Turning apartments into condos: Regulate conversions to protect renters

Rising housing prices and low rental vacancy -- a perfect storm for condo conversion.

A few weeks ago, an acquaintance of mine received notice that the Osborne Village apartment building where she has lived with her partner and two children for the past five years will be converted into condominiums.

The Manitoba Condominium Act requires that she be given five months notice to find alternative accommodations. She tells me she may as well have been given a day's notice because there are simply no three-bedroom rental units available at a rate that her family can afford. While she likes the apartment, she has no desire to purchase it and even if she had, she couldn't afford to.

The rapid increase in condominium conversions is noticeable across Winnipeg, particularly in highly populated areas such as Osborne Village, Corydon Village and along Grant Avenue. It is becoming a serious problem for renters.

Winnipeg's rental vacancy rate is one per cent. This is far below the three per cent rate, considered a healthy private rental market rate.

Condo conversions are contributing to the shrinking rental market. Between 1992 and 2009, 5,473 rental units were converted into condominiums. During that same period, we saw a decline in the private rental stock from a total of 57,279 units to 53,154, a net loss of 4,125 units.

Canada Mortgage and Housing Corporation reported an average of 600 new condo units per year in 2007 and 2008. That number dropped to 27 in 2009. CMHC attributes the decrease to the recession. The recession, however, clearly hasn't affected conversions -- 306 units were converted in 2009 (up dramatically from 2008).

It is faster and cheaper to convert rather than to build from scratch, making conversion extremely profitable. Converting the rental stock when the vacancy rate is low is risk free for property owners because they are increasing the demand for the purchase of their units.

Last April, the city's property and development committee defeated a motion calling for a study of the impact of apartment-to-condominium conversion on affordable rental housing.

Russ Wyatt, the only councillor to register comment before the vote, said that condo-conversions create affordable home ownership options for families. Although the development of new condo units or conversion of non-residential buildings can create an affordable option for some families, conversion in a tight rental market creates problems. Creating a supply of one type of tenure by reducing the supply of another limits options, and in some cases effectively forces families to purchase units that they may not want or cannot afford.

Condominiums have an important place in well-planned modern cities. But a healthy supply of rental housing must also be part of the mix.

Other cities have regulated condo conversion. Regina, with a market generally comparable to Winnipeg's, has regulated condo conversion since 1994. Apartments cannot be converted when rental vacancies are below three per cent. More recently, Regina put a moratorium on all the conversions while the policy is under review.

Proponents of conversion will argue that anything standing in the way of the market is bad policy. But market-based arguments only apply when people have options. Home ownership is not always an option. Some will claim that rent controls create the shortage of rent supply and rent restrictions are the ultimate reason property owners are converting. Not so. Other cities, like Regina, do not have rent regulations and yet they regulate conversions.

Market regulation of rent and condo conversion is increasingly being considered in the mix of tools necessary to address rising rents and shrinking supply. A recent study released by the School of Public Policy at the University of Calgary suggests "second-generation rent control" (similar to those that we have here in Manitoba) and other regulatory measures, in addition to a mix of incentives that form a package of affordable rental housing tools.

City council and the province of Manitoba, which will ultimately have to amend legislation to enable the city to regulate, need to put policies in place that best serve the public. Regulating apartment to condo conversions is one such policy.

Shauna MacKinnon is the director of the Canadian Centre for Policy Alternatives Manitoba.

Republished from the Winnipeg Free Press print edition October 8, 2010 A14