Manitoba Committee Hansard — 14 June 1982 (Statutory Regulations and Orders Committee, Sitting 1, 32nd Legislature, 1st Session)

32-1-sro1

Manitoba — Debates (Hansard)

ISSN 0542-5492 First Session - Thirty-Second Legislature of the Legislative Assembly of Manitoba STA NDING COMMITTEE on STATUTORY REGULATIONS and ORDERS 31 Elizabeth 11 Chairman Mr. Peter Fox Constituency of Concordia VOL. XXX No. 1- 10:00 a.m., MONDAY, 14 JUNE, 1982. Printed by the Office of the Queens Printer. Province of Manitoba

MANITOBA LEGISLATIVE ASSEMBLY Thirty-Second Legislature Members, Constituencies and Political Affiliation Name ADAM, Hon. A.R. {Pete) ANSTETT, Andy ASHTON, Sieve BANMAN, Robert {Bob) BLAKE, David Ri {Dave) BROWN, Arnold BUCKLASCHUK, John M. CARROLL, Q.C., Henry N. CORRIN, Brian COWAN, Hon. Jay DESJARDINS, Hon. Laurent DODICK, Doreen DOERN, Russell DOLIN, Mary Beth DOWNEY, James E. DRIEDGER, Albert ENNS, Harry EVANS, Hon. Leonard S. EYLER,Phil FILM ON, Gary FOX, Peter GOURLAY, D.M. {Doug) GRAHAM, Harry HAM MOND, Gerrie HARAPIAK, Harry M. HARPER, Elijah HEMP HI LL, Hon. Maureen HYDE, Lloyd JOHNSTON, J.

Frank KOSTYRA, Hon. Eugene KOVNATS, Abe LECUYER, Gerard LYON, Q.C., Hon. Sterling MACKLING, Q.C., Hon. AI MALINOWSKI, Donald M. MANNESS, Clayton McKENZIE, J. Wally MERCIE R, Q.C., G.W.J. {Gerry) NORDMAN, Rurik {Ric) OLESON, Charlo tte ORCHARD, Donald PAWLEY, Q.C., Hon. Howard R. PARASIUK, Hon. Wilson PENNER, Q.C., Hon. Roland PHILLIPS, Myrna A. PLOHMAN, John RANSOM, A. Brian SANTO$, Conrad SCHROEDER, Hon. Vie SCOTT, Don SHERMAN, L.R. {Bud) SMITH, Hon. Muriel STEE N, Warren STORIE, Jerry T. URUSKI, Ho n. Bill USKIW, Hon. Samuel WALDING, Hon. D. James Constituency Ste.

Rose Springfield Thompson La Verendrye Minnedosa Rhineland Gimli Brandon West Ell ice Chur chill St. Boniface Aiel Elmwood Kildonan Arthur Emerson Lakeside Brandon East River East Tuxedo Concordia Swan River Virden Kirkfield Park The Pas Rupertsland Logan Portage la Prairie Sturgeon Creek Seven Oaks Niakwa Radisson Charleswood St. James St. Johns Morris Roblin-Russell St. Norbert Assiniboia Glad stone Pembina Selkirk Transcona Fort Rouge Wolseley Dauphin Turtle Mountain Bu rrows Rossmere lnkster Fort Garry Os borne River Heights Flin Flon lnterlake Lac du Bonnet St.

Vital Party NDP NDP NDP PC PC PC NDP NDP NDP NDP NDP NDP NDP NDP PC PC PC NDP NDP PC NDP PC PC PC NDP NDP NDP PC PC NDP PC NDP PC NDP NDP PC PC PC PC PC PC NDP NDP NDP NDP NDP PC NDP NDP NOP PC NDP PC NDP NDP NDP NDP

LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COM MITTEE ON STATUTORY REGULATIONS AND ORDERS Mond ay, 14 June, 19 82 Time - 10.00 a.m. MS C. DePAPE: Committee come to order. The first order of bu siness of the Committee is to elect a Chairman. Do I have any nominations? HON. R. PENNER: Yes. I would like to nominate the Memb er for Concordia, Peter Fox to Cha ir this Com mittee. MS DePAPE: Are there al)y fur ther nominations? Seeing none, Mr. Fox, would you please take the Chair? BILL 2 - THE RESIDENTIAL RENT REGULATION ACT MR. CHAIRMAN, P. Fox: The first item is the setting of a quor um for this Committee.

Make it half and one, it's usually six. Is that agreed? (Agreed) In that case we may proceed. ! think what we'll do is we have a list of citizens who wish to make representa tion on Bill No. 2. We shall take Bill No. 2 first. Is there any particular disposition in respect to the representa tion to take them in order or are there some people from out of the city who may wish to go first? Does the Com mittee have any preference? The Honou rable Roland Penner. HON. R.

PENN ER: In the absence of any specific requests for persons to be heard out of sequence, in which case we could certainly consider it, I would suggest we simply call down in order, those who are here, as called, will be heard in that sequence. MR. CHAIRM AN: Does the Com mittee wish me to read names to see if they're all here or shall we just proceed and let them come forward as called? Is that okay? The first name on the list is Jack McJ annet from the Manitoba Homebui lders Association. Mr. McJ annet. MR. J. McJANNET: Thank you, Mr. Chairman. On your agenda, Mr.

Ayre, the Executive Director, is shown as appearing on behalf of the association. Mr. Ayre is here with me to assist on any questions, also Mr. Guy Hobman, President of Greentree Homes Limited is with me. Mr. Martin Bergen is here from Marlborough Developments and he's also making a presentation at a later date. Mr. Brian Hastings, the General Manager of Qu alico Developments Limited, Albert DeFehr of Belleville Homes Limited and he is the President of that company.

I make this presentation on behalf of the Manitoba Homebu ilders Association which, through its mem bership in Manitoba alone, owns and/or manages so;ne 21,000 rental units in the Province of Manitoba. I would like to deal with the Act over an extended period of time, Mr. Chairman. I do have copies of the presentation to be made to you and I would be pleased to have copies circulated at this time or after the pres entation, whatever may be your wish. MR. CHAIR MAN: We'll ask the Clerk to distribute your copies, Mr. McJ annet. MH. McJANNET: Thank you. MR. CHAIRM AN: Ju st one question Mr.

McJannet, before we start, you indicated Martin Bergen was also associated with you but we also have him down on the list as wishing to make representation; will he make a separate representation or is it the same one? MR. J. McJANNET: I do not believe it's the same one. I'm making this representation on behalf of the Asso ciation of which Mr.

Bergen's company is a member and to that extent I mentioned his name and the fact that he is here present and that he may be able to assist in answering any questions at the .end of the presentation, should that be your wish, as well as those others who are with me who, being experts in the field, would be able to also answer qu estions that I may not be able to field at the appropriate moment. MR. CHAIRMAN: Proceed, Mr. Kovnats. MR. A. KOVNATS: Mr.

Chairman, would there be any time limit on the presentations and would the people making the presentations be advised that there might be some questions to be asked of them later, which they can answer or not answer if they so desire. MR.

CHAIRMAN: Well, I'm really in the hands of the Committee in respect to time, but in respect to ques tions and answers that has always been a practice of most Committees so I would imagine that anyone who has made a representation before would know that questions are asked , but I will mention it out loud to everyone concerned that there will be time for ques tions after the brief. MR. A KOVNATS: Thank you. MR. CHAIRMAN: Proceed, Mr. McJ annet. MR. J. McJANNET: Thank you, Mr.

Chairman, I want to deal at length with the various sections in the Bill specifically starting with �ection 2 whieh states that "The controls will not apply for a period of four years after the date of issue of the first occupancy permit in respect thereof to new residential premises in respect to which the first occupancy permit was or is issued on or after January 1, 1979." You may recall that: (

a) The Rent Stabilization Act, prior to its repeal, allowed for exemptions: (

i) for a period of five years from the beginning of the tenancies to tenancies of new residential premises that are (ii) under construc tion or not occupied on January 1, 1976 or (iii) con structed after that date. (

b) We are concerned that the effective result of the proposed change is that builders undertaking con struction after Ja nuary 1, 1976 were assured that resi dential premises would be exempt from control for a period of five years from the date of tenancy, that is,

Monday , 14 June, 19 82 normally to December 31 st, and for other premises constructed on January 1, 19 76 for a period of five years. Builders, of course, were assured that any buildings constructed as of January 1, 19 76, for example, would be exempt for a period of five years from the date of first tenancy; subject, of course, to the present conditions in the Landl ord and Tenant Act dealing with the question of arbitration.

Effectively, our position is that the Bill changes the rules in midstream somewhat so that those residential premises constructed after January 1, 19 76 no longer are entitled to rely upon the five-year exemption from rent regulations. lt is the view of the Association that continu ity in the construction industry, for those involved in construc tion of residential premises, should be maintained such that the effective date in the new Bill should be January 1, 19 76 as in the repealed Rent Stabilization Act; and buildings after Janu ary 1, 19 76 should be permanently exempted from controls.

In our view, it is not sufficient that a five-year limitation or a four-year limitation, as proposed, should be the criteria up on which exemptions should apply to new construction. Alternatively, and if this Bill does not exempt all construction on a permanent basis, it is the view of the Association that all residential rental premises con structed from and after January 1, 19 76, to and includ ing January 1, 19 79, should be entitled to a 15 -year exemption running from the date of first tenancy and that any and all premises construc ted after January 1, 19 79, should be entitled to the same exemption.

If you consider the facts, the Canada Mortgage and Housing Corporation in reviewing their Assisted Ren tal Program commonly known to all of us as ARP in 19 76 and based upon their understanding and knowl edge of residential rental premises market in Mani toba and throughout Canada, recognized that builders yet needed assistance for the first 10 years from date of first occupancy and for a possible fur ther five years thereafter. As evidence of this situation we refer to the informa tion prepared and circu lated by Canada Mortgage and Housin g Corporation at the time it instituted changes in the ARP program.

As well, there is now consideration granted by CMHC to exceed that term for a further five years. In our view, there is ample evidence of the fact that Canada's own major lending institution recognizes the need for an extended period of time to allow the builder to move into a break-even position. As stated by Morguard Trust Company in its pub li cation, "Canadian Mortgage Market Review" of May, 19 77: "The purpose of this program was to encourage construct ion of new rental housing that would other wise not be built because of the gap between the cost to construct and operate the project and market rents ...

" "This assistance loan is received interest-free for the greater of 10 years or the period of disbur sement, up to 15 years. after which time it is repayable at rates established by CMHC." Graphs prepared by CMHC in 19 76, which is the time at which they introduced the revised ARP Pro gram, a copy of which is attached, clearly indicated that this owner could not expect any operating profit for at least the first nine years of operation and antici- 2 pated extensions of the interest-free loan for repay ment upwards of 15 years. This situation has not improved.

Practice since that time has more than proven that CMHC was correct. In fact, many ARP's are being adjusted and not reduced annually because of the continuing gap between operating costs and market rents. Private sector investment was attracted to new ren tal housing in the late 19 70's on the promise of the Legislatu re that such residential premises would be exempt from rent control provision for a period of five years. According to our records and our information, all provinces except Quebec have maintained a per manent exemption to such construction.

We und er stand Quebec has a five-year exemption on new resi dential premises construction. lt must be remembered that virtually all new private initiated rental housing cohstruction in Manitoba and, indeed, in Canada between 19 75 and 19 81, relied on private sector investment. 1t is the forecast of the Association that the loss of personal exemption for new residential premises will result in a drastic reduc tion in starts of residential rental programs in the Prov ince of Manitoba.

Alternative development opportuni ties outside of the province that provide permanent exemption from rent controls are certainly more favourable and one need only consider the extent to which Manitoba bui lders and developers have partici pated in other residential markets such as Ontario and Alberta, to see that the climate in such provinces is more favourable to builders and developers. In these difficult economic times raising mortgage funds is not an easy task.

You will un derstand the reluctance of mortgage lenders and, indeed, equity investors refusing to lend or invest funds for new resi dential premises where automatically those premises become subject to rent controls within four years of the construction sta ·t. Consider the fact tnat it is common in all residential rental premises construction for the bui lders and developers to suffer a su bstantial negative cash flow in the first few years of operation once they are avail able for accupancy. This can be seen by the program set out by ARP.

The bui lders and developers, if they proceed at all, must see the opportu nity of recovering those losses once the building is fully leased and available for occupancy. The possibilities of recover ing such losses will be seriously impeded if rent con trols fall into effect on such residential premises at the end of the fourth year and in the Association's view will simply destroy any possibility of future develop ment in Manitoba.

The success of the Core Area Development Pro gram in Winnip eg, sponsored by all levels of govern ment, and which, we understand and anticipate at least construction of 400 rental un its will suffer sub stantially as a result, in our opinion.

Section 2 goes on also to deal with the particular programs sponsor ed by the Federal Government. Un der the old Rent Stab ilization Act it was stated that control would not apply to tenancies of residential premises owned by non-profit corporations or oper ated under an agreement made under The National Housing Act between the owner and CMHC, under which the profits made by the owner from the opera tion of the residential premises are limited, where the

Monday , 14 June, 19 82 ent payable therefore is, by reason of an agreement >etween CMHC and the Landlord, fixed by or subject o the approval of CMHC. Notwithstanding that rent control exempted new esidential rental premises from and after January 1, 1976 to 19 80, this was not enough alone to encourage >rivate investment in residential premises in Manitoba >r, indeed, througho ut Canada. it fell up on the Fed lral Government to create and revise government lssisted programs such as the Limited Dividend and �RP programs.

As you may be aware, the first ARP program was nstituted in 19 75; we call it the first phase and it >perated to the end of 19 76. Under the first ARP pro } ram the government granted funds to owners of ·esidential rental premises, that is, they were grants hat were not repayable at any time. But one of its :ond itions was that it limited the owner in (

a) increas ng rents more than an amoun t equal to increased >perating costs in a particular year, and the details of hose costs were set out in the agreements at the time hey were executed; and (

b) they limited the owner to l. return on investments of 10 percent. At the end of 1976 CMHC introduced a revised ARP program to ;tart in 19 77. In that program, interest-free loans were� nade to builders of new residential premises. Pay nents were made on a monthly basis commencing 1ormally at $1 00.00 per month in the first year and ·educing approximately 10 percent in each year there l.fter over the total period of 1 0 years. Remember, grants had disappeared and interest 'ree loans were made in their place.

The net effect was :hat the owner of the residential rental premises was Jeing provided with additional mortgage financing Jnder this revised ARP program, secured by a mort �age on his premises that is secured by a second nortgage. After the period of 10 years the mortgage .vas to be repaid at an agreed rate or at the then �xisting interest rates in effect at the time. Again, CMHC recognized the fact that without these programs residential rental premises construc tion would be at a standstill.

Bui lders and developers .vithout these programs and sometimes with these programs have still not yet been able to make a profit ::m their time, effort and investment in participating in the residential construction market in Canada. Again, the ARP Program, Phase 11 as we call it, recognized those pos sibilit ies such that, at the appropriate time, the owner of the premises may apply for an extension of the repayment date under the ARP mortage for a further period of five years. Thus the ART Program, the interest-free loans neces sitated and recognized by CMHC, then may extend over a period of 15 years.

In our view, this is ample evidence of the financial plight existing today in the residential rental premises construction market. We, therefore, submit that rent controls on residen tial rental prem ises constructed in 19 75 and 19 76 are not required. The controls were already in existence imposed by Canada Mortgage and Housing Corpora tion. Effectively, bui lders and developers are limited to rental revenue and/or profit and in our view, such controls obviate the necessity for additional controls to be imposed upon the industry under provincial legislation.

We propose that the Bill should recognize this situ a- 3 tion and totally exempt such buildings built in 19 75 and 19 76 and exempt all buildings thereafter for a period of 15 years. We do not, of course, know what the regulations may contain dealing with those mat ters to be considered by the Rent Regulation Officer or a panel in approving rental increases. We do know, however, that tenant's interest costs must be consi dered in the calculation of rent for any residential rental premises.

We urge this government to keep in mind that interest costs are substantially increased for the past few years and as our program regulations become effective, repayment of those funds at then prevailing interest rates will be required. Under

Section 2(2)(

B) of the proposed Act, is authority for a panel to be established to exempt a building or part of a building for such period as the panel may determine where the panel has approved the rehabilitation of a building or part of the building. However, please note that under

Section 33, a land lord must first apply to a panel for approval of the repair, renovation and refurbishi ng of his building and such application must be made at least one month prior to commencement of such repairs; I'll deal with that later on in my presentation. Assuming, however, that the panel approves the refurbishing of the building, the landlord, after com pletion is still required to apply to the panel for an exemption under this section.

There would appear to be no assurance that such exemption would be forth coming. it is the position of this Association that the order for exemption should accompany and be determin ed at the same time as a request for approval for the rehabilitation granted by the panel under Sec tion 33. That is, the approval of the refurbish ing and the exemption would be granted at the same time, not on two separate hearings. it would not be difficult for the Rent Regulation Officer to determine that the rehabilitation of the building had, or had not complied with the provisions of the order of the panel granted under

Section 33. Accordingly, the Association recommends that guidelines be established by which a panel may determine whether refurbishing is in fact taking place in order that there be no qu estion, either in the mind of the landlord or in the minds of the panel, that such an approval and exemption be granted. Of course, the Association and its members are ready, willing and able to assist.

Section 2(2)(

C) states ttlat apartments command ing rents in excess of $1 ,000 per month as at December 31 st, 19 81 will also be exempt from rent controls. it is the view of this Association that exclud ing from rent control those residential premises commanding rents of $1 ,000 or more per month does not address itself to the reality of the market situation in Manitoba.

Previous legislation exempted residential premises commanding rents in excess of $400 per month and since median rents in Manitoba for 19 81 was $268 it is our view that a more realistic monthly rental would be in the area of $400 per month in arriving at this exemp tion provision. That the median rent levels for all suite types in all of Winnipeg is $268 is evidenced by the report of the Consumer and Corporate Affairs and Environment Depa rtment of the Province of Manitoba, under its Manitoba Rental Market Su rvey for 19 81 . it indicates

Monday, 14 June, 19 82 that at least half of all rental units in Winnipeg are available for $268 or less and, in our view, is ample justif ication for making the exemption at $400 per month, rather than $1 ,000 per month. As well we wish to refer you to the "Sem i-annual Review of Housing Market Activity Province of Mani toba April, 19 82" prepared to Mr. M.R. Thorvaldson, Acting Housing Market Analyst employed in the Win nipeg office of CMHC. As someone has said there are likely only 5 or 10 apartments in all of Manitoba commanding a rent of $1 ,000 or more per month. Mr.

Thorvaldson sta tes: "The results of the October, 19 81 vacancy survey indicate little price resistance to higher rents. Vacan cies were most freque nt in smaller and lower rent inner-city apartments. Renters may be perceiving that with over 80 percent of 2 bedroom units under $400 per month they are receiving a housing bargain rela tive to owners and renters in other areas of the country." I now turn, Mr. Chairman, to the provision of Sec tion 16 of the act which provides security for tenants in possession such that rent cannot be increased more than once in every 12 months.

Sur ely the spirit of rent control should be to enforce the rules limiting or con trolling the amount of the annual increment to a tenant in possession. The Association recommends that the

section be amended to limit freque ncy of rental increases to 12 months and the actual date of possession by that particular tenant. We see some difficulty should the provision remain as it is in dealing with those circu mstances where the residential premises become vacant du ring that 12 month period. At the moment the landlord is requ ired to maintain that same rental rate as granted to the previous tenants for the balance of the 12 month period. Provision must be allowed in such circum stances if the

section is to be maintained to amending the standard residential lease such that the rent may be increased at the end of the final 6 months of that 12 month term for the then tenant in possession. In any case, surely the rent control should be for the benefit of the then tenant, with the landlord free to set a rental rate for a new tenant. lt is submitted that rent control provisions should apply to that specific tenant only. lt is particularly significant that the landlord be allowed to set rental rates for a particular unit where the tenant voluntarily departed the premises. In dealing with

Section 17 , it requires that every notice for increase in rent for premises must be served on the tenant at least 3 months and not more than 4 months before the date on which the increase would become effective. lt sets out that that notice must provide certain information; that the notice must state that the tenant has a right to object to the increase; it sets out the dollar amount; the percentage increase; the maximum amount of increase permitted under the Regulations. lt says that a copy of that notice of increase in rent must be served upon the Director.

This section, in our view, requir es horrendous paper work for any landlord dealing with each specific tenant.

Su rely the landlord should only be required to provide the Director with copies of notices of increases in rents in those circu mstances where a tenant files an objection to the increase; otherwise landlords shall be subject to a government price-monitoring system, the 4 cost of which ultimately must be borne by the tenants; the filing of the notice with the Director is in our view an additional workload which is unnecessary; it indi cates if this provision is to prevail we submit that the time limit should be expanded such that it shall read, "at least three months and not more than six months before the date on which the increase would become effective," allowing suffic ient time for an application to be made considering that there will be some delays in the actual hearings and approvals by the Rent Reg ulation Officer or by a particular panel, as the case may be.

Section 18 states that the increase and the controls are retroactive back to January 1, 19 82. In our view, January 1, 19 82 is an unrealistic commencement date for rental controls. At the very least, retroactive legis lation should at best be avoided. The difficulty, of course, is that the "amount specified in the Regula tions" or the "formula specified in the Regulations" is not known at this particular date.

If there is any truth to the rumour that the Rent Control Gu idelines will set increases not to exceed 9 percent, we see serious financial problems arising in the future. it is clear that any landlord may apply for approval of the excess over and above the 9 percent guideline, but in our view, 9 percent is just not sufficient in today's eco nomic climate. Quoting again from Mr. Thorvaldsons review: "The reintroduction of rent controls with a 9-percent guide line will have a negative impact on new contruction.

This is clear despite the flexibility of the gu idelines and even though controls will not apply to projects less than four years old. A CMHC appraisal review of operating expense pressu res on rents would suggest that the 9 percent guideline is unrealistic. Gas heat costs are expected to increase by 25.6 percent in 19 82; insurance by 20 percent; property tax at 15 percent and at 12 percent for most other operating expenses. The freeze on hydro power rates may be lifted before 19 84.

Projects where mortgage rollovers occur are expected to require rent increases of 18 percent or higher. it was speculated that without the reimposi tion of rent controls, landlords would attempt to obtain 20 to 25 percent rent increases to narrow the gap between market and economic rents." I submit that comment and the review prepared by CMHC is clear indication of the difficulties which landlords are facing in the present market and will continue to face in the next few years.

Again, I reiterate that the Association is ready, wil ling and able to assist in the preparation of those regulations which will set perhaps the guidelines by which we all will have to live in the Province of Manitoba.

Section 20 deals with the right of a tenant to object to an increase that does not exceed the amount of increase in rent permitted under the regulation. The effective result of this

Section is to allow a tenant to object to any increases whatsoever, be it 1 percent or 15 percent. it is the position of this Association that once the government has set by regulation, the min imum set out in

Section 18 that the tenant not be allowed to object to any such increase. lt is sufficient that any excess increase be the sub ject of review by the Rent Regulation Officer or the panel at which time the tenant has every right to be

Monday, 14 June, 19 82 heard. Without such limitation, we anticipate that for every increase, however small, the tenant, because he will not incur any cost in objecting, will automatically file an objection resulting in many frivolous objec tions and unnecessary and costly investigations. Dealing with

Section 21 , Mr. Chairman, it deals with an application by the landlord for an increase over and above the permitted increase under the Regulations. In doing so, the Rent Regulation Officer is to con sider: (

i) rent for residential premises that was in effect before the increase; (ii) the increases in the actual expen ses incu rred by the landlord -and again those are defined in the regulations though we do not know what are in those regulations; and (iii) changes in the services provided or available for the tenant or in the amenities that may be available; and, of course, (iv) any other matters required in the regulations.

As well, the Rent Regulation Officer may consider the rent payable for the residential premises dur ing the two years before the date of the application, the amounts by which that rent was increased during those two years and the increases in the actual expenses incurr ed by the landlord du ring those two years. In our view, what has been created is an administra tive nightmare with the right of the Rent Regulation Officer to review rents and costs over the last two years.

While it is acknowledged that the Rent Regulation Officer may consider "any other matters required under the Regulations," we urge the government to amend

Section 21 such that the Rent Regulation Officer shall consider reasonable, anticipated costs that will be incu rred by the landlord over the next 12 months. In today's economic situation, it is certainly not beyond the realm of possibility to forecast with rea sonable certainty the increases which will be granted by the Public Utilities Board to the Gas Company and to other bodies providing utility services. These fore casted costs should be included in rent control deci sions; otherwise, the landlord will be continually behind the eightball, at least 12 months behind in costs, as they are continuing to increase and he never has the possibility of catching up.

Section 21 (3) authorizes the Rent Regulation Officer to treat all of the premises in the building in a similar nature. In fact, it allows the Officer to extend the hear ing to apply to all tenants in a particular bui lding even though those tenants may not have filed a notice to the Officer objecting.

Once the Regulations Officer has given notice to all of the tenants, in our view a costly procedure, and once he has made his decision "in his absolute discretion," his recommendation app lies unif ormly or severally to rent payable for all or any of those other residential premises in the building, as the case may be. Sur ely the landlord should only have to meet the tenants objecting to the proposed increase.

To allow the Rent Regulation Officer to unilaterally interfere with the tenancy agreement then legally in effect in which the parties are reasonably satisfied would appear to be an imposition and infringement of basic bus iness rights. We suggest, Mr. Chairman, that the tenant who objects should be the tenant who is dealt with by the Rent Regulation Officer and not grant to the Rent Regulation Officer the uni lateral 5 right to add additional tenants who may be perfectly satisfied with their situation.

Section 25, of course, allows the review of the recommendations of the Rent Regu lation Officer to be appealed by way of notice of appeal on the Co ordinator of Appeals. it allows for a time period of 14 days and it allows for someone to apply for an exten sion of the notice time period of 14 days to 21 days in those circumstances where he can show that due to inadvertence or mistake or some difficulty that he was unable to file his objection or his appeal within that period.

We wou ld recommend that the time limit for approval be set at either 14 days or 21 days without any provision for extension in order to make certain the provision for appeal. Once the party, subject to a recommendation of the Rent Regulation Officer, files the notice of appeal with the Co-ordinator of Appeals, the matter proceeds to a panel. The matter does not stop there, however.

The panel itself, even though the Rent Regulation Officer in his discretion, has decided not to apply his recom mendations to other or all residential premises in the building, has the same discretion to extend their decision-making powers to all rental units in the build ing. In our view, this will simply proliferate matters to be heard at each stage of the process which, in the view of the Association, is unnecessary, time consum ing and exceedingly expensive.

We anticipate that with aJI the proceedings, extreme delays will take place, such that by the time a decision may be made, and all appeal provisions completed, the tenant may be long gone and the possibility of the landlord ever recovering an increase, ultimately approved, is remote. Under

Section 28, the Director, without a hearing of any kind, may order the tenant to pay to the Director the amount of the increase in excess of the increase set in the Regulations and he may order the landlord to do the same thing. So where the landlord has col lected an increase in excess of the amoun t actually determined by regulation, the Director may direct that excess be paid to him, presumably to be held in trust. Ultimately, of cour se, and depending on the final decision made, the Director will refund the monies to the landlord or to the tenant as such may be the case.

The Association objects strongly to the fact that excesses to be received by the landlord should be paid to the Di rector. If nothing else we submit that the landlord shall be entitled to retain the excess in a separate account pending the decision by the Rent Regulation Officer or the panel. Funds in those accounts, or ordered to be paid to the Dir ector, if such is the decision of this government, shou ld bear inter est at a rate set out in the Regulations.

We fur ther su bmit that where a landlord has increased the rent in accordance with the formula set out in the Regulations and the tenant has appealed, then the Director should be directed to order the tenant to pay to the Director the amount of the increase itself exceeding that amount permitted under the Regulations. Such payments, of course, should receive interest to whomever they shall be refund ed.

Such a provision wou ld cover that situation where, in our view, final decisions may take many months, the tenant has disappeared and the landlord, while ulti mately receiving paper approval of his increase, will not be able to collect the increase itself from that

Monday, 14 June, 19 82 tenant. Under

Section 29, while having ju st dealt with the fact that the landlord may be collecting excesses over the amount authorized in the regulations,

Section 29 then says that a landlord shall not collect or attempt to collect rents for residential premises that have been increased on or after Ja nuar y 1, 19 82, in excess of the Increase permitted in the Regulations. With mounting costs, this Association anticipates that a num ber of landlords, certainly a num ber of its own members, have given notice of increases to tenants prior to January 1s t in anticipation and in excess of what may be set by the Regu lations. Pre sumably under

Section 28 then, the landlord will be directed to pay the excess over the amount permitted under the Regulations, to the Director. The Director carries out an investigation. If he believes the landlord has collected rent for residential premises in contravention of su bsection (1 ), he may apply for an order. In any case, the matter may end up before a panel.

Up on completion of the panel, if the panel is satisfied that the landlord has collected rent for residential premises in contravention of su bsec tion (1 ), it may, not withstanding that it may have approved the increase, it may decide that the rent payable for the residential premises to which the pre ceedings relate be reduced to an amount not less than the amount of rent payable at the commencement of that 12 -month term. In essence, the landlord is retro actively being punished , or may be punished, for increases which he reasonably put into effect on or after January 1st, 19 82.

Sur ely the landlord should not be punished under such circumstances. If the increase is to be rolled back, the landlord may be directed to refund any amount so rolled back. He should not be punis hed by taking away all of his increase that is presently allowed up to a period of 12 months. Again, in those circumstances where the landlord is directed to refund monies to a tenant with interest at an annual rate fixed in the regulations, surely the landlord is entitled to certain monies held by the Director and that interest should be paid on those monies as well.

At the moment there is no provision in the act that monies held by the Director, ultimately repaid to the landlord, that he should be entitled to interest on those funds. All of our comments, of cour se, apply where the Bill deals with situations where services have been reduced and there is an evaluation process to decide whether, in fact, an increase in rent has taken place.

Section 33. I've made my comments with regard to what I consider to be a difficulty in the landlord app ly ing, first of all in

Section 3, for approval for restoring his building and then having to go back, once res tored, to allow for an exemption under

Section 2. We note, however, under

Section 33 where a panel has appr oved the repair, renovation and refurbishin g of a bui lding, a person is restricted or prevented from converting his building to a condominium under The Condo minium Act for a period of four years after the date of issue of the order for exemption. it is our view that the present Condominium Act with proposed amendments, which you will have before you in the next two or three days as I unde rstand, you are con sidering amendments to The Condominium Act and The Landlord and Tenant Act, that the provisions in 6 that Act to date are more than sufficient to give the protection necessary to the tenant in that particu lar building.

I will, of cou rse, not read all of the provisions under the Act which simply is a repeat of the particular provisions that, when one files a declaration on The Condominium Act, certain notices and rights must be granted to the tenant.

However, you must recall that, under paragraph (d), the tenant in occupancy is entitled to protection for rents equal to rents charged for comparable residential premises; he's entitled to remain in the premises for a term at least as long as the term in which he had occupied the premises prior to filing of the declaration. it is argued that The Condominium Act and the provisions that are set out in the presentation are ample protection for every tenant.

If this is not consi dered sufficient then, at the very least, we suggest to you that the limitation oti !he right to convert a bui ld ing by filing of a declaration to a condominium should be limited to the same time limit that the panel may set in granting an exemption under

Section 2 of this par ticular Bill. There are several other matters that are not specifi cally mentioned in the Bill, Mr. Chairman, and I'd like to deal with those for just a few moments. There is, in our view, no limitation and no require ment on the Rent Regu lation Officer or the various panels established under the Bill, to bring in their decisions on a timely basis.

In other juri sdictions, serious delays in decision-making have occurred and we have heard from various sou rces that several years take place between the time of an application for an increase and the granting of such an increase, or appr oval of such an increase or such lesser amount as may be ultimately made by the decision of their par ticu lar panel. If the government insists on establishing a 9 percent control, we anticipate that there will be a great many appl ications by landlords for approvals of the excess over the amount app roved in the Regulations.

Deci sions on these applications, in our view, must not be delayed beyond a reasonable period of time.

Certainly they should not be such that they will be extended beyond 12 months and then get into the next 12 - month term under which a tenancy may be in operation. 1t may be difficult, but we have other legislation in the Province of Manitoba which requires decisions to be made by the decision-making body or individual within a set period of time. lt is our recommendation to this government that the Rent Regulation Officer and the panel, where an appeal or provision to be heard before the panel is effective, the decision must be brought in within 30 days of the closing of the deliber ations and the considerations and hearings by the Rent Regu lation Officer or the particular panel con cerned.

This would, at least, enhance decision making to the benefit of all concerned. Another matter which we submit and put forth to you is dealing with project applications. There is nowhere in the Bill provision for a landlord to apply to the Rent Regu lation Officer, or ultimately to a panel, to suggest that the rate for the rental unit in the project or in that building be set for the next 12 months. Certainly in every other field, or certainly a great many other fields, there is provision such as the Greater

Monday, 14 June, 19 82 Winnip eg Gas Company and other such corporations, to apply to the Public Utilities Board and others, to set rates for the next period of time. This Association propo ses that, if rent controls on residential premises are to be imposed, provision be included in the Act for an application by the landlord for appr oval of rent increases for all the rental units in that single building or in that particular project.

In such circu mstances, where the appeals had been resolved and the decision had been made, either by the Rent Regu lation Officer or by the panel, then this Association suggests that those rents would be in effect and that the tenant would not be entitled to file objection to such increases. The increases, thus approved for the un its in that project or in that build ing, wou ld come into effect at the commencement of the term of the various leases to tenants in that bui ld ing.

All of us recognizing, of course, that the com mencement of terms of leases do not all start on Sep tember 1s t but are commenced on various months throughout the year. We urge you to consider this approach to the prob lem if rental controls are to become effective and put into effect in this province in order to avoid un neces sary and frivolous objections under the Bill.

There is equally so, I believe, no provision in the Bill to deal with those build ings presently under serious and detailed refurbis hing for future. lt is our view that where a building now under renovation and refurbish ing, the landlord should be entitled to apply, as set out in the Act under

Section 33, to have that refurbishing, although under way, be approved and have that refur bishing exempt the buildings for a period of time as may be determined by the panel under

Section 2. lt seems unfair that someone who may be half way through a serious and expensive renovation projec tion on his particular building should not be entitled to apply for an exemption under the Bill. Dealing with

Section 38, Mr. Chairman, this, of cou rse, deals with the detailed regulations which one can anticipate coming forth under the Bill itself. Ob viously, they su bstantially effect the interests of the landlord; they su bstantially affect the interests of the tenants. We urge the Minister, either in public hearings or by consu ltation with the members of our Association and other interested parties, to discuss the terms of those Regulations before they are imple mented under the terms of the Act. Final ly, it seems to me that

Section 41 of the Act deals with various arbitration proceedings under The Land lord and Tenant Act and it does sug gest that those proceedings which are in process will be aborted and the matters taken over by the Rent Regulations Officers. lt seems to me, Mr. Chairman, that those matters already in process on The Landl ord and Tenant Act might best be completed and the deci sions binding on the parties, rather than aborting those proceedings in the middle of the hearings and requiring the parties to start all over once again. Mr.

Chairman, I simp ly have attached one chart which is of some interest and is the only one of some 50 charts prepared by CMHC back in late 19 76 in dealing with their revisions of the ARP Program. I attach it to give you some indication of their assess ment of the operations under the ART Program of buildin gs that they are aware of and you will note, of 7 cour se, by the chart that operating profit does not even kick in until the ninth year of the operation of a particular project. I recognize that one can change figur es and perhaps adjust figures to suit their own needs.

There are additional charts and information avr.�ilable from CMHC that we'd be happy to provide to you at any time. We urge that you consider our recommendations, particularly the practical recommendation in the Act, Mr. Chairman, that we have made to you and we stand hopefu lly, ready, willing and able to answer any ques tions that you may wish to put to us and failing which, if I am unable to answer them, of course, I rely on all the experts that I have with me today. Thank you, Mr. Chairman. MR. CHAIRMAN: Thank you, Mr. McJannet. The Minister, the Honour able Eugene Kostyra. HON. E. KOSTYRA: Thank you, Mr.

Chairman. First of all, I'd like to thank the Manitoba Home Bui lders Association for their presentation this morning and also to thank you and you r Association for the dia logue and representations that have been made to us over the past six months as we've been prep aring the drafting of this legislation, both with meetings with myself and staff of the department. We found the representations from the Manitoba Home Builders important and worthwhile as we were in the process of drafting this legislation, so I thank you and ask you to communi cation that to the mem bers of your Association. Mr.

McJan net, in the initial part of your brief you had requested that the exemption period for new con struction should extend for a period of 15 years, in essence, as opposed to the four-year exemption that's in the Act as proposed at the present time. You'd indicated that if such exemption were not granted that there would be little, if any, new construction of rental housing units in the Province of Manitoba.

I wonder if you might comment on this, in view of the fact that this legislation, obviously, is not in effect at the present time and there hasn't been rent control legislation as such in effect for a numb er of years in the province. According to your own figures that were supplie d to us, that in the year 19 81 there were only 141 un its constructed in the Province of Manitoba; and the preceding year in 19 80, it was 391 un its; and prior to that, in '79 there was close. to 2,000 units and in '78, in excess of 4,000 units.

So, in fact, there has been little new construction of rental housing units in the prov ince for the last couple of years without this legislation in place. I'm wondering if you might comment on that fact, that if there was a permanent exemption, would there be, in fact, an incr ease in rental housing con struction since there hasn't been, in essence, any new construction for the past nu mber of years.

I would think that a far greater impact on that situa tion is the fact that many of the federal sub sidy pro grams that you've made mention of in your brief have been removed over the past num ber of years, includ ing as of late, the MURB Program. So, it seems to me and of course, we're in a situation for the past while of considerably higher interest rates on capital. I'd like you to comment on that fact as to whether or not, if there was a permanent exemption, there would be an

Monday, 14 June, 19 82 increase in rental housing construction in the pro vince, given that there has been very little in the past few years. MR. McJANNET: Well, naturally, the ARP Program, as I under stand it, was terminated in 19 78. The MURB Programs, of course, have now disappeared. There's no question that those two programs gave incentive to developers and builders for the construction of new residential rental premises, not only in Manitoba but in those areas of the country which may have been more economically viable du ring the last two or three years.

The only thing that I have to forecast is that -and I can only rely on the information I have from the members of my Association and I know that they, themselves have been actively involved over the three years you described -in other areas of the country where, in fact, rental premises have been exempted; that is, new construction of residental premises have been exempted on a permanent basis or at least in Quebec, on a five-year basis. I understand that Quebec is the only province subject to what happens here, that new construction is not permanently exempt from controls.

As well, of course, it's true that we have had release of rent controls somewhat over the last several years but on the other hand, I believe in 19 80, The Rent Stabilization Act was repealed and amend ments were made to The Landlord and Tenant Act which requir ed the procedures for arbitration which, until now, have been in effect. I can't answer your question definitively. I cannot assure you that if you did not put in rental controls or if you granted landlords in this country, in this province, 15 -year exemption or permanent exemption that there would be any more construction in Manitoba than there is today.

But surely things have to improve, residential construction is required, rental construc tion is requir ed and, it's our view and members of our Association's view, that controls to the extent called for under the Bill will inhibit continu ing development in that market rather than encourage same. The Asso ciation and its members wish to encourage construc tion in this area as well as other areas in the Province of Manitoba. They wish to employ their funds in this area, they wish to employ their people rather than have them leave and another control of this nature, in our view, will inhibit it. MR.

CHAIRMAN: Mr. Minister. HON. E. KOSTYRA: Thank you, Mr. Chairman, on page 11 in your brief you raise the concern of the Association with respect to the exemption and the process for exemption of rehabilitation of apartment units or portions of apartment units. You had raised a concern that the builders or the landlords would be put into a situation where they would be given an initial appr oval to proceed with such rehabilitation projects and that there was the possibility that the final approval would not be granted.

I should make it clear to you and the Association that what is contem plated by those sections is that once the initial appro val is granted for the project that the final appr oval would be mandatory on the basis that the project was 8 completed and, indeed, that the rehabilitation, the repairs, the renovations were done in accordance with the initial order. There was no intention that there could be a complete review at the latter approval with respect to the actual project; that was basically to ensure that the project was completed in accordance with the initial order of the panel. MR. J.

McJANNET: If you wish me to reply to that we are encouraged by what the Minister has ju st stated. The only concern would be this, Mr. Chairman, and that is that when the application is made for the refur bishing I believe they approve the refurbishing or rehabilitation or the renovation of the building and I believe the word is used "shall," that it shall be approved ultimately under

Section 2(2). But I think that the landlord, in making the application, in going to the expense of having plans drawn and details to make a successful application under

Section 33, should know (

a) that he will be exempt; and I think the Minister is suggesting to me that that necessarily fol lows but also the term or the time under which he would be entitled to that exemption. I think there is still permission under the provisions of

Section 2(2) that where an appl ication is made the refurbishing is approved and the exemption is granted the panel still has the right to set the term of the exemption, be it 5, 10 , 15 or permanent. So, I agree with the Minister that perhaps that area might be tightened up to ensure that that happens. HON. M. KOSTYRA: Yes, Mr. Chairman, on page 12 , with respect to

Section 2(2)(

c) and the exemption for rental premises that have rents in excess of $1 ,000 per month. Your Association is suggesting that the figure of $400 per month would be a more realistic figur e, does the Association have information as to the numb er of rental units that would fall into that cate gory of having rents in excess of $400 per month? MR. J. McJANNET: lt is our understanding and I can certainly ask one of my clients to see if they can answer that qu estion. Our review of the report of Mr. Thorvaldson would indicate that 80 percent of the units, certainly in the inner-city, are below $400 per month.

If you'r e asking me how many are over $500, if that's your question, I don't have that and certainly if someone can answer that for me, or for you, I would ask them to. We do not have that at the moment, Mr. Chairman, and Mr . Minister, but we will attempt to see if that information is available and to provide it to you. HON. E. KOSTYRA: One further question or com ment, Mr. Chairman, I'm ju st trying to find the Section, on page 15 dealing with the provisions with respect to notice -Section 17 .

You raised concerns with respect to two areas there, I guess one is with respect to the period for notice, being that it has to be within a one month period of three to four months and you suggest that that period should be expanded to a period between three and six months and we're certainly willing to look at that particular suggestion. One of the concerns that has been raised from time to time is that without some period of time, the way it presently reads is that it has to be not less than three months; that it could be 12 months prior to the date of increase

Monday , 14 June, 19 82 and that that would be too long a period; so that is the reason that the three to four month period was put in. But we certainly can look at your suggestion to expand that a bit further. You raised concerns with respect to the amount of paper work dealing with the serving of copy of the notice of increase to the Director.

In developing the administration for this legislation we were preparing to have available for all landlords forms which could be utilized if the landlord so desired; it could be a copy of a form that could be given to the tenant and a copy of that form subm itted to the department, to the Bur eau, which would hopefu lly, if landlords decided to make use of those forms, could decrease the amount of paper work that each individual landlor d would be involved in with respect to that information.

So there would be a set form, one copy of which would be suppl ied by the Bureau; one copy of which would be given to the tenant and a copy subm itted to the Bu reau so that I think that would lessen the increased paper work that you're concerned about. If Mr. McJan net wishes to comment on that, if not, Mr. Chairman, it's the only comments that I have at the present time. MR.

McJANNET: If I may, in reply say, the concern is a proliferation of the paper work under the terms of the Bill which will become law and we would see it un necesary to give notice to the Director on someone with 10 0 unit apartment buildin g having to give 10 0 copies to the Director and it may be that two or three members who are occupying un its in that building may file and objection. lt ju st seems to me that it's an un necessary requirement under the circu mstances and that is the extent of it.

Now, on the six months and the three months, we've asked for an extension which gives a landlord some extended time to consider his position rather than the one month that the Minister decribes.

To consider three months because it may be that at a particular moment he may not be ready until the very fourth month to put in his application but it maybe that he anticipates a long delay on the decision-making side, in getting a decision on his appl ication, and therefore, he may want to file it earlier than the fifth month, prior to commencement of the new term, and that's one of the reasons why we urge the govern ment to consider seriously the time-limiting requirement for decision making as there is under The Mu nicipal Assessment Act.

For example, where the Ju dge of the Cour t of Queen's Bench is required to report and to make his findings within 14 days after the matter has been heard in his court. We've suggested perhaps 14 days is unr ealistic but we do suggest that you give serious consideration to having some time limit for a decision to be made, keeping in mind not only the initial deci sion but also the appeal provisions and that we have to continue to operate with some degree of certainty in this market. MR. CHAIRMAN: Mr. Filmon. MR. G. FILMON: Thank you, Mr. Chair man.

I have a numb er of questions and I wanted to follow upon the qu estions of the Minister to Mr. McJ annet but unfor tunately, I don't have access to the figu res that he was 9 quoting from and I don't know their origin or the defi nition of terms by which the num bers were qu oted. I'm speaking in terms of his reference to the numb er of un its constructed in various years under the rent con trols and outside of rent controls. I wonder if, since the figures were supplied by Mr.

McJan net's organiza tion, if he could clarify were those figures based on units constructed solely in the private sector or were they based on all un its constructed in Manitoba, firstly, and were they based on the dates at which building permits were issued or were they based on the occupancy dates? MR. J. McJANNET: .The question is indeed interesting but the fact is that I find it a difficult qu estion to answer. I don't know whether anyone has the details here today. The total nu mbers Mr. Hobman advises me were based upon building permit applications to the City.

I think, basically, most of our figures that we have presented now or in the past relate to the City of Winnipeg market which is the major market, of course, as we all know, in the province. MR. G. FILMON: So, they were on building permit applications. Were they only on private-sector con struction or did they include un its constructed by MHR C? MR. J. McJANNET: I would believe that they are relied up on mainly by private-sector development, whether under ARP or MURB and do not include the MHRC. -(Interject ion)- I'm absolutely wrong. They do. MR. G. FILM ON: All right.

The reason I qu estion that is that there were figures qu oted for num bers in 19 81 and I was aware, having been the Minister in charge of MHRC, of having either cut ribbons or officiated at opening ceremonies at a variety of different units that were opened du ring 19 81 , for instance, including the I can't recall the name of the unit on lsabel which has well over 10 0 uni ts. There's one on either Sargent or Ell ice that was opened in 19 81 ; there's the Don wood Manor on Henderson Highway; there's Carriage House No rth on Leila and so on and so forth.

There were obviously several hundred units opened for occu pancy in 19 81 in which MHR C had some effect through funding and they utilized

Section 53, loans for the federal-provincial agreement; in

Section 51, Non-profit Loans and so on. I think the fact of the matter is that whether the un its were under private construction or under public sponsor ship, the figures that Mr. McJan net has given indicate that there is a gap between what's available, in terms of market rents, and what it costs to construct and whether you take away the ARP's and the MU RB's. If you do, then you have to supply other government funding and the evidence of that is the fact that most of these, in fact all of these that I referred to, were done with direct gov ernment funding. I wonder if Mr.

McJa nnet or his organization has figures that give the comparable comparison of costs, operating interest, and so on for 19 81 as he's given us for the 19 76 figur es which, I believe, indicate that there is eight years before, at that point in time in 19 76, there was an eight-year period before an investor could even get to the point of getting any operating

Monday, 14 June, 19 82 profit on a one-year basis, let alone make up for the losses of the first seven years that went on before. So. what are the comparable figures, given the fact that, if anything, the interest rates have had a much more dramatic effect on the overall viability of con struction of rental housing? MR. J. McJANNET: Mr. Chairman, we do not have a definitive situation as requested by Mr. Filmon. The reason that we had the graph attached to the presen tion because we felt that it had some basis and some supp ort as being prepared by CMHC and might have some recognition and be of some value.

I can tell you in reply, however, that members of our Association assure me that most members operating under ARP or under the other programs are now requesting extensions of the ARP supp ort for a period from 10 years to 15 years; and

whereas in the normal ARP, the grant or the payment provision on a monthly basis is to be a step-down process. The owners have applied to CMHC to term inate the step down over particular years. So that, as I suggest, in the first year it would go from $10 0 per unit per month as re ally a mortgage advance ultimately to be repaid, and then the next year wou ld go down to $90 and then $80, then $70. What has happened is that they have asked for an extension of a particular year, so that in the second year at $90, it would not automatically reduce to $80 and so on.

They may ask for several years that the amount of the step down and not take place in those particular years. There is, of cour se, the Graduated Mortgage Program, as well, which was available and that's also one of the considerations. But, I cannot give you a definitive answer, other than to say that I'm assured by the members of the Association that costs are continuing to escalate. Cer tainly, in accordance with the forecast of Mr. Thor valdson in his CMHC Report of April, 19 82 which shows costs and gas and electricity and others of 28 percent and 24 percent.

So, we anticipate that will continue and this graph proba bly is out of date to the extent that profit kicking into the ninth year doesn't take place any more, that it probably kicks in later on past the 10 years and probably into the 12 th and 13 th year. I do not have that information directly available. MR. CHAIRMAN: Mr. Filmon, before you proceed, I wonder if I may ask the committee members to direct their que stions through the Chair and give me an opportu nity to recognize you so that our transcribers won't have a problem trying to recognize voices. MR. G. FILMON: Thank you, Mr.

Ctlairman, I wonder if, through you, I could ask Mr. McJ annet, then to put it in perspective. What is the cost of construction of a new two-bedroom apartment in Winnipeg today, either according to CMHC or the Manitoba Housebui lders' Association? MR. J. McJANNET: I am advised that the costs for the unit your' re describing Mr. Filmon, is $45,000.00. MR. G. FILMON: Mr.

Chairman, I under stand that through the Federal Government, as part of its Budget last November, there is available a certain nu mber of 10 units to Manitoba under the CRSP, I think that's called, the Canada Rental Supply Program, whereby they are offering a $1 5,000 per unit grant to private sector people to construct new apartments. That would then reduce the cost to the bu ilder to $30, 000 per unit. Would that make it economical for builders to proceed at present market rates or what rents would they have to charge in order to make that figure viable? MR. J.

McJANNET: I'm advised that the reduction from $45,000 to $1 5,000 is still not sufficient to encourage members of the Association to participate in residential rental construction. To answer the latter part of the question which I believe was what rentals would be required, I'm advised that, as in other provinces, certainly in large ur ban centres, Vancouver. Edmonton, Calgary and others, that the rental commanded and expected is a minimum of $650 per month. MR. CHAIRMAN: Mr. Filmon. MR. G.

FILMON: Well, given the fact that costs may be slightly different in Manitoba or Winnipeg than they are in Vancouver or Toronto or whatever, what would be the economic rent for a two-bedroom unit that cost $45,0 00 to bu ild today in Winnipeg? What would be the economic rent for that unit? MR. CHAIRMAN: Mr. McJ annet. MR. J. McJANNET: Well, the answer to Mr. Filmon's question is still $650 per month to make a viable eco nomic operation in Winnipeg on the basis that he suggests. MR. G. FILMON: What interest is that based on? MR. J. McJANNET: What interest rate?

I believe that's based upon the going rates of the market today which was about 18 , 19 percent. Whispering in my ear is Mr. Hob man who tells me that's the current rate, that's the CMHC grant provision. MR. G. FILMON: Sorry, did Mr. McJ annet say that the $650 was considering the CMHC gr ant provision? lt would still require $650 to make it viable? MR. J. McJANNET: That is correct, Mr. Chairman. MR. G. FILMON: I wonder if Mr. McJ annet could comment on his point on having the regulations gov ern the agreement with a tenant, as opposed to the unit with respect to the provision of one increase per 12 months.

Is Mr. McJ annet saying that if a tenant left voluntarily at the end of 9 months of his lease that if a landlord were considering, say, doing jus t a bit of clean up/fix up, the odd bit of painting and touch up, that the concern of the Housebu ilders' Association is that then they couldn't recover their costs for that kind of fix up/paint up; and that's the obvious time at which it's convenient to all parties for that sort of work to take place, as opposed to waiting the three months for which time you could have the increase go through and then moving in on an existing tenant and trying to

Monday, 14 June, 19 82 do your paint up /clean up and that sort of work at that time? Is that your point in that consideration? MR. J. McJANNET: Yes that's exactly our concern. Of course, is that we're in a circumstance where several things take place.

First of all, the tenant disappears after nine months and we're required for the remainder of that nine months to charge the same rental rate as in the first nine months, assum ing it was approved, and of course there'll have to be some amendment if it was a year lease so that after the first three months of that term, being the last th ree months of the other tenants term, there would be an increase for the remaining nine months as it applies to that unit. We find some difficulty in explaining that because pre suma bly there'll have to be some formula set out in the lease agreement as such.

But, as well, landlords I notoriously find - I shouldn't say notoriously as far as the landlords are concerned -but the landlords find that for those tenants who disappear that they do have several probl ems. One of course is that they likely will never collect rent which they hadn't been receiving in the last two or three months and it's an absolute dead loss as far as catching up on the rent that's in arrears and there's always ren ovation and repai r and improvement to a normal unit, at least within reason able groun ds for someone who might like to come in and take up the tenancy thereafter.

So what I'm suggesting, and what the Association has suggested, is that with the Rent Regulation con trols if they -and obviously they are coming in - should apply to the tenancy agreement and to that particular tenant and that under a new set of circum stances, where a new tenant comes in, that's a matter of the negotiation between the landlord and tenant arriving at a rent which is reasonably satisfactory to both parties and putting that into effect.

Of cour se, immediately that happens, then the rent control provi sion would apply thereafter to that particular tenant so long as he remains the tenant in that particular building. MR. G. FILMON: I wonder, Mr. Chairman, if Mr.

McJ annet could indicate, given the concern he's expressed about the 9 percent tideline for increases this year and the concern he's expressed about Sec tion 17 which has to do with any increase being able to be objected to by tenants; and, given his concern about the fact that in considering any appeal, that the arbitration panel can go back two years in reviewing what has happened to the rents in that particular suite for two years prior to the asked for increase, does he or his Association have any estimate as to what per centge of all of the units in Manitoba would come under review in the first year of the program as a result of what appears to be a layering of different factors to examine rents?

MR. J. McJANNET: Mr. Chairman, I think the situa tion is under

Section 17 that our concern was the wide open review made available to the Rent Regu lation Officer and to a panel. We feel the review should be limited if I am in the right

section now, that the review should deal with only those increases that are objected to by the tenant and that the monitoring system should not be extended to everybody and everyone in 11 sight in that particular bui lding. We find that will ju st extend the time during which the landlord will wait for a decision and that it will be unnecessary under the circumstances. MR. G. FILMON: No further questions at the moment, Mr. Chairman. MR. CHAIRMAN: Thank you. Mr. Corrin. MR. B. CORRIN: Yes, Mr. McJ annet, just a few qu es tions for you. I'd like to talk a bit about what you began to discuss with the Minister, Mr.

Kostyra, with respect to the effect of high interest rates on the vacancy rate and your concern about inhibitions with respect to new construction as a resulting consequence of our progra m. I think we all agree that high interest rates are an uncertainty and they're a variable and they're obviously currently playing, to some extent anyway, some havoc with the market economy and new con struction.

I'm concerned and I believe that I'm correct in concluding that as long as these high interest rates prevail that they'll certainly be a disincentive to con struct new housing in this province, if not indeed in this country. In those circumstances it occurs to me that it will be easier for new home builders, develop ers, to' achieve economic rents within a lesser time frame, within a fewer number of years, than might nor mally be the case if interest rates were lower and there was a very active sort of ongoing market, econ omy.

I guess what I want to pose to you is whether you would agree or disagree that, in the present circum stances, developers will probably, on a balance of probabil ities, will probably be able to attain economic rents, rents that achieve the goal of being able to satisfy their operating costs as well as give them a proper return on capital, within the four-year exemp tion period that we have currently provided. Can you give us some idea of whether you agree with that or disagree with that? MR. CHAIRMAN: Mr. McJ annet. MR. J.

McJANNET: If I understand you correctly, Sir, you'r e suggesting that, under today's economic cli mate, it will be easier to lessen the gap between eco nomic rents and market rents in four years than it has in the past. My answer to that is that unfortunately I cannot agree with you. lt seems to me that there is no incentive for investment to put your time, effort and your funds into the rental housing market. You make reference to the high interest rates and, indeed, they are high and we are all living with that.

The fact of the matter is that someone who has some loose change that he might wish to invest in rental housing can almost be assured of 14 , 15 , 16 percent, without lifting a finger, simply by coming down to the local bank and investing his funds. lt seems to me that the disincentive is the alternative consideration for investment. He has, on one hand, a guaranteed return by presumably the strongest institution, the banking situation in Canada, as against the rather difficult situation in operating and maintaining new housing rental units in the market.

So I suspect, if history is any indicator of what's taking place, and my clients so advise me, and I personally have seen those circu m-

Monday, 14 June, 19 82 stances, that any new un it, any new building unit when it goes up, starts off with what you might call some degree of giveaway.

That is, a month's free rent or two month's free rent or this and that and certain other considerations and, as a result, those are the areas, certainly part of the areas, in which the builde r, the developer must ultimately catch up on those costs; that is, that negative cashflow in the first few years, where he must not only catch up the loss, the negative side of it, but also see his way clear down the line where he's going to have a reasonable return on his investment.

On today's market a reasonable return on invest ment can be shown to be better in the bank, and certainly better in the bank than it is in having it into the rental market. MR. CHAIR MAN: Mr. Corrin. MR. B. CORRIN: Basically what you'r e saying, Mr. McJann et, is that the current situation is such that it has considerably lessened the prospect -and I'm now referring to the high interest rates -it's considerably lessened the prospect of developers going into this market anyway.

If I understand you correctly you're saying that, with or without controls, essentially it's probably perceived as a high-risk busi ness for developers. You're saying that even though that is the case, even though the case is that there will be continuing and, I guess, a continuing decrease in the vacancy rate, that developers probably will be loathe to fill that vacu um and come in and start to take risks with respect to investment of capital. So the normal laws of supply and demand are distorted by the risk factor created by high interest rates.

What I'm saying again is, normally I would expect, in a normal market where there is a projection of low supply and there is a special consid eration being given to new construction and an incen tive given to people who wanted to fi ll that gap, wanted to come in and provide new supply in the market, that there would be a boom in construc tion, you're saying that's not the case anyway. MR. J. McJANNET: Well, I'm saying that, notwith standing that these people have a four-year exemption. MR. B.

CORRIN: Not withstanding that and not with standing that supply has diminished as a result of high interest rates and those rates will continue to have that sort of effect in terms of risk factor, you're saying that developers still wou ld not want to come in. I guess my question is, how do we protect tenants? What do we do? MR. CHAIR MAN: Mr. McJan net. MR.

McJANNET: How do we protect tenants? it's a qu estion of referring back, and if you're referring to the interest rates today, I refer you to the graph that's attached to our presentation. lt shows, if you accept the graph, that in the ninth year, there's an operating profit in the 10 th year. The evidence is, from all of my sou rces and the answers I get, those graphs, in reality haven't worked out. ln fact, that graph can be extended several more years before you get into an operating 12 profit picture. That graph was prepared with interest rates at 11 percent. MR. B.

CORRIN: Are you suggesting that we provide new construction with an exemption, perhaps, in that range? Would you think that would be a reasonable range and that tenants should be subjected to unr egu lated increases for that length of time? MR. J. McJANNET: The 10 years? I was suggesting that it would be 15 years, Mr. Corrin, and I base that suggestion on the exemption, supp orted by the fig ures presented to us by CMHC on their local review of the market which is available, and by their review of the market across the country. I rely on their figures in suppor t.

What happens with respect to protect the tenant. I understand the concern of the government in that situation but we have two concerns here. On e, of course, is that those who have investments in apart ment buildin gs which are very soon to have their mortgages expire or mature and from 11 percent we jump to 20 percent; and for those who want to come into the market and construct new rental units for rent to Manitobans, they have to have some reasonable anticipation over a period of time that they will have some reasonable recovery. I don't know how you resolve that. MR. CHAIRMAN: Mr. Corrin. MR. B.

CORRIN: In your submis sion, Mr. McJanne t, which would be more ju st, a situation where we extended initial exemption period to developers for something in the order of 15 years, as you have sug gested; and then possibly had to enact retroactive legislation, on determining that economic rents had been achieved earlier than the 15 years initially antici pated.

I guess I'd like you to comment on what, for instance, your clients' position would be if we tried to do that, if a government tried to bring in retroactive legislation in order to protect tenants in that situation; or whether it would be fair to start with a four -year exemption period, continue to review and monitor the development situation as it pertains in the province and then, if necessary, and if your concern is borne out, make the necessary legislative revision to accommodate the situation as it then exists with respect to the developers.

Which seems to you to be more prudent and fair from the point of view of the public? MR. CHAIRMAN: Mr. McJannet. MR. J. McJANNE T: Mr . Chairman, I'm sorry but I did not get the question. I don't want Mr. Corrin to repeat the question in detail but could you ju st give it to me one more time. I didn't qu ite catch part of his presentation. MR. B. CORRIN: If I can be more succinct, I'll try.

My concern is that we have taker1 a particular position and we have determined, from our standpoint, given our projections for futur e construction as a result of high interest rates, given what we think is the projected market, we have decided that somewhere in the order

Monday , 14 June, 19 82 of four years, it would be a reasonable time frame within which developers could achieve economic rents; you'r e suggesting something in the order of 15 years. We have, I'm submitting, erred on the side, if anything, on the side of the tenant and the public in that respect. You'r e suggesting that we go to 15 years.

I 'm saying that if we do that and we find that 15 years was not a reasonable time frame in terms of obtaining economic rents, let's say that it turns out we were right, it was four or five, that then we would have to, if we were to continue properly regulating the cost of housing in this respect, then we would have to con sider retroactive legislation in order to protect all those tenants who are the residents in these newly constructed units.

And, I'm suggesting and I'm asking you whether you think it would be fair, from the stand point of both the developer and the public, for us to retroactively then roll back that exemption period, or do you think that we should continue to extend it for the full 15 years notwithstanding that economic rents were achieved in much shorter order. MR. J. McJANNET: Mr.

Chairman, I can't forecast the future and I can't say other than the evidence before us and the graph and the forecast which indicate to us continuing substantial increases in costs, and it seems to me that, four years, according to everything we had before us and all of the graphs that you have before you and I'm sure that the information available before the Minister, that four years is not ample time to meet economic rent and to cover the gap between the market rent and the economic rate of return.

I fore cast, however, and I'm prepared to do that, those costs as CMHC is forecasting will continue to increase sub stantially on an annua l basis, we've seen that for the last numb er of years so I don't see that four years is an appropriate time. Our suggestion, of course, is that in line with the history shown by CMHC that a more appropriate time is 15 years. MR. B. CORRIN: I wanted to tur n now to page 19 of your brief, the discussion of the effect of the two-year retroactivity period. I believe you thought that this was unwarranted and would present a difficulty for people in you r client's position.

I was wondering whether you were satisfied that all landlords had been treated fairly by the arbitration and mediation program over the past couple of years. Were you satisfied that that pro gram served the best interests of all landlords. I think, honestly one of the reasons for this is that we're not satisfied that all tenants were treated fairly and we're willing, during the course, I supp ose of legislative debate to consider that and discuss it at some length. I'm wondering from your standpoint, now, how did the program affect and influence the position of people like your clients? MR. J. McJANNET: Mr.

Chairman, the decision to arbitration, of course, is a difficult procedure and it's a method of some sort of control. lt seems to me that naturally it hurt some of our clients and perhaps it didn't in others. I don't have a review of all the applica tions that went to landlord and tenant as to whether there were any serious hardships on the landlord or on the tenant. lt was a provision that was put in and your decision as to what would be fair they decided by 13 that arbitration board. If you and I were on the board, you and I might agree to dissent, so to speak.

But, the fact of the matter is that it's a judg ment call and to ask me to tell you whether they were hurt or not hurt, I'm sur e there were some. But our main concern about

Section 17 , if one wishes to consider that, and that is that the Rent Regulation Officer and the other people on the panel should not only consider the increase in costs over the last little wh ile but they should give consideration to reasonable anticipated costs that will be incur red by the land lord over the next 12 months because that's where you're putting in your control, in the next 12 months.

And one can see, as forecast by CMHC and forecast by others, Greater Winnip eg Gas is ju st only one company that is before the Public Utilities Board on a regular basis and they appear and say we need another increase because our costs have gone up by Trans-Canada Pipeline, there's no question that costs have gone up and within some degree of reasonable ness the board decides that there should be an increase. One can forecast those almost certainly and those increased anticipated costs should, in our view, be considered and identified specifically in order that there would be no misunderstanding. MR. B.

CORRIN: Would you then sympathize to some extent with the plight of the small landlord who, under the arbitration program, had suffered a breakdown of some part of the building, such as, the heating system and was unable to recover the expense because that whole arbitration program was based on comparative rents in the neighbourhood and didn't take operating expense or cost pass-through into consideration and therefore in certain circumstances wou ld have pre vented that individual from any recovery at all? MR. J.

McJANNET: Certainly I wou ld sympathize with him, I would sympathize with any landlords, someone who goes out and has spent their life in this community and owns a duplex or a fourplex, and all of a sudden finds himself that that's his retirement plan, and all of a sudden the interest rates have gone from 10 to 20 percent and instead of making maybe 10 percent return on his dollar, if that, he's now fou nd himself in a position where he's on a loss on a monthly basis. Certainly I have sympathy for anyb ody who makes an investment that would be a bad investment. MR. B.

CORRIN: In that ·circumstance, then, would you not agree that by giving the Rent Re gulation Officer and the panel the right to retroactively go back two years that we might be able to redress some of the ill affects of the former program and enable these people to catch up and to move into a more equitable investment situation with respect to their property? And there's a concern about tenants paying more rent, but also there's a concern that we have housing and I'm just asking you, on balance, because I think in our program we've attempted to bring some balance to our approach.

Do you not agree that it would be rather inhibitive in terms of these people's ability to maintain their properties and, given high interest rates in the current situation, if they couldn't recover ade qua te rates in order to underwrite and repay their actual operating expenses, costs actually incur red?

Monday , 14 June, 19 82 MR. J. McJANNET: On a reply, Mr. Chairman, I would certainly agree that the cost over the last couple of years are of some relevance as are the rents. I'd like to be assured that both items would be taken into con sideration at any time. lt was a minor point with us vis-a-vis what we consider not a cost in the past but the increased anticipated costs over each continuing 12 -month term of the tenancy.

So in every considera tion of those costs, what our real concern was in dealing with that was the job of the landlord having to put all this information together and the unilateral right in the Rent Regulation Officer to demand all the paper work be prepared and provided to him. MR. B. CORRIN: The only other question I had was with respect to the ARP program and I have some difficulty under standing the position, and that's as a result I'm sure of my inability to comprehend precisely what you said.

I'm reading page 8 of the brief and it seems to me that the first phase of the ARP program, the one that I believe started in 19 75, this is the out right grant program, this is the one that was ju st fully funde d by the federal program, essentially was a rent regulated program. There were features in that that limited the owner to increases in rents that were not more than the increases in operating costs in each year and those costs, I believe, were initially agreed to. lt was a retroactive program with the developers con senting to be bound by an agreement made initially as to costs.

An aspect of our program you don't like is that it doesn't allow budgeting, but the developers in this case did proceed on this basis presumably because there was the carrot provided of the outright grant. Do you think in those circumstances that we should intercede and, as it were, intervene between the par ties, between the contractual parties and have our program effect agreements that were made between the developers and the Federal Govern ment at the time of construction? MR. J. McJANNET: Mr. Chairman, at Page 8 in deal ing with the first phase of the ARP Program. Mr.

Cor rin's qu ite correct that the initial phase of the ARP Program was on a grant system, that is, a grant to the developer and was not repayable. Un der the circum stances of those agreements which were in effect for 19 75 and 19 76, there was a control on the 9rants based upon increased-operating costs, as I've said, in a particular year, the details of which were agreed upon, that is, those controls, those items were agreed upon in the initial agreement. There was a limit to a return on investment, I'm told, at 10 percent.

The situation under the new program is that the second phase of the ARP Program is different but what I have said on Page 8, and I've suggested to this committee, is that those billings covered by the initial ARP Agreement should have permanent exemption or in the alternative, at least 15 years exemption because, in fact, there already is control on those units and those buildings imposed by agreement under the CMHC ARP Progr am. MR. B.

CORRIN: So, in terms of the perspective, there is a form of control on the first phase but there is no real control with respect to the second phase, that being a sub sidy-type program with interest-free loans 14 being provided? MR. J. McJANNET: Well, we prefer to call it a mort gage advance rather than a subsidy program because, in fact, the advances so made have to be repaid. Mr.

Corrin is correct to the extent that under the agree ments there is not a direct control on the rents, other than the economic market situation which history has shown since the Phase 11 of the program, that the STEP Grant, the Step-Down Program of advances under the ARP has been changed and extended and the term of 10 years as applications are before CMHC and in some cases have been extended to 15 years before someone is requi red to start repaying that loan. So, to that degree. it is tied into the market situation. MR. B.

CORRIN: Well, we agree that market re:1ts are available to the developer, the owner with respect to Phase 11 of the ARP Progr am. There's no inhibition is there in their attaining market rents as the agreements currently exist. it's not like Phase I. MR. J. McJANNET: That's correct. Mr. Chairman, the situation is that no controls imposed by CMHC and I recognize that situation in my remarks in my presentation. MR. B.

CORRIN: Do you have any idea of the break down in terms of the numb er of un its constructed under Phase I and Phase 11, the uncontrolled and the controlled, or I should reverse that, with respect to those two aspects of the program? MR. J. McJANNET: We don't have that information readily available at this moment. Mr. Chairman. but I understand that those details were given to the Minis ter. Mr. Kostyra, by the Association in various discus sions over the past few weeks and months. MR. B.

CORRIN: If we did introduce controls with respect to the Phase 11, for instance, then I take it we would be, to some extent. doing double duty in that we would on the one hand be protecting tenants in terms of regulating their rents. We would also be, I suppose, protecting taxpayers because we would be assuring that the sub sidies which are provided to the develop ers and owners of these particular developments would not be out of line with their actual operating expenses. How do you react to that? Am I correct in assu ming that we would be doing double duty if we imposed controls with respect to Phase 11? MR.

J. McJANNET: I suppose, Mr. Chairman, that we might have more ammun ition to return to CMHC to suggest that the step-down not continue and that cer tainly the time provisions be extended. MR. B. CORRIN: That was my last question, has your organization taken a position with respect to whether or not they will go to CMHC and the federal authori ties, if they are not exempted with respect to one or other of these phases of the program, and ask for continuing extended sub sidies from the Federal Govern ment. Would you do that? Have you decided? MR. J. McJANNET: In answer, Mr. Chairman, the

Monday, 14 June, 19 82 members of the Association, individually, of course, dealing with their own situations have already gone back to CMHC for extensions and reductions of the step-down and all of those sort of concepts but as far as taking a position, the Association, knowing that reasonable minds will prevail, feel that this govern ment would accept some of its suggestions, hope fully, and that it will not at this time, at least, be required to make any decision along those lines. The matter has not been discussed. MR. B. CORRIN: This is really the last qu estion. wanted to ask which you thought was fairer?

Does your organization think it would be fair for the Provin cial Government to cover this possible defect, this anomaly with respect to the housing economy and situation, or do you think it would be fairer for the Federal Government to extend the program and admit that it was their primary responsibil ity to provide the subsidy which would effect fairer rents for the tenants in these units? MR. J. McJANNET: I believe the Association feels that the marketplace should be the final determination of the rentals under those circu mstances.

I think that we really feel that the only reason for the ARP Pro grams and perhaps the MURB s and others was to provide incentive for investors and others to partici pate in this industry in this country and that one would anticipate, perhaps, that we didn't need any one of them. lt wou ld be nice if we could rely on that but we've had to rely, not only on the ARP but also the MURB Programs to really find funds to participate in rental housing in Canada. MR. CHAIR MAN: Mr. Penner, the Attorney-General. HON. R. PENNER: Ju st two or three points, Mr. McJan net, that I wou ld like to get some clarification on.

On Page 14 of the Brief, it is argued on behalf of the Association that rent controls should be for the benefit of the tenant and I think we would all agree with that. But, then it goes on to say in the first sent ence of the second paragraph to which I'm referring:- with a landlord free to set a rental rate for a new tenant. Would that not provide a powerful incentive to a landlord who feels, as apparently some of them do, that the return provided for in this proposed Act is insufficient to find the ways and means of getting the tenant out of the premises so that the premise in effect would be decontrolled? MR.

J. McJANNET: I think if you assume that a land lord is unr easonable and arbitrary and not equit able and fair, that perhaps motivation may be created. On the other hand, experience would indicate that getting tenants out of build ings these days, even those who don't pay rent, is indeed, a difficult procedure. You ju st don't walk in and ask them to leave. We have had situations -not many fortunately -by honest tenants and honest landlords where rents haven't been paid. Ultimately, one has to go to the cour t to get an order to remove him.

If there is an unscrupulous landlord and I'm sure there are some, you may fall into that situa tion, Mr. Penner . I would hope that wou ldn't happen. 15 HON. R. PENNER: Of course, I think by definition, we're only talking about the unscru pulo us landslords; with the scrupu lous ones we have no difficu lty. If they were all scrupulous, we might not need Rent Control Legislation at all. MR. J. McJANNET: In Manitoba, they're all scrupulous. HON. R.

PENNER: Coming to my second point, hav ing to do with the question of the retur n and the argu ment that was made about the proposed figure of 9 percent, you made a statement about well, anyone with money to invest might trundle down to a bank or institution of that kind and get 14 , 15 , 16 percent. But, that begs a question which I would like to pose to you of the real return.

For example, would you not admit that with the person trundling down to the bank with these bags full of money, or the one still with the taint of the mattress on it, goes down to the bank and invests at, let's say, 15 percent, there are two factors to be taken into account on judging the real return.

One is, what is the after tax return because from the $1 ,000 exemption on interest that person is paying a tax rate on the return, not only a tax rate but a very high one, because we sur ely must assu me that someone with these bags full of money enough to start an apartment block as an alternative, has got a sub stantial amount of money. So the real return measured in terms of after tax dollars is cer tainly not the 15 percent.

Secondly, if it's in an investment in terms of a bond or term deposit, to bring in the interest, one has to measure the real return: that is, accounting for what inflation does to that investment over the period of the term. In fact, it's arguable that the real return before taxes may be only 2 or 3 percent, when you take into account the effect of inflation. So that su rely is what we might take into account in measuring the return on investment where one chooses to take that route, is that not right? You would take factors like that into account. MR. J. McJANNET: Mr.

Chairman, I think you take all factors into account. The fact of the matter is that members of our Association go to the public , with or without tax advantages or tax write-offs that maybe available, they go to the public to try to get those funds that you talk about to be invested in some sort of rental housing market rather than being put into the bank and with varying degrees of success. That, in fact, has taken place.

Certainly all of those factors have to be considered that the Minister sets out and I don't think that here we can go through all of them and there are a great many others that we have to keep in mind. Those are some of the factors, no question. HON. R. PENNER: Right.

Then looking at the other side, that is the investment in a rentable property and looking at that rather difficult to define term, eco nomic rent, surely some of the factors that must be taken into account there in looking at real return is, first of all, the effect of the writeoffs, the depreciation;, secondly, would you not agree the question of appre ciation, you see with an investment in something like an apartment block or any other investment of that kind in which there is a return but you own a capital

Monday, 14 June, 19 82 asset, appreciation is one of the factors that you ought to take into account;

whereas with the money put in a term deposit you're suffering depreciation; with money put into an apartment building you're benefiting from appr eciation in an inflationary market. So you have two factors that really must be taken into account that aren't available to the investor in a term deposit. The factor of capital appreciation, the writeoff in terms of depreciation in the amount that has to be paid in taxes. MR. J. McJANNET: I think, first of all, there may be appreciation in buildings over the period of time, as Mr. Penner suggested.

Some indication of how valua ble that is is the fact that those who have units avail able for sale have some difficulty selling them. Cer tainly, because even though they're increased in value, if you look at some of the market reports around Winnip eg you can buy an apartment building in Win nipeg sitting there occupied for much less than the replacement cost as suggested by memb ers of my Association which would appear to be $45,000.00.

So that it's true that perhaps it is appreciating but it doesn't help you if you don't have the funds them selves as a result somewhere down the line and some indication of someone who is going to come along and say, yes, I'd like that because there is a return on that increased value that you describe, Mr. Minister. So it seems to me that that is part of the answer to that situation.

The other qu estion is that even though you may describe all of those benefits to an investor, whether it's professional people who want to have a writeoff and whether there's a tax writeoff or not, and there or may not be any more of those, certainly at the moment there isn't.

The fact of the matter, you still have to get the money from them and you have to appeal to their sense of direction and say now you've got your money invested in the bank and they have to decide, I'd rather take it out of the bank and put it in with Joe Blow over here to do that development. it's not an easy task and if you withdraw the incen tives it becomes even more difficu lt, I submit. HON. R. PENNER: I would agree, of course, that the state of the market will affect how valuable the appre ciation factor is or how realizable it is at any time.

I'd certainly agree with that, but nevertheless it is a factor that, I think , must be taken into account in some way in measuring economic return. My final point has to do with the statement made early on in the brief rela tive to consistency. Page 2, Mr. McJan net, "lt is the view of the Association that continu ity in the con struction industry for those involved in the construc tion of residential premises should be maintained such that the effective date in the new Bill should be Janu ary 1, 19 76 as in the repealed Rent Stabilization Act," just stopping there.

Of cour se, one of the things about The Rent Stabili zation Act is that it was repealed in 19 80 so that what ever consistency was given by a particular term was taken away by some previous government but I don't want to comment too much on that. But, in any event, in The Rent Stabilization Act, if one is looking at that as a model, there was a five-year exemption period; now, we're proposing a four-year exemption period. 16 But you talk about consistency and yet the very next sentence -and it's to this I direct you in my question says, "buildin gs after '76 should be permanently exempt from controls";

whereas The Rent Stabiliza tion Act provided only a five-year period. You'r e ask ing for consistency, isn't that proposal of you rs incon sistent, or of your Association? MR. J. McJANNET: Mr. Chairman, our proposal, and perhaps it's not written as well as it should be, is that there be total exemption for buildin gs constructed from and after Jan uary 1, 19 76. I don't supp ort, or otherwise, The Rent Stabilization Act as such.

I acknowledge that it was repealed in 19 80, if it wasn't then I would have thought it was my Association's position at the time it came in, The Rent Stabi lization Act came in, that five years at that time was not equit able or fair either; and our position simply is that we make reference to that Act simply to say, at least, initially back then it was five years.

We've cut back down to four years but our position is that it should be permanently exempt for all those who have con structed buildings since that time, at least to the date it was repealed and that, if that isn't satisfactory -which there was some indication it may not be -that there should be a reasonable exemption period related to the facts and the information available over the last six years and, that is, that 15 years would be a more reasonable period of exemption for all those new resi dential construction buildings in this city. HON. R. PENNER: Thank you, I have no fu rther questions. MR.

CHAIRMAN: Mr. Banman. MR. R. BANMAN: Thank you, Mr. Chairman. First of all, I guess before I start I'd better declare that I own a fourplex, in case some people want to impute motives to some of my questions. However, I wou ld like to ask Mr. McJan net, first of all, through you, Mr. Chairman, whether or not other than the 400 un its which CMHC will be providing grants toward, whether there are any other federal incentive programs or tax concessions provided for people who want to build, either, large or small rental accommodation units? MR. J. McJANNET: Mr.

Chairman, I believe my answer is correct, we've checked that and I know of no such programs in effect at the moment. MR. R. BANMA N: So those have all been removed, any MURB programs or anything along that nature, or any incentives for an individual to invest in rental accommodations, that has been removed by federal taxation. I guess the second one is the high interest rates which you indicated, of course, have been a really large deterrent as far as new construction is con cerned; and the third one, I guess, the concern in dealing with new starts is this Bill which is before us right now.

I guess if I was to sum it up, maybe you could correct me if I'm wrong. I guess strike one is the federal incentives, lack of them; strike two is the high interest rates and really what you're saying, the third strike and you'r e sort of out of the ballgame, totally, is

Monday, 14 June, 19 82 if there is not some extension to the time on which the new un its are allowed to be run without this type of control. MR. J. McJANNET: Mr. Chairman, it's the view of the Association that certainly the loss of the M URBs was a death knoll to those involved in the construction industry. lt certainly has its effect, a very serious effect. The high inters! rates are devastating.

If you can get a loan, then it's for five years and I think 18 , 19 and 20 percent is the norm, it's not un usual and there's no qu estion that with those two strikes -and I'm sur e if we put our mind to it, we could find a few other strikes to add to the situation -there's going to be a serious shortfall and new starts forecasted by our Association in the coming year and years to come. That, in the long run, does not serve the interest of tenants; in the short run, it may serve the interests of those tenants now occupying units, but in the long run, in our view, it does not serve anybody's interests. MR. R.

BANMAN: In light of the fact, and the figures are bearing it out now, that there is very little activity and should a Bill like this be too onerous and the vacancy rates of course have become very tight, who do you think is going to build rental accommodation in this province? MR. J. McJANNET: Well, Mr. Chairman, it's difficult to forecast but I guess you send everything back to the government and ask them what they're going to do for you next and whether it's the Federal Government, whether revision of any of their present programs or the Provincial Government with some sort of pro gram.

Somebody has to do something presumably and if the private sector is not going to do it then it leaves us only with the various levels of government. MR. R. BANMAN: Precisely, and I guess this is the concern of many people because what's going to happen is that government is going to be forced into it by the different moves, not only at this level but at the other levels of government and it's, I guess, something that really concerns a lot of us. I'd like to deal ju st briefly with a few que stions that the Attorney-General asked. The value of an apart ment block, is that based on the rent factor? MR. J.

McJANNET: The value of an apartment block or an apartment un it. Well, as indicated, first there's several bases of value. There's the economic return value and that is used mostly by appraisers, it seems to me, but to construct a building today, it's $45,000 a unit for a two-bedroom unit.

That's one ind ication of value and then if you happen to be a buyer, you're going to turn arou nd and look at the statement and see what the income return is and say well, I want to have 11 percent or 12 or whatever return on my dollar, my investment, and therefore reversing the calcula tion, I get a value of that particular apartment unit. Ob viously, in today's market, the value is indicated as much less than the value of the cost of replacement that one would find today. MR. R. BANMAN: In selling an apartment building, is a times gross figure usually used?

In other words, the 17 rental factor does play a pretty important role in what an individual can receive for an apartment block. MR. J. McJANNET: it's the only factor when you'r e buying an older apartment. it's return on investment and how do I calculate my return on investment and that's my receipts from rented un its less my cost. MR. R.

BANMAN: So what you're saying is, regard less of what someone might say that unit is worth, if the rent factor on that particular unit is at a fixed, prescribed rate and controls are in place which indi cate that is the amount of increase that's going to be allowed over the next period of years the buildin g is worth what the rent factor dictates it is. MR. J. McJANNET: Well, in my view, Mr. Chairman, that would be the criteria. I guess some of us might look for someone else who might be more generous but I think that's the criteria. MR. R.

BANMAN: Another qu estion with regard to the appr eciation, in other words, the person that does take the risk and put up the money and then, because of inflation or because of some other factors, man ages to increase the value of the apartment block. A person, upon the sale of one of those, does he or she pay capital gains on the increased value? MR. J. McJANNET: Un der normal circumstances, Mr. Chairman, there is a capital gains or direct income tax payable depending on the individual circumstance of that person. MR. R.

BANMAN: So in the case of, the Attorney General referred to the increase in appreciation, the government is already taxing a certain amount of that appreciation at the present time? MR. J. McJA NNET: Ultimately, they will be taxed, presuma bly on the sale at which time they'll have to declare it. MR. R. BANMAN: The final observation, Mr. Chair man, and that is only to say that the Member for Ell ice mentioned that there could possibly be some rent increases with the

Section which provides the two year retroactivity clause and I find that very interest ing, in light of the fact th�t the other piece of legisla tion that is in place was not tough enough, and here we hear today that possibly people in rental accom modations if this Bill is passed in its present form, will be receiving rent increases retroactive to two years and I find that an interesting observation. Thank you Mr. Chairman. MR. CHAIRMAN: Mr. Filmon. MR. G. FILMON: Thank you, Mr. Chairman, I'm sorry to monopolize Mr.

McJan net's time but there have been some other questions asked that have reminded me of other questions that I wanted to ask. Mr. Chairman, the Attorney-General-and I'm sorry he's not here to listen to this additional discussion on it - I asked Mr. McJan net about the tendency or the motivation for landlords to try and remove tenants

Monday, 14 June, 19 82 earlier than the end of the 12 -month term in order for them to get an additional increase in rent if they bring in a new tenant and I wonder if Mr. McJan net is famil iar with The Landlord and Tenant Act. He referred to the fact that it is indeed very difficult for a tenant to be removed from the premises under any circumstances, even including the nonpayment of rent. Are there not many provisions in The Landlord and Tenant Act that were specifically designed to prevent any sort of har rassment or an undue pressure to be put on a tenant to remove them from the premises? MR. J.

McJANNET: Mr. Chairman, there are provi sions in The Land lord and Tenant Act to protect the tenants and, I supp ose, to be perfectly honest many landlords would say that the pendulum has swung the other way now and that all the protection is for the tenant and none for the landlord. When I was referring to removal of a tenant, for instance, for nonpayment of rent, simply that you cannot bodily walk in and move your tenant and baggage out of the apartment unit.

He sits there and if you dare touch him, of course, we have other laws that prevent people from being involved in forced situations and subject to criminal charges, etc. The tenant if he refuses to pay his rent and refuses to depart the un it, it's happened on occa sions, and there are bad tenants and perhaps there are unscrupulous landlords on occasion as suggested by the Attorney-General. One has to go to court, with proper notice to the tenant, and have a hearing before the court and have the court give an order to vacate the premises and have the tenant forcefu lly removed if he does not obey the order.

He'd be removed then by the Sheriff's Office. MR. G. FILM ON: I don't want to enter into debate with Mr. McJanne t about the provisions in the Act because I believe there are good and valid reasons why there ought to be strong protection for the tenant's interests in the landlord and tenant Legislation and I believe it's encumb ent upon all of us in gover nment to protect those rights. The fact of the matter is that there ought to be some strong equality in the legislation so that the interests of both, as much as possib le, are consider ed and protected.

Fur ther, the Attorney-General made reference to what he said was the inconsistency in your brief in reference to The Rent Stabilization Act whereby The Rent Stabil ization Act of 19 76 did provide for only five years, before the new construction, du ring that period, went back under controls. But is it not true and were the members of your Association not under the impression, when that Act was brought in, that it was not

an Act that was designed to be in place for all time in futu re. In fact, I'm sure that you can recall that former Premier Schreyer and other members of his government suggesting, when it was brought in, that it was a temporary measure and therefore, when that 5-year provision was in it was under the assu mption that by that time everything would be back out of the controls of the government Rent Control Prog ram. MR. J. McJANNET: Yes, Mr. Chairman, I think it's a fair recollection to say that there was that assu mption but that assu mption has not come to pass. 18 MR. G. FILMON: Mr.

Chairman, I'll apologize if it appears as though I'm leading the witness as I believe is the term that lawyers use but, in view of the fact that the rolls are reversed and Mr. McJan net is the lawyer and I'm the lay person asking the qu estions, I'll carry on this way. The other consideration, and again I was interested in Mr. Corrin's reference to the fact that he was con cerned that, perhaps, landlords weren't given great enough increases under certain circumstances under the previous legislation. Well, conversely and I'd like Mr.

McJanne t to comment on this, we, on this side, are very concerned that indeed the 9 percent tideline may be too high in many instances; that the statistics that were brough t forward under the rental market survey by the Department of Consumer and Corporate Affairs last year indicated, in fact, that one half of all of the un its in Winnip eg had an increase of 8 percent or less.

Un der this legislation there will be a great tendency for landlords, who have units in perhaps less desirable locations who, because of the equ ity position that they have in it, because of the market competition in their area, because of their lower costs of operation, couldn't normally justify the 9 percent increase, but they're likely going to utilize the government appr o val, or the implied government approval of a 9 percent increase, to get a greater increase than they could have before. Do you not see that happening, Mr. McJannet, through you, Mr. Chairman? MR. J. McJANNET: Mr.

Chairman, I still have to revert back to the marketplace, in any case, where the 9 percent seems to be a suggested guideline.

One of our concerns was of course the right of a tenant to object to everything and anyth ing, 1 percent or 9 or anything in between or any thing over that amount, but I pre sume that if there was an automatic increase, with tacit government approval, it is suggested that cer tainly as long as there is other accommodation availa ble, that ultimately the landlord may very well price himself out of the market and find that he doesn't have any tenant, although while he does have substantial increase in his rent, so there is protection from that point of view, in my opinion, from the marketplace. MR. G.

FILMON: I'm going to ask Mr. McJan net to put on a more or less different hat but representing the same organization. I want to remind memb ers of the Committee that the organization Mr.

McJan net represents is the Manitoba Homebui lders Association which, sometime ago, prior to I suppose recent turns of events which have seen home building, single fam ily home building in this province, drop to almost nil as a result of a variety of different pressures in the mar ketplace, not the least of which is the high interest rates, but as one of the prime focuses of the organ iza tion is in home building, I wonder if Mr.

McJan net could comment on a concern that I think trouble s many of us who represent both individual homeowners in Manitoba and renters in Manitoba and want to see the best interests of both protected by the government. There is a situation that will develop as a result of the passage of this Act that will see a rather large government structure come into place. We found out during the Estimates debate the cost of this particular legislation and this particular structure being put in

Monday, 14 June, 19 82 place, and the Minister can correct me if I'm wron g, but he anticipates, initially, a staff of 23 in the Residen tial Rent Regu lation Bur eau. He anticipates spending about, I think, $250,000 in leasehold improvements to prepare the location for the Bur eau to reside and he anticipates $80,000 a year in rent.

These costs in the first year. taking into account the 23 staff and the $250,0 00 and the $80,000 are something in the order of $900,000 to put this structure in place. 1t seems to me. aside from other areas of transfer of costs that we will have as a result of this rent regulations. and I'm thinking in terms of the assessment balance transfer that may or may not take place, but certainly there will be a readily definable cost approaching a million dol lars in the first year for this structure to be put in place for the benefit of tenants; and yet, a cost that will be shared across-the-board by all taxpayers, many of whom are already beleaguered as homeowners with the fact that they are now renegotiating the mortgages on their homes at interest rates of 18 , 19 , 20 percent; that they are faced with, if they have an average home in Winnip eg, for instance. an increase of $1 90.00 this year in their property taxes alone. and that's for the average home assessed at $7,000; and all of the con tinuing increases in the costs of their method of living, standard of living.

In additional to that they're being asked to pay for their share of the Residential Rent Regulation Bur eau.

If that cost is a million dollars or close to it and can be set at a definable level, and I think some of the things that you've indicated, the fact that so many of the rents will be open to review because of the various provi sions that, in fact, stimulate appeals, or will stimulate appeals from the vast majority of rental units in this province this year, so there is a concern that maybe 23 people won't be enough in order to have the system operate efficiently and well so that the decisions will be rendered at a time in which they'll be useful.

Would you comment as to whether or not there is an advisa bility that these costs should be offset as a separate charge, perhaps, to be added to rents in the province because they are indeed in the interests of those who are in the rental market and they're designed to really be at their service and certainly not in the interests of all of those who are homeowners and faced with all of those increases that they are as well, would not that be a manner in which the costs of operating such a large bu reauc racy might in one way be controlled because then they'd be very definitely visible to people if it added say a fraction of 1 percent or a monthly charge to their rent to have the services of this Bur eau at their disposal?

MR. J. McJANNET: Mr. Chairman, Mr. Filmon is cor rect to the extent that my Association represents home build ers in the Province of Manitoba but it also has several su bsections or divisions deal ing with other interests and one of the interests, of course, is those who are involved in the construction and rental of housing units

Document details

Collection	Manitoba — Debates (Hansard)
Citation	32-1-sro1
Type	hansard
Volume / chapter	32nd 1st hansardpdf sro1.pdf
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	12a3665b2722ee6f6566ad02102404976758e008

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