Ricochet: Landlords in Alberta are using government-funded climate retrofits as an excuse to hike rents

For Alberta tenants, having their home join the portfolio of a financialized landlord is bad enough news. To compound the issue, “green” investment trends are increasingly driving the retrofit of aging buildings, jeopardizing the stability of lower income renters in a province without rent controls — and the Canada Infrastructure Bank is adding fuel to the fire.

Because the business model of many financialized landlords is based on the acquisition of older buildings that can be upgraded to attract more affluent tenants, Calgary’s tight rental market presents the ideal conditions for investors to increase the value of underperforming assets under the guise of climate action.

“There’s a huge business drive to create more efficient buildings,” says Julieta Perucca, deputy director of The Shift, a global movement working to advance the right to housing, pointing at the risks of holding on to dilapidated properties, adding that “if landlords own buildings that are well below efficiency standards, eventually they’re going to become stranded assets, lowering the value of their portfolio.”

Upgrading aging buildings in a changing climate is essential, but when governments support retrofits in rental buildings without adequate accountability mechanisms to prevent the skyrocketing rent hikes and the displacement of existing tenants, they help landlords tighten their stranglehold over lower income renters.

A case in point is the partnership between a Crown corporation, Canada Infrastructure Bank (CIB), and a real estate investment trust (REIT), Avenue Living, which manages more than $4.1 billion in residential assets across North America.

“At this moment, public money is being funnelled to private landlords to evict tenants,” Perucca says. “Not only is this unproductive for public money, it goes against the emission reduction plan because the tenants unable to pay higher rents have to move out, and we need to build housing for those people.”

In a 2022 survey conducted by ACORN Canada, tenants of financialized landlords were more likely to have moved two or three times in the five years prior, with unaffordable rent being a leading reason to move.

Real estate investment trusts don’t care about the climate crisis

The benefits of retrofitting aging buildings go well beyond reducing carbon emissions. Upgraded buildings also improve the quality of life of tenants by reducing the cost of heating and cooling, as well as promoting a healthful living environment.

In a financialized context, retrofits are also another way to de-risk a landlord’s portfolio, further its value, and attract investment.

“Landlords need to have buildings that are up to date, modern, and retrofitted, because soon enough they will lose value,” Perucca says, adding that as investors gravitate towards socially and environmentally responsible opportunities, or ESG, there’s further incentive for financialized landlords to decarbonize their properties.

“Real estate investment trusts depend on shareholders, and shareholders look at ESG reports,” she says. “So it is important for them to attract capital by amplifying their ESG impact.”

While this rarely produces win-win outcomes, as the benefits produced by more efficient buildings fail to materialize for lower income tenants, it remains unclear if the retrofit programs offered by CIB’s Building Retrofit Initiative (BRI) take into account the potential displacement of existing tenants.

“Real estate investment trusts depend on shareholders, and shareholders look at ESG reports.”

A CIB spokesperson told Ricochet in a statement that “going forward we are ensuring residential building upgrades financed by CIB will not be used as a rationale to increase rent.” The spokesperson added that the core mandate of the program is to “reduce investment barriers” to modernize and improve the energy efficiency of existing buildings for the benefit of tenants.

But there’s good reasons for skepticism.

According to Ricardo Tranjan, a senior researcher at the Canadian Centre for Policy Alternatives, when a rental property is upgraded, or repositioned in investor lingo, “tenants are likely to experience upward pressure on rents.”

And that’s a best-case scenario.

In April, Avenue Living announced the retrofit of a rental building in downtown Edmonton the financialized landlord acquired in 2015, and whose tenants were evicted in 2020. This retrofit is being financed by BMO’s short-term retrofit program, which is funded by CIB.

Tenants are worries rents could skyrocket

In 2022, CIB provided a repayable loan of up to $130 million to Avenue Living to cut in half the emissions produced by 240 rental buildings in Alberta and Saskatchewan, or about 48 per cent of the REIT’s portfolio in Canada.

Although Avenue Living is yet to draw any funds from this loan, the commencement of roofing upgrades at Wyldewood Estates, a 330-unit rental building complex in southeast Calgary, has some tenants worried, as their rents have skyrocketed since the REIT acquired their homes in 2022.

Having lived in Wyldewood Estates since 2018, Syed Ali has enjoyed the perks of living in a well-connected neighbourhood, close to his three children’s school, and grocery stores. But the stability of the Alis changed drastically after Avenue Living became their landlord.

When the family renew their lease in July, the Alis’s rent will have increased by 55 per cent over the span of two years. Their household income, however, has not increased by $30,000, the amount they’d require to comfortably afford $2,200 in rent each month, plus a handful of ancillary fees introduced by Avenue Living, including a $15 environmental recovery fee charged each month.

In trying to make ends meet, Ali, a quality assurance specialist, has taken a side gig driving for Uber on weekends, as well as dipping into a line of credit. “It’s very hard,” he says. “We’re only thinking about, ‘Okay, what do we do now?’”

While many of the Alis’s neighbours have moved since Avenue Living took over, in Calgary’s current market it’s nearly impossible to find a rental for less than $1,700 per month, especially for larger families, or for those with pets.

“When we moved in here, we moved in here because it was dog friendly,” says Sandra McCrone, who has lived in Wyldewood Estates since 2021.

“I don’t know what to do. We need governments to stand up and take notice of what’s happening to the people, because this is something where they have to get involved and restrain these corporations.”

Up until last January, her monthly rent was $1,340, but it’s nearly doubled since.

“I packed to move out in January because I didn’t think I’d stay,” McCrone says, gesturing at the boxes piled up behind her. “But my roommate said he couldn’t find anything, so we stayed.”

For a Calgarian on a fixed income already spending more than half of her income in rent, combined with the instability of her situation, constantly at the mercy of her landlord’s whims, is nerve wracking.

“I don’t know what to do,” McCrone says. “We need governments to stand up and take notice of what’s happening to the people, because this is something where they have to get involved and restrain these corporations.”

In a statement, a spokesperson of Avenue Living said that rent increases tenants have experienced are due to inflationary pressures on the operational cost of their properties, including utilities, taxes, labour and materials. “Wyldewood was built 55 years ago, and like many old buildings requires maintenance and updates to keep it functioning… In upgrading the roof system, we’ll be increasing the insulation for the building, reducing heat loss, and reducing our carbon footprint.”

But the financialized landlord’s latest offering memorandum  tells a more nuanced story.

In this document, Avenue Living outlines its investment strategy, which includes implementing value-add renovations “with the aim of repositioning the asset and its rents in the marketplace.” In other words, despite Avenue Living’s stated commitment to offering “workforce housing,” extracting maximum rent from tenants seems to be the ultimate goal of upgrading the REIT’s residential portfolio, which includes 17,110 homes across Canada and the United States.

This situation isn’t uncommon. Research shows that when the rental market is strong, financialized landlords tend to engage in “gentrification-by-upgrading” practices, and extract as much rent as possible from a formerly underperforming asset.

“An effort to decarbonize the built environment has to be done in a manner compliant with human rights,” Perucca says. “Governments cannot allow financialized landlords and developers to use public money without ensuring that the outcome serves a public good — the cost [of retrofits] cannot be passed on to tenants.”

In a statement, CIB said that “Avenue Living and the CIB continue to discuss this matter.”

Displacing low income tenants in a housing crisis

Public-private partnerships, like the one between Avenue Living and CIB, allow financialized landlords to reap the benefits of public investment. However, a failure to effectively protect the right to housing means that the cost of displacing lower income tenants amid a housing affordability crisis is also borne by the public.

When forced to move, tenants experience stress and anxiety, adding pressure to an already burdened health care system. Moreover, displaced tenants still need a place to live, exacerbating the need to build new supply, which can generate more carbon emissions than the operation of an outdated building would.

Nevertheless, the priorities of Canada’s Liberal government seem to be focused on increasing the supply of housing, even if it comes at the expense of tenants, or the environment.

“It’s a contradiction to have all this government funding that is going to landlords that engage in predatory practices.”

Evidence of this appeared last fall during a debate in Parliament.

Confronted by NDP MP Bonita Zarrillo over the renovictions that could result from CIB’s partnership with Avenue Living, Housing Minister Sean Fraser encouraged the Crown corporation “to consider how it can be investing in projects that will grow the housing supply.”

According to Tranjan, also the author of the 2023 book, The Tenant Class, “within that narrative that all we need to solve the affordability crisis is more supply, any and all supports to the real estate industry are justified.”

On May 29, the National Housing Council’s review panel on the financialization of purpose-built rental presented a report that highlights the urgent need not only to build more non-market housing specifically, but also to protect Canada’s existing affordable rental housing from financialized landlords through an acquisition program.

Yet, while the federal government has made available $15 billion in loans for private developers, only $1.5 billion has been allocated to Canada’s Rental Protection Fund, a program expected to enable community housing providers to acquire the kind of properties investment trusts target.

“The contrast is how much funding goes to open-ended programs that support landlords like Avenue Living, versus how much money is targeted to non-profit housing, which has a track record of delivering cheaper rents,” Tranjan says. “It’s a contradiction to have all this government funding that is going to landlords that engage in predatory practices.”

******
Article by Ximena Gonzalez for Richochet