’s the largest owner of apartments in the municipality, Fraser said. Meanwhile CAPREIT’s Halifax units make up over seven per cent of the roughly 45,000 units it owns across Canada. 

As rents continue to climb in Halifax and across Canada, the “financialization” of housing — the idea that it’s treated as a financial commodity by for-profit companies — has received more scrutiny in recent years among some housing advocates and academic researchers as one of the contributing factors. But some housing rental companies have pushed back against that claim. 

To examine the influence of some of the largest landlords in the municipality, CBC News interviewed people who work in the industry, analyzed the companies’ public financial records and listened in on their quarterly earnings calls — where executives answered questions from industry analysts about their latest financial results.

An impending change to the rent cap was discussed during Killam’s August earnings call. Starting next year, landlords will be able to increase rent by five per cent for tenants who are renewing their leases. 

During the call, chief financial officer Dale Noseworthy said she doesn’t think the cap increase will bring rents close to their market value. Because of that, the company will “continue to see lots of opportunity” on turnover apartment units “even after … we get that five per cent bump,” she said.

The financialization of housing

In Ottawa, a parliamentary committee recently looked into the financialization of the housing industry, and it’s a topic Canada’s housing and homelessness watchdog has studied. 

While presenting to the parliamentary committee in May, federal housing advocate Marie‑Josée Houle said housing in Canada is increasingly owned by large corporations and financial firms who “raise the price of rental units to extract maximum profits” and that’s violating people’s right to adequate housing. 

She identified pension and private equity funds, asset managers and real estate investment trusts (REITs) as the main “actors” when it comes to financialization. REITs are companies which often own, operate and develop real estate. Killam and CAPREIT are examples of publicly traded REITs.

Neil Lovitt, a vice-president with consultancy Turner Drake, said real estate investors now expect higher future returns on investment because the housing shortage in the province is making real estate more valuable.

For the first nine months of 2023, Killam reported $45 million in net operating income — or revenues made after subtracting the operating expenses of a building — across its apartment properties in Halifax, while CAPREIT reported over $27 million.

Fraser said housing is the largest source of wealth most people have. “It is for-profit, there’s no other way to sort of talk about it,” he said. “When did it become bad to make money in this country?”

Martine August, an associate professor of planning at the University of Waterloo and the lead for a series of reports commissioned by Houle’s Office of the Federal Housing Advocate, told the parliamentary committee in May that financial firms like REITs “systematically prefer to remove and displace existing tenants in order to try to get that higher rent when the unit is vacant.”

Fraser said Killam doesn’t do this and he doesn’t believe it’s true generally. In an emailed statement, CAPREIT said the company has “never performed a renoviction in its 26-year history.”

One of the reports August authored for Houle’s office says renovations and luxury upgrades are strategies that financial firms sometimes use to maximize raising rents “in stronger markets facing gentrification pressures.”

Renovations aren’t a big part of Killam’s business, Fraser said. The company will be lucky to renovate 400 units out of its portfolio of 19,000 this year because “the vacancy is so low,” he said.

Killam’s November management report also notes the company continues “to focus on renovations in order to maximize occupancy and rental growth,” but that it spent less on renovations this year due partly to lower turnover. CAPREIT’s statement said in 2022 the company “spent almost $6,000 per suite on … investments for the safety and benefit of our residents.”

Fraser disagrees with the idea that financialization and REITs contribute to the housing crisis, saying his company works with non-profit groups and is a provider of affordable housing in Halifax.

Three-quarters of the company’s apartment units are being rented for less than $1,500 a month, he said in September. In addition, Killam has financing agreements with the Canada Mortgage and Housing Corporation in which it has committed to keeping rents for some units in two buildings in Dartmouth below the market rate for the duration of those agreements.

Meanwhile, during CAPREIT’s August earnings call, CEO Mark Kenney said that in “dialogue” with the federal government “there’s a real understanding now that it’s not corporate landlords that are raising rents, it’s a supply and demand problem that we have in the country.”

CAPREIT’s statement said more than half of the company’s units have rents that meet the CMHC’s definition of affordable housing.

Rental market share of REITs

Lovitt said REITs like Killam and CAPREIT are large individual players with a small overall footprint in Halifax. 

In 2021, four REITs owned an estimated 11.9 per cent of all rental units in the municipality, based on analysis by CBC News using Canadian census data and the companies’ public reports.

In February 2020, CAPREIT nearly doubled the number of units it owned in Halifax from 1,659 to 3,162, after acquiring properties in several areas of the municipality.

Fraser told CBC News that Killam has no influence on market rents. 

“There’s enough large entities out there that own 1,000 or 2,000 [rental units],” he said, and “they would be owning product that is newer and so their average rent would be well above ours.”

From Lovitt’s perspective REITs aren’t necessarily a cause of affordability issues. Instead, he said the companies are a highly visible symptom of current market conditions.

“It really seems to be that they [REITs] are being painted with the general broader criticisms of having an overreliance on a housing market that’s driven by profit, to meet the needs of those that really can’t be met by that type of system,” he said.

This issue of a lack of non-market housing is where CEOs, advocates and researchers find common ground. They point to public housing — something the province recently re-committed to for the first time in 30 years  — as a solution for people who can’t afford market rent. 

Fraser said the private market is not sufficient to solve the housing crisis. “It needs everybody participating in the right way, trying to do their part.”