Results of Condition Survey of Toronto's

High-rise Apartment Buildings

The Urban Environment and Development Committee recommends the adoption of the report (April 30, 1999) from the Commissioner of Community and Neighbourhood Services and the Commissioner of Urban Planning and Development Services subject to:

(3) amending Recommendation (2) by inserting the words "and enhanced enforcement mechanisms and penalties", so as to read:

"(2)the Municipal Licensing and Standards Division report back this year on options for proactive inspections, use of technical consultants and enhanced enforcement mechanisms and penalties to ensure that needed capital repairs are done in apartment buildings in poor condition; and"

(4) adding the additional Recommendation (4):

"(4)the Provincial Government be requested to enact legislation to require rental buildings to establish a capital reserve fund, similar to that required for condominiums."

The Urban Environment and Development Committee submits the report (April 30, 1999) from the Commissioner of Community and Neighbourhood Services and the Commissioner of Urban Planning and Development Services:

Purpose:

This report reviews the findings of research, recently completed for the City and for Canada Mortgage and Housing, that surveyed the condition of high-rise apartment buildings in the former Cities of Toronto and York. This report also discusses policy and service implications for the City.

Funding Sources, Financial Implications and Impact Statement:

No short-term implications.

Recommendations:

It is recommended that:

(1)Council urge the federal government to fund the Residential Rehabilitation Assistance Program at levels sufficient to preserve affordability in the small minority of high-rise buildings where needed repair work cannot be done without significant rent increases;

(2)the Municipal Licensing and Standards Division report back this year on options for proactive inspections and use of technical consultants to ensure that needed capital repairs are done in apartment buildings in poor condition; and

(3)staff collaborate with Canada Mortgage and Housing Corporation to distribute the Condition Survey of High-rise Rental Stock to landlord and tenant organizations and other interested parties, and to identify further research needed.

Council Reference/Background/History:

The condition of high-rise apartments is a matter of public interest, relating to housing affordability, rent regulation, and the quality of housing and neighbourhoods.

High-rise residential rental buildings comprise 188,000 of the city's 475,000 rental units, including a large share of the affordable private stock. About three-quarters of high-rise units are 25 to 40 years old (built in the 1960's and early 70's); many need significant repair or replacement of building components nearing the end of their normal life; some require upgrading to meet today's codes.

If maintained well within owners' current income, such buildings can provide affordable housing for many years. If allowed to fall into disrepair, they may require major renovation down the road, leading to higher rents or to investor interest in redevelopment. Repairing older buildings is usually far less costly than new development to replace them, and will often require less public assistance.

Apartment maintenance and repair has been a major issue in the in recurring debates about rent control. The successive statutes governing residential rents have had various provisions for pass-through of capital repair costs, amortization of repair investment, penalties for disrepair, and so forth. The Tenant Protection Act has changed the financial incentives for capital repair.

The condition of rental housing affects the living conditions of tenants, many of whom are not in a position to enforce adequate maintenance by the landlord. Large-scale disrepair can spill over to affect neighbourhood quality, values of nearby property, and ultimately the tax base. The City has had to deal with a few "problem" buildings where chronic disrepair lead to political controversy and to the City taking possession of the property, entailing large demands on various departments.

In 1995 the former City of Toronto formed an Interdepartmental Task Force which, among other things, identified a need to study how widespread were such repair issues. CMHC was highly interested and it was undertaken jointly (funded 75/25 CMHC/City, including 2 percent from York).

This study will inform current work by City departments, noted here under "Next Steps".

Comments and/or Discussion and/or Justification:

1.0Summary

The Condition Survey of High-Rise Rental Stock in the City of Toronto, undertaken jointly with Canada Mortgage and Housing Corporation (CMHC), examined a sample of 63 buildings in the City, stratified by age, to provide estimates of overall repair needs and costs in the high-rise stock over the next 10-year period. All main building elements were inspected by a team of experts.

Results of the study should not be misconstrued. It is not an analysis of property standards infractions. Estimated costs include work needed in 5 to 10 years in buildings now in good condition. Repair costs can be translated to rent increases only with due regard to applicable legislation. Results vary greatly from one building to another; overall results will not apply to any one building.

-Estimated cost of needed capital repairs ranged considerably: from typically $500-$3,500 per unit over 10 years for buildings built in the 1980s and 90s, to typically $4,000-$17,000 per unit over 10 years for those built before the 1960's. Older and smaller buildings tend to have higher costs per unit. (Costs are expressed in per-unit terms but most work is not in-suite).

-Unusually high repair costs of about $15,000 to $20,000 per suite were found for approximately 10 percent of the buildings.

-Extrapolating the costs by age of building, the global costs for needed capital repairs are estimated at just over $400 million over 10 years for the former Cities of Toronto and York (the study area) and $1.2 billion over 10 years for the entire new City.

-The majority of buildings have repair needs with costs that are quite manageable at just above guideline rent increases. Scenarios developed by staff show that median 10-year repair costs yield annual capital cost pass-through between 0.2 and 1.3 percent annually on average rents (on top of rent control guideline increases), reaching only 2.5 percent annually for highest per-unit capital repair costs in the study. Nevertheless, cumulative rent increases for capital work could undermine affordability in particular buildings.

The results of the study do not imply any need for a new regulatory system to ensure good repair and preservation of the affordable high-rise stock. Property standards enforcement should nevertheless incorporate proactive approaches to ensure that buildings in poor condition get adequate attention.

Given potential impacts on affordability in a minority of cases, there may continue to be a need for public rehabilitation assistance, to permit repairs to be done while preserving affordability. Additional work will be required to determine the number of units and cost involved in such cases.

2.0Purpose of the Study:

Earlier studies by the Province and the City examined high-rise "conservation" and ideas for proactively ensuring good repair of the high-rise stock. These studies involved typical or anecdotal information rather than a sample, or they focused on particular problems such as parking garages.

The objective of this study was to provide, based on a selected sample, a comprehensive assessment of the physical condition and capital repair needs of high-rise apartment buildings in Toronto, and of the costs for such capital repairs over the next 10 years. A secondary objective was to develop a protocol, whereby a standard set of data collected at any building can be input to a data analysis system which generates a profile of multi-year repair needs and costs.

"Capital repair" refers to major work that is beyond regular weekly or monthly "maintenance", and will be needed regardless of how well regular maintenance is carried out. High-rises (defined as those greater than 5 stories) warrant particular attention as they typically have more complex structure, and systems (plumbing, ventilation, elevators, etc.), and are exposed to greater weathering.

The study examined a sample of 63 buildings in the former Cities of Toronto and York. Its results, adjusted for different age profiles of buildings, can be generalized to the whole new City of Toronto.

3.0Research Method and Process

The study was undertaken by Gerald Genge of GRG Building Consultants, and three firms as building review subconsultants, all experts with experience in judging conditions and repair cost.

The sample of 63 buildings was taken from the 542 high-rise buildings identified in City databases. The sample was stratified by age of building (pre-1960s, 1960s, 1970s, post-1970s). A typology based on age permits repair needs to be linked to particular building technologies resulting in distinct repair needs (for example, 1970's buildings with multi-level garages and 1960's buildings with floor slabs exposed at their edges to weather), and to the occurrence of certain repair needs at certain ages.

The condition of each building was assessed within seven "building systems":

(1)Site: pavement and walkways, structures (e.g. retaining walls);

(2)Structure: garages, balconies, building framing;

(3)Building Envelope: exterior walls/cladding, windows and exterior doors, and roofs;

(4)Mechanical: heating, cooling, ventilation, water, drainage, plumbing fixtures;

(5)Electrical: power supply/distribution, lighting, auxiliary systems (e.g. building entry);

(6)Life Safety: fire suppression, fire alarm and voice communication, emergency power;

(7)Elevators: equipment, cars and controls.

Costs of repair and replacement were generated based on expert knowledge and industry norms for the life of building components and the costs of each element. A "building rating" was also developed, which ranks the condition of the building. The rating system corrects for the high per-unit costs in small buildings, and gives more emphasis to urgent repair needs.

The procedure developed in the study is (with variations) based on that used by consultants to condominium corporations and social housing providers, undertaking "technical audits" or reserve fund studies. Both the Toronto Housing Company and MTHA have commissioned similar studies on many of their buildings, as a basis for planning multi-year capital repair programs.

Further details on the research method are provided in the accompanying executive summary.

The survey was managed by a steering committee comprising City staff (Shelter/Housing, City Planning, Municipal Standards, Legal), CMHC staff, landlord and tenant representatives, and staff of the Ministry of Municipal Affairs and Housing as well as Peel Region. The landlord organizations (Fair Rental Policy Organization and later Greater Toronto Apartment Association) were vital in securing landlords to participate in the study. Work in progress was discussed in steering committee meetings, with overall results discussed in December 1998 and March 1999 meetings having active participation by landlord and tenant representatives, who were able to help interpret issues and information in this study, from their experience.

Additional follow-up with stakeholders is noted below under "next steps".

4.0Key Findings of the Study

4.1What the Study Does and Does Not Tell Us

The study is NOT an analysis of infractions of property standards by-laws. This study estimates future capital work to keep buildings in good condition, whereas the City's property standards powers deal mainly with current problems. For example, an original furnace in a 1960's building will, within the 10-year period, reach the end of its lifespan and need to be replaced even if it is now in good condition. Further, the study did not deal with certain items, such as condition of interior walls, which are important for tenants. The study methodology required that where an urgent safety matter was identified and owner did not immediately address it, the City would be notified; no such notification proved necessary.

The estimated cost of capital repairs needed over a 10-year period is not a measure of current disrepair. High future costs do not necessarily mean poor condition today, although in particular cases they may.

The capital repair costs are not a measure of potential rent increases. The effect of capital repair investment on rents will depend on market conditions, capital cost pass-through permitted by legislation, and the owner's cash flow situation and financing arrangements. But capital repair requirements may have effects on rents, as discussed in this staff report. Likewise, estimated future capital repair costs are in no way a measure of potential public costs for rehabilitation, although assistance may be warranted in some cases.

The overall results cannot be applied to any one specific building or portfolio. The requirements vary considerably from one building to another, depending on the age, size, maintenance and capital repair history, and other factors. The value of this study is in providing an overall profile. The study does not present data on any specific building or identify specific addresses (these are known to the consultant but not to staff); this was a condition agreed to with participating owners, to protect their commercial interests and proprietary information.

4.2Summary of Findings

An executive summary of the research report, emphasizing the findings, accompanies this report.

The study did not find any large share of buildings having extreme or pressing repair needs, but it found a large need for investment in capital repairs over the next 10 years. Overall results are best understood in terms of typical 10-year costs by age group of building. The following table provides a summary. "Typical" cost is here defined as that between the 25th and 75th percentile of buildings distributed by cost --in other words, the middle half of the buildings, excluding those with unusually high or unusually low costs per unit. This gives a better sense of typical cost than citing a median or average.

Buildings that are in good condition today may appear as having high costs because of potential capital replacements which may be required in year 7 or 10. In some cases, costs include replacement even though ongoing repairs and maintenance may be sufficient (for example, older elevators for which it is now difficult to get parts).

Percent Building ProfileTypical Range ofExtreme Maximum

Buildingof (Average)Repair Costs perRepair Costs/Suite

AgeSampleSuite over 10 Years*over 10 Years

pre-1960s25%55-77 units, 6-7 storeys$4,000-$17,000$21,000

1960s44%125 units, 11 storeys$5,000-$9,500$17,500

1970s13%250 units, 17 storeys$1,500-$4,500$6,000

post-1970s17%128 units, 10 storeys$500-$3,500$7,000

* range of 25th to 75th percentile of buildings in each age group -- see text.

Property standards staff, housing staff, owner representatives participating in the steering committee have confirmed that the study results are consistent with their experience and knowledge. The results are similar in magnitude to earlier, approximate estimates by knowledgeable consultants.

The range of conditions and of repair needs varied greatly from building to building, in both older and younger age groups. The median cost over 10 years was $6,864 per suite.

Older buildings tend to have higher repair costs per suite both because their older age means a need to repair or replace more elements, and also because they tend to have fewer units. Major repairs such as elevators or mechanical/electrical systems (plumbing and ventilation, etc.) can be similar in magnitude in a small building as in a large one, resulting in high cost per unit in smaller buildings.

The majority of repair costs was projected in years 3 to 5 (33 percent of costs, mainly mechanical and elevators) and years 6 to 10 (38 percent of costs, mainly mechanical and electrical). Only 4 percent of costs related to "immediate" items involving structural and life safety deficiencies.

Costs were factored up by age group (building typology), to generate estimated global repair costs for all high-rise apartment stock. For the former Cities of Toronto and York, global costs over 10 years are projected at just over $400 million, while for the entire new City of Toronto costs are projected at $1.2 billion. This should be put in perspective: for example, home-owner spending on renovation in Ontario is in the range of $30 to $40 billion over a decade, while residential rent revenues in Toronto are in the range of $40 to $50 billion over a decade (based on current levels).

Unusually high repair requirements (costs) per suite were found for approximately 10 percent of the buildings -- mostly older and smaller ones. The seven such buildings in the sample had 10-year costs per suite of about $15,000 to $20,000, or 2 to 3 times the median cost. Four of them were pre-war buildings with 40 or fewer units, while three were built 1956-67 and had 60 to 120 units. The reasons for the higher estimated repair costs in the seven buildings are mechanical systems repair costs and building envelope/structural repairs. Only a few buildings had severe deterioration.

5.0Implications

5.1Implications for Property Standards Enforcement

The study results do not imply any need for a new and different regulatory system to ensure good repair and preservation of the affordable high-rise stock. Property standards enforcement should nevertheless include proactive approaches to ensure that buildings in poor condition get adequate, timely attention.

Only about 10 percent of buildings in the study require so much work over the next 10 years that the cost may not be manageable at average rents (see below). This suggests that, to protect their investment, the majority of building owners will likely continue to do the work that is needed without any increased enforcement efforts by the City. The study showed that for the majority of older buildings (1960's and earlier) a lot of work has already been done, notably roof and window replacements. A new and more onerous regulatory system would be out of line with the benefits for most properties.

The City will need to direct its enforcement efforts and resources on the approximately 1 in 10 buildings experiencing some degree of ongoing disrepair. Incentive and support programs for some of these buildings may also need to be considered.

A proactive property standards inspection program could be a tool for identifying buildings with some degree of ongoing disrepair, requiring action on particular repairs, and (when warranted) requiring use of technical consultants to identify underlying problems. A proactive inspection program would cover all apartment buildings, but would ensure that high-rise and other apartment buildings with greater problems were inspected with greater frequency.

There are limits to the extent that standards enforcement can ensure ongoing investment and proactive programs of repair. Most of the work and costs identified in the condition survey are for future work that is not associated with current outstanding property standards violations. The City is empowered to require owners to remedy property standards violations, but cannot legally require them to undertake multi-year repair programs to ensure the long life of the buildings. Neither can it prescribe a specific solution to a violation identified by an inspector. However, the City can require owners to get advice from technical consultants to identify underlying problems and needed repairs; such an approach was used effectively for garage repairs in particular by some of the former municipalities.

The Licensing and Standards Division is in the process of developing a harmonized approach to property standards enforcement. Varying systems were used by the former municipalities for property standards inspections and compliance. Proactive inspection programs have been in place in the former municipalities of North York, Scarborough, and East York. These proactive programs differed in the size of buildings to which they are applied, and the scope and frequency of the inspections undertaken. There was a varying degree of coordination of such inspections with those of other agencies such as the Fire Department and public-sector housing providers. The most comprehensive was that of the former North York where approximately 1,200 apartment buildings have been covered by an audit program over the last six years. That program is presently staffed by eight of the 16 inspection staff currently posted to the District. Overall staffing levels in other districts would need to be reviewed to provide proactive inspections as well as response to complaints and urgent violations.

Assessing the resources available to the Division to devote to proactive inspections is part of the current review and harmonization process ensuing from amalgamation. A process is now under way to develop a consolidated, harmonized Property Standards By-law to replace those of the six former municipalities and a corresponding set of uniform practices. Decisions on allocating resources to proactive inspections are part of this process of evaluating how to assign resources to meet the various objectives on a consistent city-wide basis. Approaches to proactive inspections in other jurisdictions may also be reviewed. Staff will report further on the harmonized Property Standards By-law and associated practices including the capacity for proactive inspections.

5.2Implications for Affordability

The costs of projected capital work are manageable for a large majority of buildings. Rent revenues should in general be sufficient to cover the costs, although the means by which owners will pay these costs will vary depending upon the specific cash flow and market conditions of each building.

Scenarios were developed by staff showing the impact of median capital repair costs on average market rents, given the rules applying to capital cost pass-through under legislation governing rent increases. This is detailed in Appendix "A", which also sets out the assumptions made about average permitted amortization periods, interest rates, relation to other capital work, and so forth. It should be noted that the Tenant Protection Act permits pass-through of costs of additional types of capital and maintenance work the condition survey was not concerned with, such as appliances, carpeting, and repainting. The exact impact on rents in a given building will vary up or down, depending on rent levels, repair costs, and on how far each building varies from the assumptions. In brief, the results are:

In sum, the impact on average rents of the median repair costs identified in the condition survey would result in capital cost pass-through and rent increases well within the maximum allowed under the Tenant Protection Act.

Even in the seven high-cost-per-unit cases in the condition survey, the rent increases resulting from the needed capital work would be within the allowable capital cost pass-through allowed under the legislation. The worst case, with $21,000 per unit of work required, would result in annual increases of 2.5 percent on average market rents, using the assumptions in Appendix "A".

Such increases may still result in affordability problems in some buildings. An annual increase of 1 to 3 percent on top of the current guideline increase would mean a 42 to 69 percent rent increase over a decade. As noted, there may be additional capital costs for interior items the condition survey was not concerned with. Average tenant incomes are not rising. There may therefore continue to be a need for public rehabilitation assistance, to permit needed repairs to be done while limiting the impact on rents and affordability.

5.3Implications for the Public Role in Housing Rehabilitation Assistance

Most buildings, as noted above, will be easily able to carry the costs of needed capital work within the capital cost pass-through and maximum rent increases permitted under the Tenant Protection Act. In some cases, however, with high per-unit costs, the choice will be maintaining affordability versus doing the repairs, unless public assistance is provided. It is likely that the more deteriorated buildings have a disproportionate presence of lower-income tenants. They are also more likely to be ones housing a population greater than the building was originally designed for, resulting in accelerated wear and tear. Public assistance in such cases is a way of avoiding other public costs resulting either from physical deterioration of neighbourhoods or from rising numbers of tenants with affordability problems that put them at risk of arrears and homelessness.

Public assistance is currently provided on a limited scale to rental housing through the federal Residential Rehabilitation Assistance Program (RRAP) delivered by the City. A report to the March meeting of the Community and Neighbourhood Services Committee described the modest $1 million or less allocated to RRAP for rental properties in the City's boundaries in most recent years, and the use made of the special $6.5 million funding in fiscal 1998/99. A report to the Community and Neighbourhood Services Committee this month deals with the future of the City's housing rehabilitation function.

RRAP and the former Ontario rehabilitation programs have mainly funded repairs to rooming houses or to low-rise walk-up apartment buildings. The need for assistance for high-rise rehabilitation has been realized in broad terms by housing policy-makers but never directly tackled. The approximately 10 percent of buildings with high per-unit capital repair needs --typically smaller than average-- could represent up to 5 percent of high-rise units in the City, or up to 10,000 units. (A more specific estimate should not be attempted from the small number of such buildings in the condition survey sample.)

Eventual loss of such affordable units to disrepair or to the large rent increases associated with upgrading would be a major problem for affordable housing in Toronto. This study can be taken as evidence supporting a limited but clear public role, at the City and senior government levels, in ensuring assistance to rehabilitation where the long-term liveability or affordability of the buildings would otherwise be in doubt.

Additional work is required to determine the magnitude of high-rise stock where capital repairs may undermine affordability, and the potential need for public assistance for such buildings.

6.0Next Steps

Related Work by City Departments:

The study, with implications for City approaches to proactive enforcement, comes while the Licensing and Standards Division is developing a harmonized property standards by-law for the new City. Implications of the study for proactive enforcement are identified briefly in this report, and will be dealt with in more detail when the new property standards by-law is brought forward.

The study has implications for work by the City Planning Division on housing policies of the Official Plan, including rental housing conversion and demolition policies. A February report to the Urban Environment and Development Committee on the latter subject made note of this study's findings.

The Shelter, Housing and Support Division has been delivering an expanded Residential Rehabilitation Assistance Program (RRAP) with federal funding and will be reporting further on the city's ongoing role in RRAP.

Next Steps with and by Stakeholders:

Follow-up work has been identified by the steering committee in three areas: information and education, proactive approaches to property standards enforcement (noted above), and further research. The study will be widely distributed by the City and CMHC.

Landlords and tenants, each as a group, have an interest in property standards and in how the City enforces them. Both landlords and tenants want to be at the table when the City is taking positions, making policy, or undertaking research on property standards and repair.

Landlord organizations and property management firms are interested in having members access good technical information on maintenance and capital repair needs, and in disseminating such information. Landlord representatives on the steering committee will be distributing it to building owners and property managers, as good systematic information on the kinds of capital repair programs needed. Discussion at the steering committee also identified the value of disseminating information on "best practices" in buildings with low repair requirements, as a guide and encouragement to others.

Tenant organizations have concerns about understanding the City's overall policies and practices in property standards and are very concerned about preservation of the affordable housing stock. Specific issues include the City's ability to ensure that immediate problems such as heat, pests, interior walls, power and elevators are addressed; dealing with gaps and unevenness in the City's service and standards; and ensuring adequate penalties and remedies for cases or poor condition or lack of compliance with City orders.

Results were discussed at a focus group meeting with tenant representatives in October 1998. Tenant opinions given about the condition of buildings, in general, were very much in line with findings of the study. Tenants were primarily concerned about property standards --particularly how they could find out what the "rules" are, gaps in service (such as around air quality), unequal practices throughout the new City (including access to historical information about their buildings), and insufficient staff for evening emergency call-outs and general enforcement. They proposed that the City consider a more proactive approach to inspections, with building reviews on a regular basis, as has been the practice in North York.

Each participating owner has been provided with the results for its property or properties.

Other Follow-up:

The Ministry of Municipal Affairs and Housing has taken note of this study as it assumes the role of monitoring compliance to the new Condominium Act, particularly reserve fund requirements.

Staff have initiated discussions with CMHC who are interested in funding follow-up research. A more detailed assessment of buildings with high per-unit repair costs would be valuable, as would a follow-up study in about five years. The main area for potential funding in the near future appears to be in "best practices" for bringing building with higher repair needs up to standards, or best practices in general.

Conclusion:

Summary and conclusions are set out at the beginning of this report.

Contact Name:

Joanne CampbellHarold Bratten

Tel: (416) 392-7885Tel: (416) 392-8768

Fax: (416) 392-0548Fax: (416) 392-3196

--------

Appendix "A"

Analysis of Potential Impact of Capital Costs on Rents

The Condition Survey of High-Rise Rental Stock in the City of Toronto found that the median cost of capital work for all age buildings would be $6,864 per unit over ten years:

Table A1: Median Costs of Capital Work which may be required per unit over Ten Years

The potential impact on rents of doing the capital work depends on the cashflow and financing arrangements of the owner as well as on the applicable legislation.

When determining the capital expenditure allowance permitted on a landlord application for a rent increase above the guideline, the costs are spread over the useful life of the capital item. Depending upon the work done, costs are amortized over 5, 10, 15, 20, or 25 years or more. The interest rate applied is based on the rate for a five year conventional mortgage plus 1%, as established by regulations under the Tenant Protection Act.

For example, the useful life of a hot air heating system is 25 years (useful lives are also established by regulation). Assuming a per unit cost of $1,000 and an interest rate of 8%, the potential capital expenditure allowance is approximately $7.80 per month. It is necessary to know the base rent to establish what the allowance is as a percent rent increase. Assuming a base rent of $815 (the CMHC average market rent for all unit types October 1998), the percent rent increase would be just under 1%.

To do this analysis, a number of assumptions have been made:

(1)Annual capital costs of $686 are permitted each year for 10 years (i.e. median of $6,864/10 years). Usually the timing of capital work and costs will vary depending upon what work is done and when it is done. Inflation may also have an impact on the cost, depending upon when the work is done.

(2)The useful life of all work required is assumed at a conservative 15 years. If broken down into the various systems, the average useful life may be longer than 15 years, meaning the capital expenditure allowance would be lower than illustrated.

(3)The interest rate used is 8%. Rates normally vary.

(4)The base rent is $815 (1998 CMHC average market rent for all unit types). If actual rents are higher or lower, the percentage allowance will vary. If the rent is very low relative to costs, the capital expenditure allowance may not be passed through entirely in one year. The impact of vacancy decontrol is not considered - when units are rented to a new tenant, the rent can be set at any level regardless of the past rent for the unit.

(5)The guideline percentage is the maximum amount by which the rent can be increased for a sitting tenants, and is set annually. The guideline is based on a three year moving average of weighted operating costs plus 2% (generally thought to apply to the cost of capital work as the operating costs considered in establishing the guideline include an amount for maintenance but not for capital repair and replacement). The 2% built in for capital work is not deducted from allowances otherwise permitted for capital work, as was the case under prior rent control legislation.

The scenario assumes the guideline remains at 3% over the full 10 year period illustrated.

(6)Operating savings in energy costs resulting from capital work which improves energy efficiency does not result in a rent reduction (these are not considered under the TPA).

Under this scenario, the capital expenditure allowance passed into the rent each year would be $6.50/month (an additional $6.50 is added to the rent every year for 10 years; there are no provisions for removing the allowance from the rent once the amortization period for the capital expenditure expires). For year 1, assuming a base rent of $815, this is an increase of 0.8% + the rent control guideline.

Using the same base assumptions, the allowances and percentages based on building age are:

Table A2: Impact of Capital Expenditure Allowances on Rent Levels

Age of Building (year of construction)	Annual Cost of Capital Work (based on median cost)	Monthly Capital Expenditure Allowance	% Rent Increase (maximum allowed in any year is 4%)
1930's - 1950's	$1,100	$10.43	1.3% + guideline
1960's	$800	$7.59	0.9% + guideline
1970's	$450	$4.27	0.5% + guideline
post-1970's	$150	$1.42	0.2% + guideline

The impact on rents of doing required repairs would therefore, on average and under these assumptions, be well below the maximum amount permitted under the Tenant Protection Act.

For 7 buildings surveyed (11%) the costs are extraordinarily high, ranging from $16,000 to $21,000 per unit over 10 years, primarily due to mechanical system repairs needed. Five of the seven were built before 1960.

In the worst case ($21,000), and using the same base scenarios, the capital expenditure allowance would be about $19.19, or a 2.5% rent increase which is still within the 4% maximum allowance.

Gerald R. Genge, Building Consultant Inc., appeared before the Urban Environment and Development Committee in connection with the foregoing matter.

--------

The Urban Environment and Development Committee reports, for the information of Council, also having had before it during consideration of the foregoing matter the Executive Summary appended to the foregoing report.