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CONTENTS

Routine proceedings

Landlord and Tenant Amendment Act, 1974 (No. 2) (Bill 169)

Second reading.

Mr. Gibson — 4577

Hon. Mr. Nicolson — 4586

Mr. Wallace — 4588

Mr. Schroede — 4596

Mr. McGeer — 4600

Mr. Smith — 4600

FRIDAY, NOVEMBER 8, 1974

The House met at 10 a.m.

Prayers.

MR. SPEAKER: Hon. Members, there will be a public service war memorial ceremony on the rotunda of the legislative building at 4 o'clock this afternoon for those who are able to attend.

HON. G.R. LEA (Minister Of Highways): Mr. Speaker, it gives me a great deal of pleasure today because I don't get this pleasure too often — the schools within my district being so far away from the capital — to introduce to you a group of students from Booth Memorial school in Prince Rupert, accompanied by their teacher, David Hobson, who I am sure is familiar to a great many of us in this House as a defeated NDP candidate in the last election. So I'd ask the House to welcome both the students and Mr. Hobson.

MRS. D. WEBSTER (Vancouver South): Mr. Speaker, this morning in a brief ceremony I became an honorary member of the St. Mathias scout troop. I was presented with this neckerchief which contains the St. Mathias crest, the troop crest and a centennial badge on it. I would like this assembly to welcome my fellow troopers and their sponsor, Mr. Sharon and Scout Master, Mr. Hayward.

I would also like to say that they wanted me to pass on a message to our Premier to thank him heartily for the fine cooperation he showed in making their scout jamboree last summer a huge success.

HON. D. BARRETT (Premier): Mr. Speaker, while I accept the very kind words of the Hon. Member for Vancouver South, the real credit for assisting in that jamboree with the scouts administration was our Provincial Secretary. I ask the House to recognize that.

MR. SPEAKER: We always knew the Hon. Member for Vancouver South was a good scout, but now we find out she's a good trooper.

MR. H.A. CURTIS (Saanich And The Islands): Mr. Speaker, with us today in the gallery are students from Claremont Senior Secondary School, accompanied by their teacher, Mr. McCue. I would ask the House to welcome them.

Orders of the day.

HON. E.E. DAILLY (Minister Of Education): Public bills and orders, Mr. Speaker, Adjourned debate on Bill 169.

LANDLORD AND TENANT AMENDMENT
ACT, 1974 (No. 2)

(continued)

Mr. Speaker: The Hon. Member for North Vancouver–Capilano adjourned the debate. I must ask this: is he speaking as a delegated speaker or as only one of the group?

Mr. G.F. Gibson (North Vancouver–Capilano): Mr. Speaker, I think that perhaps that decision should be made at the 4ist minute.

Mr. Speaker: Well, we may not know when the 4ist minute is if we pursue that line. I think the idea of designation is so that we do know in advance.

Mr. Gibson: On a point of order, Mr. Speaker, it seems to me that's quite an important question to attempt to settle in this particular case.

Mr. Speaker: Well, then, I'll go on the assumption that it's going to be a 40-minute speech of which you have some time left.

Mr. Gibson: Thank you, Mr. Speaker.

Interjection.

Mr. Speaker: Would you like a time clock? I thought that would be rather inconvenient for you.

Interjection.

Mr. Gibson: And should it be, Mr. Speaker, I would suggest that, if my remarks do take longer than the allocated time, then at that stage I would become the designated speaker.

Mr. Speaker: As I have from my notes, you started at 10:40 last evening and you concluded at 10:53. I think we can calculate where 40 minutes ends from that if we start the clock now.

Mr. Gibson: I'd like to commence today, Mr. Speaker, by paying tribute to the brilliant red vest of the Minister of Mines and Petroleum Resources (Hon. Mr. Nimsick). It's a pleasure to see that he's transferred his Robin Hood tendencies from his philosophy to his sartorial splendour. It's a lovely thing to see.

Hon. D. Barrett (Premier): Please explain to us what that means.

Mr. Gibson: The Minister understood, Mr.

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Premier.

Last night, Mr. Speaker, at the hour of adjournment, I had been speaking of the severe difficulty in the supply situation and, in particular, the fact that new housing is simply not being constructed. At that time I was quoting from quite a comprehensive report on the subject in the Vancouver Sun by Mr. Neale Adams. He had quoted Mr. Robin Burns, the statistician of the CMHC in Vancouver who said there's virtually no new rental accommodation being started by private developers. Then he had gone on to cite a survey done by city planners of 3,400 apartment units being built or just completed as of July I of this year.

Things have slowed down in my view since July I and in the view of the housing-starts statistics. But even at that time, of those 3,400 units, 1,400 were condominiums, 1,300 were for senior citizens, 270 were what might be called luxury units and out of the purview of the rent-control legislation, another 270 were hotels and motels and not really helpful to people seeking rental accommodation — leaving only 142 so-called normal units for rental accommodation being constructed at that time. This has led to the fact that the vacancy rate, bad as it was at the time of the passage of this Act, has become even worse, if that's possible, in the meantime.

Now, Bill 105, which this Legislature passed earlier this year, held out a promise to landlords that at least they would have a chance under the old part IV of that Act to justify rental increases in excess of the government guideline if they could prove that the costs were there and that they were literally losing money. This was a promise; a promise in legislation, a promise in the words of the Attorney-General who, at page 4122 of Hansard, said this in reply to the Hon. Member for South Peace River (Mr. Phillips):

I can assure the Hon. Member that the rentalsman will have the power to look at factors such as fair return to the investor. In fact, under section 28(l)(c), even in housing which does not exist as rental housing at the present time, somebody can come to the rentalsman and say: "Why should I go into that field unless I have some assurance of a fair return on my capital?" I would assume that would be something better than first mortgage money because why put up a building if all you're getting is the first mortgage rate? Put it out in first mortgage. So he does have that flexibility.

If it is a case of existing buildings, the landlord can go to the rentalsman and say: "I'm not receiving a fair return on capital; I am justified to a rent increase which is more than the percentage fixed for this particular year." He produces his books. He would have some assistance from that office, I would think.

Mr. Speaker, that constitutes a promise of this government, and the legislation constitutes a promise of this Legislature, that it would be possible to have justifiable cost increases considered. This bill breaks that promise.

This bill proposes something called a rental review agency, and at the same time takes away the power to review rents. It removes a power to review rents that are in the existing Act. It breaks a promise of the government that there would be a chance to justify cost increases.

We have to consider that broken promise as important because once a promise is broken in a field once, people who have to deal with the government in that field remember it. We have to come back to that when we talk about the so-called 5-year rent control holiday that this bill also provides, because who can trust that promise either?

This Act establishes rent control; it doesn't establish rental review. It is poorly named. It establishes rent control, pure and simple. It says that you cannot go over a certain figure of 10.6 per cent, plus renovations.

As far as I can see, the 10.6 per cent figure came right out of the air. And as the Attorney-General knows, because the anniversary dates stretch over a full year, in fact, the average increase over the period of 1975 will be 5.3 per cent. That is, perhaps, a technicality, but it's an important technicality.

The proposal for a five-year rent-control-free period for new rental housing, to the extent it works, will create a two-price system in the housing field which will lead to very serious effects that I'll get into later.

This bill ignores the consultant's report almost totally — to the point where I wonder if the Attorney-General, Members of the government and backbench NDP Members can have, in fact, read it. Make no mistake, Mr. Speaker, this bill injures tenants.

I want to quote a few matters from the Cragg report bearing directly on the subject we are debating today.

Dr. Cragg says: "Rent controls deservedly has a poor reputation. There are a number of areas" — we have examples — "where it has proved to be a disaster." But he offers some hope - he says: "But it is not clear that this need be the case." I want to be fair in that quotation. He goes on, and I will detail the ways in which he goes on to suggest ways in which this need not be the case.

A rental review, which is not provided by this bill, is an essential concomitant of that. In particular he states that rent control won't work in one particular area, which is the area the Attorney-General's trying to serve. He notes these three objectives; objectives that rent control might pursue can be categorized under three broad headings:

(1) Maintaining on a broad general scale, rents that are lower than they would be otherwise.

(2) Prevention of gouging.

(3) Provision of a more orderly market for rental

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accommodation.

He says that whatever the merits of the desire to provide housing at a lower cost to the tenant, it is highly unlikely that rent control is a suitable vehicle for doing so. The attempt to use rent control for this objective is probably the main reason for its More spectacular failures.

He goes on later to deal with supply questions, and says this:

"It will be noted that these undesirable features, namely low vacancy rates and so on, arise only if landlords are not making an adequate return on their capital under rent control.

"If it is true that landlords in general are reaping and can expect to reap profits in excess of those needed to induce them to provide housing, then rent control might be used to remove this excess amount safely."

That, Mr. Attorney-General, is one of the very strict conditions which Dr. Cragg puts on the useful application of rent control. He notes that there can be little presumption of excess profits being earned generally in rental housing at the moment.

He has something to say specifically about the aspect of the bill exempting new construction:

"The approach of exempting new construction, while it might be effective, is likely to have other effects that are undesirable. Rent control premises would be less expensive and more difficult to obtain than new ones, and the payment of key money would be likely.

"New migrants and persons setting up homes would likely be forced into the new construction whose rents would tend to be higher than if there were no rent controls. Tenants whose housing needs have changed would be reluctant to move because of the difficulty of finding suitable controlled premises, so that those for whom those premises were suitable also could not obtain them."

Mr. Speaker, that is one of the most succinct statements I have heard of the difficulties of a two-price system. To the extent that the five-year control holiday on new construction did produce it, what would we have?

First of all, we would have people going into that market who could look down the road only five years. So in all probability they would have an incentive to get their money out as quickly as possible, even if they could really trust that five years, which is another question. Therefore, rents would be high.

Interjection.

Mr. Gibson: Mr. Speaker, the Attorney-General is suggesting that there would be more competition at that higher level of rent. That might well be the case, sir, but the rents would still be higher — that's the point I'm making. That's the only point I'm trying to make.

HON. D.G. COCKE (Minister of Health): The point you're making is that you want it right across the board.

Mr. Gibson: I'll come to that later, Mr. Minister.

People would try to get their money out in five years, so the rents would be high, and with today's vacancy rates, that is all that new entrants into the housing market could hope for.

Who are new entrants into the housing market? They are young people just forming a family, often with limited income, although sometimes both parties are working, in which case they can afford more. But then children come along and costs rise again. Often one of the partners ceases to work and they still need rental accommodation. They are also old people who have chosen to move out of their homes and into an apartment. They now find they can't do so because the costs of new apartments are so high.

This has the following effect: it ties up existing accommodation suitable for families, for persons whose children have grown up and would like to leave, can't afford to leave because they can't get a reasonably priced apartment. It ties up that kind of accommodation.

Let's look a little further down the road. Let's imagine we have two kinds of buildings in existence: a controlled and an uncontrolled; a high-rent situation, you wouldn't want to move because you would know you couldn't find one of those again. If you could, it might well cost you some key money, whether that were illegal or not, because these things happen in other countries with rent controls.

So you have a very strong incentive to stay where you are. That means that if you are currently living in the West End and working in downtown Vancouver and you get a job out in Surrey, you have to stay in the West End because you can't find anything to rent out in Surrey at a reasonable price. Then somebody in Surrey who used to work out there and was renting an apartment, gets a job downtown, can't get an apartment in the West End because you aren't ready to move. You have identical problems and there is no way of matching them up, as can be done in a free-market situation. It leads to very pernicious results.

So much for the objective of trying to provide rental housing at a lower cost than would otherwise be the case. Dr. Cragg said that is not a feasible objective of rent controls.

He goes on to say that prevention of gouging is a more feasible objective of rent control, and says just

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how this should be done. It should be done by the provisions of the existing Act, which this bill asks us to repeal — throw out the window.

"The provisions of section 28" — that is the existing Act — "appear to make it very suitable for controlling new or increased gouging. The allowable rent increase can be used as an indication of general market increases within which there would be no presumption of additional gouging. Further increases justified by landlords' costs might also not be considered gouging.

"The feature that tenants have to initiate review proceedings can be justified on the grounds that gouging may not be considered serious if the occupant is not sufficiently concerned to protest, or if he is willing to pay the rent before he is moved in."

In other words, the existing legislation, the legislation we are being asked to, in effect, destroy by this bill, has the capacity to prevent gouging, which I know that the Attorney-General is very properly concerned with.

Professor Cragg goes to discuss ways of evaluating individual rent increases. He goes into some detail as to how the expenses of the landlord should be considered in legitimately setting those justifiable increases.

He is not awfully sympathetic to the landlord, I should add, Mr. Speaker. For example, he excludes from current expenses some things that many of us would say should be in current expenses. He speaks specifically of mortgage or other interests, amortization expenses, depreciation allowances, contingency reserve fund increases — even capital-use taxes. That is not a particularly sympathetic item for the landlord, nor is his proposed treatment of inflation.

He suggests, in fact, that projected inflation should be ignored and that the landlord should bear that cost. He sees that as a way of cushioning the shock of inflation on the tenants. So that's how he treats current expenses, quite strictly.

Now we come to what is really the core of the problem: the treatment of capital expenses, and the one that the Attorney-General has zeroed in on as a vexing problem. Let's talk a bit about the solution he proposes.

First of all, to set the stage with Dr. Cragg — and I might say that there are two ways you can approach this capital question. There's a historic-cost approach. In other words, how much did the structure cost? Or there's a market-value approach — a present-worth approach.

Dr. Cragg:

"The problem with a historic-cost approach to capital expenses is that very wide variations in rent would arise from historical accidents in the acquisition and finance of buildings which have no relation to the housing and services being provided to tenants.

"There can be little to be said for an approach that would produce radically different rents for the same premises, depending on whether the owner actually purchased in one year or another, or whether at that time he decided on a large or small mortgage, or whether he was able to secure favourable or unfavourable mortgage terms.

"Furthermore, adoption of such an approach would encourage selling or transfer of buildings among owners to then justify higher rents. Any attempt to block such efforts would almost certainly produce difficulties for the legitimate sale of rental premises.

"Even legitimate sales would produce a totally anomalous increase in rent. Such an approach would then have in it either the possibility of justifying totally outrageous rent increases, or of locking capital firmly into rental accommodation, an outcome hardly likely to attract new capital even if it were to be initially exempt from the controls.

"A quite different approach is to evaluate the capital in housing on the basis of its present worth."

Dr. Cragg recommends that present worth.

Let's go back to that historic-cost situation, which the Attorney-General likes, and look again at that conclusion that there are just two possible effects. The approach would either justify outrageous rent increases when premises were properly sold, or it would lock capital in, which, as Dr. Cragg points out, would certainly not attract new capital into the rental housing field, and that's what we need. The historic-cost approach has to be rejected. We have to take the market approach and we have to find ways to cushion the impact of that market approach.

Dr. Cragg has something to say about rate of return:

"Having established the capital figure to be used, the next problem is what rate of return on the capital can be considered reasonable. There's no social consensus on what a fair rate of return is.

"Furthermore, with the programme applying to only use of capital, and that in only a small part of the capital market, it would be odd to use such a figure. Instead one can base the rate on what is, or should be, required to induce capital into rental housing. That is, a reasonable cost for capital can be based on the returns the capital would be expected to earn in other uses."

The figure Dr. Cragg comes up with after that analysis is about 14 per cent. That coincides quite

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well with the Attorney-General's analysis of something over first mortgage interest rates as a fair rate of return, in his remarks on Bill 105 earlier on this year.

Dr. Cragg's proposed treatment of capital costs and capital gains is interesting because it's of benefit to the tenants in the form of computation. He says:

'The alternative and recommended procedure is to include capital gains among the returns to capital being considered to offset the reasonable capital expenses based on use of the current mortgage interest rate."

"It has the feature that where the market values are rising faster than usual because of speculation, that in the future a profitable alternative use of the property will be available, lower rents would be justified relative to a scheme that based them only the rate of return being earned from rents."

In other words, if the person setting the justifiable rent increase could look down the road and say: "The value of this building or this property is increasing very quickly" then they would say to the landlord: "You can only justify a much lesser rent than would otherwise be the case." That is one solution of the present-worth problem in this question.

Dr. Cragg then goes through a large amount of detailed calculation about allowable rent increases — which I won't get into.

Interjection.

Mr. Gibson: Mr. Minister, I'd be very glad to describe it to you in detail, if you wish.

Hon. A.B MacDonald (Attorney-General): Would you explain the formula on page 43 (Laughter) and tell me whether you agree with it?

Mr. Gibson: There is no formula on page 43, as it happens, but there are some others.

As a kind of a summary of the approach, though what he did was as follows:

"The basic approach taken was to assume that, on average, the rent and cost structure in a particular base year were appropriate. The year chosen was 1972, at a time when inflationary movements were considerably less than at present and the vacancy rate was at levels more nearly likely to be indicative of balance between supply and demand."

Incidentally, Mr. Speaker, I don't know if the Attorney-General has separate data on the adequacy or propriety of rates of return in 1972. I can't find them in the report, but we'll just for the moment have to take it at face value. Dr. Cragg goes on to say:

"The pattern of current expenses for that year was then used in conjunction with valuation of changes that have since occurred to estimate an average increase in cost. Similarly the increase in the cost of the real capital was assessed. Assuming that returns in 1972 were appropriate, the calculation then gives an estimate of general rent increases that would give this same rate of return."

That's the approach he took to develop the numbers that were given such publicity, properly, in the description of his report.

Mr. Speaker: Excuse me, Hon. Member. If you are not the designated speaker, then you have two minutes left.

Mr. Gibson: Thank you, Mr. Speaker. I think at this point I become the designated speaker. (Laughter.) I wasn't sure how long this was going to take.

Hon. L. Nicolson (Minister of Housing): Mr. Speaker, on a point of order. I think we are setting a precedent here. I think this should be given very careful consideration before we embark upon such a procedure.

An Hon. Member: Right on.

Hon. Mr. Nicolson: I think that such a thing should be declared at the outset. I would wish, if you allow this to go on, that it not be considered precedent, but that you give it your usual careful consideration and give us some ruling.

Mr. Speaker: May I interrupt just to say that it occurs to me that one would expect the concurrence of the leader of the caucus groups to be known, if such is the case. In other words, I wouldn't want to see a conflict develop, and I would assume that when a Hon. Member states that he is the designated Member, he is doing so with the full cooperation of his leader. I assume that to be the case.

But I do feel that it would be more appropriate if each person who was the designated person, rather than the leader, states so at the commencement of his address so that we know what we are timing, or if we're timing at all in that case.

Hon. Mr. Cocke: It's been a precedent in the House, whether it's been law….it's been precedence that the first speaker of any party is normally the designated speaker.

Mr. D.A. Anderson (Victoria): We've never had designated time before.

Hon. Mr. Cocke: I would suggest that if not otherwise identified, that should be the designated

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speaker. He takes his chances unless there is….

Mr. Speaker: Perhaps a simpler way out would be to ask the party leaders to consult, either with each other or with their respective groups, and indicate to me what procedure they would think would be applicable, because I think it should be done in a way that is agreeable to the House.

Mr. D.A. Anderson: Mr. Speaker, I would be delighted to consult with you and the other party leaders on this point.

Mr. Speaker: Thank you. In the meantime, without prejudice, shall we say, the Hon. Member stated that he is the designated speaker.

Interjections.

Mr. Speaker: Order, please!

Mr. Gibson: It took so long to prepare and to have access to the Cragg report that it was a little difficult to predict how long any individual talk was going to be.

Carrying on with Dr. Cragg's analysis of expenses and revenues, he comes to the interesting conclusion that only a bit over one-third of revenues goes to meet current expenses — that net of capital maintenance expenditures. When you add those in it comes up to something like 42 or 44 per cent, and I think that's a useful benchmark or rule of thumb to keep in mind when looking at apartment costs. The rest of the revenue goes to capital items — capital costs or returns to capital.

He considers the returns to capital in the apartment industry, again based on replacement or market value, and finds them to have ranged between 4 and 5 per cent — a little over 5 per cent in some cases — in 1973 and 1974. That figure, I believe, needs more analysis, but is an interesting one.

He looks at the capital-cost indexes — the way in which the cost of construction in the rental housing field has gone up since 1972. These — figures are literally terrifying. The cost of land has been bad enough. It went up from an index number of 100 in 1972, to 117 in 1973, and 128 in 1974.

But it is the cost of construction, namely materials and labour, which is the incredible one, which went from an index number of 100 in 1972 to 118 in 1973, and 160, Mr. Speaker, in 1974. That's a jump of 60 per cent over two years, or 36 per cent in the last year alone. It is this kind of figure which is producing the capital cost trends that so concern the Attorney-General.

Clearly one of the things we have to look at is how to, if not get the cost of apartment construction down, at least in some way control them. Dr. Cragg gives at page 71 a good assessment of how current operating expenditures — which, you may recall, relate to in this case some 44 per cent, because he includes repairs and maintenance — how current operating expenditures have gone up over the last year. They have gone up from an index number of 108.6 in 1973 to 126.3 in 1974 overall. So that would be something, I suppose, like 15 per cent on that portion of the expenses of apartments that relates to current operating expenses — as I say, some 44 per cent.

Some of the individual items are incredible. There has been, for example, an increase of over 25 per cent in the cost of heating apartments. Summarizing that point, Dr. Cragg says as follows:

"It will be noticed that with the important exception of property taxes and replacement estimated on the basis of indexes, the increases estimated over the two-year period from 1972 are higher than the increase in the consumer price index. This pattern of larger increases is concentrated in the most recent year, while 1973 saw a pattern of increases more balanced around the overall rate of inflation.

"The most dramatic increases apart from those stemming from the construction cost calculations are in heating and in caretaker services. The first reflects the very large increase in energy costs that have occurred."

Those are costs directly, in some cases, under the control of the government, I might add, Mr. Speaker.

The second is a reflection of the estimated effects of changes in minimum wage provisions affecting apartment building caretakers. It notes that:

"The combined effect of all these changes is shown in the last line on table 10. It is estimated that the increase in 1973 was 8.6 per cent, with a further increase of 16.3 per cent for 1974. The latter is more than five percentage points above the increase in the general price level."

Dr. Cragg then goes on to speak of what he believes should be the allowable rent increase, and he develops a number of figures which Hon. Members may or may not be familiar with. I would just like to cite some of them.

"The implications of the capital cost and current cost investigations for rent increases are dramatic and extremely disturbing. If one assumes that cost changes in one year will be reflected in the coming year's rents, and that the returns on capital in 1972 were appropriate, the cost changes in the last two years would lead to the rent increases shown in the first panel of table 1."

There the first line recorded a total cost index as calculated; the second, the percentage rent increase implied. For 1975 the figure would be 23.4 per cent.

[ Page 4583 ]

"This figure, however, presupposes that rents in 1974 are rising by 13.8 per cent, when in fact they were restricted to being not more than 8 per cent by the legislation. Taking this into account leads to a 30 per cent rent increase."

This is how the famous 30 per cent figure has been arrived at. Dr. Cragg comments on it:

"There is no doubt that this is an enormous increase. It cannot be taken as meaning that allowable rent increases should be 30 per cent or that without a rent control programme rents would rise 30 per cent. What it does indicate is that the changes in costs which have been occurring in the last two years imply that rents will have to rise by roughly 30 per cent to restore the apartment-renting industry to the same position as found in 1972 before any account is taken of any further cost increases that may occur."

So that is the dilemma that the Attorney-General faces, that this government faces, that this House faces. Dr. Cragg's figures, as he is at great pains to point out all through this report, may be high or they may be low, but the general pattern is there. Dr. Cragg has looked for various ways of spreading these increases, whether over two years or whether over three years. He comes out with various figures. The lowest one that he thinks would have any effectiveness is 16 per cent, and he comes up with much higher ones, depending on what objective this House wishes to reach.

Then he comes to his summary and conclusions. "The main findings of this study are easily summarized. Very large cost increases have occurred in the last two years in rental housing."

That's cost increases.

"Various changes in the circumstances in this period have produced an estimated increase of 44.4 per cent in the economic cost of providing rental accommodation. This increase has doubled the rate of inflation over the period. The increase in rents needed to compensate fully for the cost changes is estimated to be 30 per cent, given the 8 per cent increase in 1974.

"Such a large rent increase for most rental accommodation without specific justification might well appear unreasonable, indeed outrageous. It is not suggested that the allowable rent increase be 30 per cent. Instead it is suggested that the effects of dramatic changes should be spread over time."

He notes that doing so on a moderate basis would still give an allowable rent increase of 21.2 per cent, and a more extreme form of distribution over time would produce a figure of 16 per cent.

Mr. Speaker, what is the impact of this figure: "an allowable rent increase?" It is the trigger point, if you like. It is the point below which an increase under the existing legislation couldn't be challenged, and above which it would have to be justified.

Dr. Cragg describes clearly the trade-offs involved in administrative terms. If you have a low trigger point, a low allowable rent increase, you have an enormous amount of applications to go through the justification procedure, because, in fact, there would be a good deal of justification in many cases for going above that limit. Presumably this is what has scared the Attorney-General off the rental review mechanism.

He feels that they just wouldn't have been able to do it if they set allowable rent increases at the rate he wanted it, 10.6 per cent. The Attorney-General suggests there might have been 3,000 per month. But I suggest to the Attorney-General that in the courts of law, if there are 3,000 appeals per month and they are justifiable appeals, you simply have to set up the machinery to do it if you want to have a just system. Indeed, Mr. Attorney-General, through you, Mr. Speaker, you did set up that machinery, to your credit — in section 4 of the existing Landlord and Tenant Act. Now you are destroying it. That is one of the things I find unpardonable about this legislation. As the Hon. Member for West Vancouver–Howe Sound (Mr. L.A. Williams) says, you can't support that kind of thing.

The Attorney-General, and I don't want to misquote him, Mr. Speaker, just said that we have lots of time, I think he meant, to get to a better solution. I think the problem is more urgent than that. I think the problem is right now, and I think the government has defaulted in its duty in bringing in this piece of legislation and not making the legislation they passed in the spring work.

Hon. Mr. MacDonald: You're too impetuous.

Mr. Gibson: Continuing with Dr. Cragg:

"Another aspect of the background to the recommendation is the shortage of rental accommodation that exists and the very small amount of rental construction that is occurring. There is an urgent need for more rental accommodation to be provided. Failure to do so will impose major costs and hardships on many actual and would-be tenants.

"Present conditions in the capital market and other obstacles appear to be hindering new construction, quite apart from rent control. However, one cannot expect the private sector to provide housing if it cannot expect to earn an adequate rate of return.

"At the heart of the rent increase dilemma is capital cost. The capital cost concept

[ Page 4584 ]

underlying this study is opportunity cost, which is based on rates of return that can be expected from other uses of capital.

"The increased costs of providing accommodation" — and this is the section the Attorney-General read last night — "imply that large windfall capital gains can be expected to accrue to the present owners of rental accommodation. Whether the present taxation of such gains is adequate goes far beyond any questions dealing with rental accommodation. However, attempts to prevent such gains by rent control are likely to have very serious consequences to the provision of housing and the structure of rents."

Hon. Mr. MacDonald: I didn't read that.

Mr. Gibson: No, the Attorney-General didn't read that last sentence yesterday.

"However, attempts to prevent such gains by rent control are likely to have very serious consequences to the provision of housing and the structure of rents."

No, but I wish you had read it, Mr. Attorney-General, because it undercuts your whole case.

I suggest to you that in your concern about windfall capital gains — incidentally, you gave no estimate of their magnitude and neither, unfortunately, did Dr. Cragg — you are going to do the most serious damage and hardship to actual and would-be tenants in this province.

You have every right, if you wish, to look at the current taxation of capital gains, as Dr. Cragg mentioned. Indeed, I would suggest to you that the current taxation of capital gains does a good deal to restore the equity with which you are concerned. The current taxation on capital gains provides for something like a 25 per cent rate.

I would suggest to the Attorney-General that that rate in inflationary times, and dealing with property, in fact works out to a good deal more than 25 per cent on the original investment. Much of the so-called capital gain on which the tax is assessed occurs in inflated dollars. Therefore, the marginal rate of tax on the original investment is in fact much higher.

I think the Attorney-General should study that proposition before getting so concerned about this particular point that he allows it to cloud his vision to the point where he does damage to the interests of tenants. Unquestionably, this is the critical, central question in what we are talking about here.

Mr. Speaker, I suggest to the Attorney-General that if he doesn't go the present-market route for capital valuation, then he has three different things that might happen.

First of all, no new construction is one of the alternatives, and that's what's happening now.

The second possibility is a two-price system to the extent that the plan for a five-year tax rental period works, that it is believed by the industry which would build these buildings, and that there are people prepared to come in and say, "I can get my money out in five years if I charge high enough rates." That alternative's is not very pleasant either.

The third alternative is massive subsidies to government-built housing, or the possibility of per-unit capital grants. I want to come back to that in a bit.

I don't believe government-built housing to be the answer. Apparently the government believes it to be the answer.

But I want to suggest to you, Mr. Attorney-General, that as you are finding and as you well know, landlords are not popular - not popular politically. That applies equally well to a landlord that is a government as any other kind of landlord. If you want to get into the business of having thousands and thousands of tenants annoyed at you because of the latest increase you have had to make or because of the inadequate services you are providing, then I suggest you are doing something that is not only improper economically but pretty silly politically, too.

Interjections.

Mr. Gibson: What's needed, Mr. Minister of housing (Hon. Mr. Nicolson), is to get some housing built, not for you to build it.

Interjections.

Mr. Gibson: There's that Minister of Housing, Mr. Speaker, making snippets of interjection into this debate, not standing up and saying anything useful, in a year when we are told that housing starts are down from 38,000 in 1973 to 28,000 in 1974.

That's talent. It's a talent for a brand new Minister of Housing to be able to knock back housing starts in this province by one-third in just one year in office.

Interjections.

Mr. Gibson: You just stand up later on and tell us all about it, Mr. Minister. You just stand up and tell us all about it.

Interjections.

Mr. Gibson: So, Mr. Attorney-General, I'm suggesting that if you proceed with this legislation, tenants are going to be faced with the following

[ Page 4585 ]

problems.

They are going to be faced with deterioration in buildings, the absence of which is going to be difficult to enforce. They're going to be faced with service cutbacks. I've received many letters and I'm sure you've received many more from tenants who say this service has been cut back and that is being cut back.

In spite of any provisions in law you might put in, there's going to be virtual imprisonment of people in their controlled rental units if you move to a two-price system. They just won't be able to afford to move anywhere else; they're going to be stuck in that apartment.

The cost and assessments that are imposed on owner-occupied dwelling are going to go up. This is one of the things that's not widely understood yet. To the extent that apartments lose their value because of rent control, the taxes effectively paid by tenants to municipalities for the provision of services go down, Those taxes must be found somewhere. They will be found by an increasing in taxes on single-family dwellings and condominiums. There's just no way around that.

And that's not the only impact. Unfortunately, the scarcer that rental housing becomes, the more pressure is put on the owner-occupied market. The more people who would have rented a home and or apartment are forced into the purchase of a condominium or the purchase of a house at high interest rates in today's market, pushing up the prices there.

And all of this is a place British Columbia — that's growing at 3.5 per cent a year. Lord knows, we have difficult enough housing pressures to deal with without this kind of artificial restraint on the market.

I'm suggesting that we need to get some rental housing built, not this Act which will continue the virtual cessation of rental housing construction which we've seen in this province for the last few months. Mr. Attorney-General, if you think you've got problems now, you just wait until the spring. Things are going to get awfully hot for you when people find that there's just no way they can get a place to rent. And if you can't get a place to rent, it doesn't matter what the price is that you can't rent it at.

I want to suggest to you that you should reorganize the renters grant on a humane basis related to needs to help cushion rental increases. Increase the amount available for it; reorganize it and relate it to needs.

I want to suggest to you, secondly, that rent controls per se are pernicious and that the whole system should be phased out in between three and five years.

I want to suggest to you that the rental review system should be maintained in the interim and the existing part IV of the Act should stand. The rentalsman, in his letter to you suggesting the setup of a different commission, made it quite clear to me, at least, by implication that a rental review system is needed. There's no rental review system in this legislation. There's just a rental review system that's destroyed and taken out. What can be the possible sense of that?

Interjection.

Mr. Gibson: The Attorney-General says that's wrong. Show me the section here that provides for rental review. What it provides for is the taking away of rental review that exists right now.

Dr. Cragg has given you the data for it; you've had several months to prepare. You could have had another two or three months if you needed it. You didn't have to destroy it. We should retain the rental review system in the interim of this three-to-five-year phase out period of rent control.

Interjection.

Mr. Gibson: Mr. Attorney-General, now that you've dug a hole that's put the Legislature very, very deep in this situation, you have to use some of the ladders that are provided to climb out. And you're chopping down one of those ladders right now.

I beg you, Mr. Attorney-General, please don't start the horror show of a two-price system in the rental accommodation market. It's insanity. It won't work and it's bad to the extent it does.

I don't think that people who would build apartment buildings are going to trust you enough to invest in new construction. I don't think they'll trust this five-year rent-control holiday guarantee because they've just had one guarantee pulled out from underneath them in just less than six months. Why should they take a five-year guarantee when you can change your mind every six months, and do?

But to the extent that construction does occur there, those who build those buildings are going to say, "How can I get my money out in five years?" That means very high rents for this new construction.

Instead, Mr. Attorney-General, why don't you look at the possibility of encouraging construction in other ways? Why don't you look at the possibility of making capital construction grants to those who would build apartments in return for a negotiated scale of rents which would be reasonable? Why don't you look at that?

Interjection.

Mr. Gibson: Why aren't you doing it? Why aren't you doing it right now? That's the answer, instead of going through this song and dance. In the end, Mr. Speaker, what has to be done is to build more apartments. It's just that simple. This should be called

[ Page 4586 ]

"An Act to Provide for the Non-building of Apartments in British Columbia," because that's what it is.

We're in a critical situation. Mr. Speaker, this Act is stupidity of the highest order. If it was stupidity that was understood, it would be criminal stupidity. Why can't that party learn from the real world sometimes, and abandon its dogma sometimes, and work for the benefit of the people it says it's concerned about — the tenants who need the apartments that aren't being built?

Mr. Speaker, this is more than depressing legislation; it's legislation that's working against the interests of every tenant and would-be tenant in British Columbia over the long run. I very strongly oppose it, and I ask this House to do so as well.

Mr. Speaker: The Hon. Minister of Housing.

Hon. L. Nicolson (Minister of Housing): Mr. Speaker, we've listened to a lot of rather shallow debate, erroneous debate, half-truths. I think that one of the things we should do, first of all, is look at how the present housing crisis perhaps came about, particularly in the rental sector.

It was federal government policy, Liberal government policy, with whom that previous speaker was closely associated, that had income tax loopholes which encouraged professionals, people with a little bit of surplus cash to invest in apartment dwellings, to postpone income taxes to the later years and, in effect, funneled subsidies to rental housing through the hands of doctors, lawyers, dentists, and maybe schoolteachers.

Mr. G.S. Wallace (Oak Bay): The Premier supported that in this House.

Hon. Mr. Nicolson: That's right. And what was the effect of that policy?

Interjections.

Hon. Mr. Nicolson: Well, let's talk about why we supported it later, the continuance of that…. The Liberals, having gotten us into this mess….

Interjections.

Hon. Mr. Nicolson: I'll explain it. Having created this, where this type of investment became 20 per cent, 40 per cent and then perhaps about 80 per cent of the rental accommodation, having done that, and then having completely discouraged the corporate sector, which could no longer compete with these subsidies, they then withdrew the subsidy and left 80 per cent, approximately, and that's very rough — that's open to debate — but they left this very large sector, this very important sector of the rental housing market completely unsubstantiated, because these people had no incentive to try to collect a fair return on their investment; they we subsidized to such an extent.

At the same time, the corporate sector had been discouraged. Now what has been the history? We heard talk by other previous speakers that the corporate sector has been discouraged by our policies. Is that why the president of Abbey Glen, formerly Western Realty, which is a British interest, has moved from Calgary to Vancouver? Is he that discouraged about the prospect here?

In fact, Mr. Speaker, there are vacancies there because of shutdowns in the oil industry. I know that executive homes there can't be sold. There's a tremendous surplus there.

Interjections.

Hon. Mr. Nicolson: These are some of the facts. They say that housing starts have slowed down here in British Columbia. Well, of course they've slowed down. The federal government has used housing in the fight against inflation. They've increased mortgage interest rates, not just selectively. They've just cut down on housing and rental accommodation as much as they have on anything else. The fact is that right now we have 15,000 dwelling units in planning or construction, the majority of them in planning, but significant numbers under construction.

Through our initiative I can say that our record is not as bad as the Canadian average. While housing starts in Canada for the first nine months of 1974 were off 13 per cent, ours were only off 8.5 per cent; and I don't take too much consolation in that. Housing starts in September, 1974, compared with 1973 were off 31.5 per cent for the whole of Canada, and off 8.5 per cent in British Columbia.

How do the federal Liberals go about solving housing policy? They offer a $500 grant, homeowner's grant, with no strings attached. Our provincial government $1,000 homeowner grant requires that it be repaid if somebody sells that home within five years. But that is a straight giveaway.

They're offering to lower interest rates to the private sector, and at the same time they have raised interest rates to the public sector — for provinces in this country — from 8 per cent to 10.6 per cent in less than one year. That's how the federal Liberals, with whom that Member was very recently associated, have been helping to solve the housing crisis.

We're trying to provide decent housing. I've looked at the recent press coverage and people have been interviewed; Mr. Doman has been interviewed at great length. But I ask the press: have you phoned

[ Page 4587 ]

Henry Block? Have you phoned Jack Poole from Daon Development? Have you phoned Walter Bethune from Abbey Glen? Have you phoned Frank Stanzl from Stanzl Development? You phone these people and you ask them what they think of this legislation, not the doctors and the lawyers who have this subsidy and went into this as a tax dodge.

You talk to the people who day in and day out in the private sector are concerned with the provision of residential accommodation. You get their opinion as to whether or not this will stimulate the construction of housing units. Daon Development alone is now renting 88 units in New Westminster, 60 units in White Rock, a 532-unit apartment complex in North Vancouver; and a 281-suite complex is being currently let by a firm here in Victoria.

Interjection.

Hon. Mr. Nicolson: Well, I heard that not one rental unit had been built, and this is simply not true.

Mr. R. H. McClelland: (Langley): How many are under construction in Victoria right now?

Hon. Mr. Nicolson: Well, as I say, there are 281 in one project. It's going on the market about now.

Interjections.

Hon. Mr. Nicolson: Now I'm not surprised that some of the people don't know that any housing is being built. You know, I've been up in Boundary-Similkameen, and it's getting embarrassing. I've been up there several times recently, and Frank's uncle Paul said to say hello to him. I hope he's listening, wherever he may be. But I'm sure he's not up in Boundary-Similkameen.

Interjections.

Hon. Mr. Nicolson: Well, Mr. Speaker, they want to know what this has to do with these things. I was up there to open a housing development where his uncle Paul is living, and it would have been nice if Frank could have been up there, you know; it would have been nice. He was invited. He did send a telegram, I believe. I was also up there to open about 80 units of family housing in Penticton, and then I had to…. It's getting to the point where we've got to have a designated ribbon-cutter, because a couple of weeks later, we were up…

Interjections.

Hon. Mr. Nicolson: …to open several hundred units of senior citizen housing in Penticton and also a recreational complex, with a one-third capital grant provided by the Department of Recreation and Conservation.

Mr. J.R. Chabot (Columbia River): Get the Hon. Graham Lea (Minister of Highways).

Hon. Mr. Nicolson: The list goes on to Grand Forks with Mayor Robertson, and in other places like Fort St, John, where there are 40 units of public family rental housing, or places like Fort Nelson, where we're building mobile home parks and we're servicing land, and we're building house for families for BCANSI — and Chetwynd. There are homes being constructed in Chetwynd, my friends, and I've just been talking with your mayor this morning.

Interjections.

Hon. Mr. Nicolson: Oh, Mr. Speaker, 127 family rental units out in Surrey, 176 on land leased out in Coquitlam, and….

Interjections, Hon. Mr. Nicolson: What about where? You know, there's one way in which we can solve this, and it's something that would be said if you listened to the Urban Development Institute" there's one thing that will solve this if you were to talk to the HUDAC — there's one major thing — and where the major problem is…. It certainly is not in Penticton where we have aggressive councils that are interested and stand full-fledged behind housing. Where is the real trouble?

An Hon. Member: Oh, you hit it right there. (Laughter.)

Hon. Mr. Nicolson: You know, there's been a lot of walking around and changing parties within the free enterprise sector, but here's a recent person who saw the light, Mr. Speaker: " Vander Zalm admits Surrey dragging heels on housing." I wonder, Mr. Speaker, if that self-ordained group were to come back to power, would he be the new Minister of Housing? Would he be put in there to drag, his heels as the previous administration did for years and years? The best they ever committed of Central Mortgage and Housing funds in any one year was $23 million, and in one year we committed $73 million, three times as much as that and almost as much as that outfit dedicated in one decade.

Interjection.

Hon. Mr. Nicolson: Well, that could be, or would it be that other Liberal turned Socred, perhaps

[ Page 4588 ]

mayor of the District of North Vancouver — and I wouldn't want him to be confused with the mayor of the City of North Vancouver, who sometimes takes a very aggressive stance — but another of those people who have seen the light and know how to drag their heels vis-à-vis housing?

So what are you people saying over there? Are you telling me to go in and tell those municipalities, tell them that when they demand, perhaps 200 square feet per unit more than what's asked for in CMHC regulations — something that can cost an extra $10,000 for a family housing unit that is supposed to be aimed towards low income families; $10,000 because they feel that an extra 200 square feet is the minimum that can be had in that particular municipality — are you saying that I should go in and impose CMHC standards as a maximum standard or maximum standard in a designated area?

Are you giving your confidence to me to go in and do that sort of a thing? Are you saying that standards which demand two parking spaces per unit, when the car is choking us here in North America — two parking spaces of underground parking which can run $7,000 per unit — are you saying that we should go in and tell municipalities that they should reduce that standard, that maybe one or one and a half parking spaces is enough, that we can cut the costs of rental housing by another $3,000? Are you saying that concrete-enclosed, steel-doored garbage facilities, which the city garbage people refuse to pick up from and become an absolute albatross, are you saying that we should tell municipalities that they should not come up with such ridiculous, unthought-out standards, such gold-plated standards, without even consulting with their sanitation engineers?

Well, Mr. Speaker, if that's what the other side is saying, I hope they'll put in a private Member's bill; I hope that they'll demand that I designate areas, that I get tough with the municipalities and, Mr. Speaker, I'm sure I'd very gladly listen to such a proposal.

An Hon. Member: Hear, hear.

Mr. Speaker: The Hon. Member for Oak Bay. Are you the designated speaker? (Laughter.)

Mr. G.S. Wallace (Oak Bay): Well, Mr. Speaker, I thought we came to that decision yesterday. Weren't you in the chair when I announced that we had a very important caucus meeting and that was the decision?

Mr. Speaker: No, I wasn't. Thank you. (Laughter.)

Hon. G.R. Lea (Minister of Highways): Any backtalk?

Mr. Wallace: Oh, there's the occasional time when I have to talk to myself very severely, Mr. Speaker.

Interjections.

An Hon. Member: Go ahead, Scott, you're on.

Mr. Wallace: If it's all right with the House, perhaps I could get back to housing.

I think really that the Landlord and Tenant Act represents the poorest method of searching to achieve the goal that we are all after in this House. I get a little frustrated about both sides of the House perhaps arguing superfluously about the goal of housing. Surely, we're all agreed that legislation endeavours to achieve two goals. One is to provide decent housing for tenants at prices they can afford. The second goal, which is on record by both sides of this House, is to provide a fair return to people who invest their money in housing.

Now, these two goals have been repeated by numerous speakers on both sides of the House and certainly, just to make it unmistakably clear, the Attorney-General himself stated in this House on June 17 that:

The rentalsman will have the power to took at factors such as fair return to the investor. In fact, under section 28(l)(c), even in housing which does not exist as rental housing at the present time, somebody can come to the rentalsman and say: "Why should I go into that field unless I have some assurance of a fair return on my capital." I would assume that would be something better than first mortgage money, because why put up a building if all you are getting is the first mortgage rate — put it out in the first mortgage?

The Attorney-General goes on:

If it is a case of existing buildings, the landlord can go to the rentalsman and say

— and this is most important to this whole debate on this bill, Mr. Speaker —

the landlord can go to the rentalsman and say: "I am not receiving a fair return on capital. I am justified to a rent increase which is more than the percentage fixed on this particular year." He produces his books. He would have some assistance from that office, I would think. You spoke of someone who didn't have their own lawyer or accountant. I would think the rentalsman's office would be of some advantage to that particular party. He could go there. It will be staffed, I presume, with an economist, and he will really get free advise.

Mr. L.A. Williams (West Vancouver–Howe Sound) : Who said that?

Mr. Wallace: The Attorney-General said that on June 17.

[ Page 4589 ]

Mr. L.A. Williams: Our Attorney-General?

Hon. Mr. MacDonald: This is November.

Mr. Wallace: That's right. Of course, the Attorney-General interjects that this is November, and it's very surprising the 180 degrees turns which politicians and political people can take in a matter of a few months.

An Hon. Member: You're just fickle, that's all, like the rest of your caucus.

Mr. Wallace: The point I want to make at the outset, Mr. Speaker, is that we're agreed on the goals. I've quoted from Hansard to show that our own Attorney-General believes in a fair return to the investor, and that all of us in this House are trying to provide decent accommodation to all the citizens, at a price they can afford. So really what we are arguing very clearly in this House is the method whereby these two goals are to be pursued. Certainly it's been said many times, but has to be said again, that of course, the basic problem is that there is a shortage of rental accommodation. But unfortunately, when we seek a method of solving that problem, this government lets its theory get in the way of practice and, time after time, ignores the fact that, whether we like it or not, this world and its commodities — all its commodities — function on the basis of supply and demand. Now that might not fit in with theory — yes, you needn't shake your head, Mr. Attorney-General. If commodities are in short supply, the demand goes up and the cost goes up, and this is no different in housing since it is an essential.

The fact is that the Attorney-General has laid great stress on his concern about return on capital. In deciding on the 10.6 figure, he pointed out very clearly that this was arrived at, in his view, because he did not agree that there should be return on capital. Regardless of the Attorney-General's appraisal of the Cragg report, we have the facts that we originally had an 8 per cent limit on an increase, but at least there was an appeal. The individual concerned could take his case to the rentalsman and demonstrate…. I've just read the quotation, Mr. Attorney-General, do I have to read it again? "The landlord can go to the rentalsman and say: 'I'm not receiving a fair return on capital. I am justified to a rent increase which is more than the percentage fixed for this particular year.'" This is your own quotation, just a few months ago, at which time you were fixing it at 8 per cent. Now you've fixed it at 10.6 per cent. You've gone one step worse, and that 10.6 per cent is it. There is no appeal, no mechanism, and don't tell me that this is interim.

In fact, I have discovered this really isn't the NDP; this is the LIP party — the leftist interim party — because it's leftist dogma and it's interim legislation, which is the description given to just about every second piece of legislation that comes in here, and would really suit this party for that title. So the Minister says that it was 8 per cent with an appeal. Now it's to be 10.6 per cent and no appeal, Both measures are said to be interim. One could, I think, very honestly ask: how interim is interim?

Hon. Mr. MacDonald: Read the bill, they are scheduled beyond '75.

Mr. Wallace: Well, beyond '75 — that's a long time if units are not being created in the meantime because of this legislation.

An Hon. Member: They've already amended it twice in one year now.

Mr. Wallace: At any rate, the important relationship to the creation of units, and the confidence of people who will invest money, seems to be disregarded by this government. Certainly many of the owners of rental accommodation felt that the 8 per cent was an interim measure and that the succeeding legislation would give them a longer-term confidence in what the capital and market would be in housing, or what their capital gain or their operating gain could be in housing.

Now we find that all that's happened is that the 10.6 figure has been set. Worse than that, they no longer can open up their books and take their auditors or accountants before anyone to justify the fact that they are losing money on a 10.6 per cent limitation.

Of course, the other point about that is that it's called a maximum increase but we can readily see that, in the light of the loss of invested confidence, that is also a minimum increase.

There will no longer be any property owner in his right mind who will increase it by anything less than 10.6 when he looks back on the way in which the government has handled this situation and has, in fact, betrayed its promises of the bill that was passed — the rent stabilization bill.

Numerous speakers have talked about receiving letters, and of course, I've received letters too. It's interesting to make the point that not all investors in apartment buildings are large financial organizations, nor are they all wealthy individuals. The Minister of Housing (Hon. Mr. Nicolson) liked to keep repeating that the only people who invest in apartment buildings are doctors and lawyers — the implication was that it was only rich people. I've had letters from some very distressed senior citizens who have put their savings into a relatively small apartment building, the income from which is part of their livelihood, an important part of their livelihood. These people suffer the same as anyone else if you

[ Page 4590 ]

limit the rent increase at a time when operating costs are rising.

The Attorney-General talked, yesterday, about "rapacious gougers". It's a very startling phrase and it certainly paints the Attorney-General in the image of the knight in shining armour protecting the little man and the little woman from the rapacious gougers. But the fact is, and even he has admitted it, that they are in the minority; the gougers are in the minority.

Mr. Attorney-General, you've said that yourself many times in debates in this House. Yet don't you think…?

An Hon. Member: He didn't recommend a 30 per cent increase. Read the report.

Mr. Wallace: I haven't mentioned any figure yet. If you just let me develop the argument a little further, I'm not suggesting it should be 30 per cent, so I wouldn't want you to put these words in my mouth, but I'm not saying they should be 10.6 either.

The fact is that we talk about gouging. It seems to me that the government is doing pretty well itself when it puts up the charge of interruptible gas supply to apartments by 71 per cent.

I notice in the whole debate, and any mention of operating costs in this debate, facts such as that were not touched upon by the Attorney-General.

One of the other big deficiencies in this bill…. I know that Dr. Cragg explained the deficiency on the basis of time constraints, that there was not enough time to conduct adequate inquiry, but in that same debate that I quoted from a minute ago, the Attorney-General went on to say — and this is also June 17, 1974: "They may prescribe a different allowable rent increase in respect to different parts of the province." That's because the cost situation may be quite different in different parts of the province.

Later on again he goes on to say that if you go over the 8 per cent amount, you have to justify it before a rentalsman. The rentalsman's recommendation is that threshold thing, beyond which you have to go to him and justify your rent increase which may be made in the light of increases and cost of normal operations in that area. So this bill again brings in a blanket 10.6 which will not be just a maximum, it will become a minimum for all landlords, and it takes no cognizance whatever of the variation between different parts of the province.

Somebody said a moment ago — I think it was the Minister trying to make a point — that there is a lot of apartment construction going on. He asked: "Where are your figures?" I would certainly like to put into the record a study that was done by Mr. R. Wilson of the London Life Insurance Company. This is dated October 15, 1974, and I'm talking about the Greater Victoria area: and in addition to showing a vacancy rate of 0.2 per cent with regard to suites under construction, there is a total in the Greater Victoria area of 13,658 suites."

At this date there were 198 units under construction, which represents a very small percentage in relation to the 3.5 percentage increase in population occurring in the Greater Victoria area. So the Minister is easy to answer on that score as far as the Greater Victoria area is concerned.

The measure that the Attorney-General is bringing in is certainly a very pitiful, political expedient for purely short-term gain. The appearance which is created is that the Attorney-General is protecting the tenant from inflation and substantial increases in the cost of accommodation, even though these costs can be demonstrated to be just as logical and consequential as many of the other costs we have, whether we're driving our car….

Don't shake your head, Mr. Attorney-General. Didn't you see the front page of the Sun last night — the cost of living up another one per cent — the equivalent of 12 per cent per year….

An Hon. Member: It's 1.4.

Mr. Wallace: Or 1.4, or whatever the figure was. You can't shake your head. The cost of housing has to go up like the cost of sugar, or bread, or gasoline or any other commodity you can buy. We can't have it both ways.

You stand in this House and talk about the inflationary problems being international and that the federal government can't do much about it, and we can't do much about it. But you seem to think that the cost of housing can be looked at in isolation, that you can subsidize that cost through the people who happen to own the housing. Is that just?

Let me read from one of your favourite provinces. I've got a book here that the government very carefully has avoided publishing, called, "Programmes in Search of' a Policy" This was a study which was carried out by a research grant under the part 5 of a National Housing Act and because they didn't like what the research showed they won't publish it. Very interesting. The publisher himself finally took the trouble of putting out 3,000 copies. It's called "Programmes in Search of a Policy;' it's by Mr. Denis and Miss Fish, I believe.

[Mr. G.H. Anderson in the chair.]

One of the quotations they have is from Quebec. The Attorney-General has talked about how much he values the advice of a Mr. Chatelaine and the great success of the programme there. The Castonguay Commission stated in 1971:

"The recognition of access to housing as a universal right implies a direct intervention by

[ Page 4591 ]

the state throughout that industry, which even today depends almost entirely on free enterprise. Just, as universal rights to education and welfare meant that the state had to assume responsibility in those sectors in place of free enterprise, then equally the recognition of access to housing as a universal right implies a similar direct intervention in the field of housing, " That's from the Castonguay Commission in 1971.

But you're not doing that, Mr. Attorney-General; you have stated that housing is a very vital essential — food, clothing, health care, and housing is a universal right — but in this particular instance you choose to have the owner of the housing subsidize, instead of providing the subsidy, as we do with health-care education out of general revenue. It is as simple as that.

Why should we pick on any particular sector of society to subsidize what you believe to be a universal right and which should be provided by the state? Now your philosophy falls apart when you try to split it into two parts. You apply that kind of philosophy — and I think it is a reasonable one — to health and social assistance. But when it comes to housing, which you say is also a universal right, you expect the owners of property to be the source of the subsidy. I just think that that argument is completely false.

You either do not believe that it is a universal right, and try to got somebody else to pay for it, or you accept the fact that decent shelter is a universal right for all citizens; and if there needs to be a subsidy, and indeed there does, then the subsidy, the same as hospitals and medicare and social assistance and education, should come from general revenue through the Minister of Finance.

This caper that we are going through on this bill not only is wrong and unjust, but it leads to the other problem which has been touched on by many speakers — that all that will happen is that fewer and fewer units will be built while the population continues to increase, and we will have some disastrous crises within the next few years.

There is no doubt, regardless of philosophy as to whether free enterprise should do the construction or not, that this climate that has been created by this government by a series of interim restrictive legislation can only continue to discourage investors to move into the construction of rental units. As that happens, the very person you are dedicated to helping, the tenant who is of average- or low-income means, finds it harder and harder to find the accommodation.

As one speaker pointed out today, many of these people have to be relatively mobile in order to obtain employment. If they are low-income earners, they are often the head of the household whose employment is often interrupted and he has to travel to other parts of the province to obtain work. You can't move from A to B unless there is some accommodation at point B. So it is a very real factor, which I think the Attorney-General is overlooking, that if new construction does not occur, all we're doing is making it more and more difficult in the long run for the tenant of low or average means to find accommodation when they have to move to another centre or another city to obtain re-employment.

It has been said many times — and is so inevitable, and it has been expressed to me in letters by tenants — that already landlords are cutting corners. Can you blame them? One kind of example I have had described to me is that when the tenant moves out, the apartment would very often be repainted and the drapes would be sent out to be dry-cleaned, and there would be a general measure of sprucing tip of the apartment prior to the new tenant entering. Well, in the present financial state, due to these restrictive pieces of legislation we're debating, this is just not happening.

So, once again, who suffers? It's the tenant who suffers. The very short-term gain of limiting the rent increase looks very rosy and attractive on paper, but just look down the road a little further and see that all we're doing in the long run is making it very much more difficult for the very tenant you are trying to help.

The buildings deteriorate, the standard of upkeep, and therefore the quality of the apartment for which the tenant is paying, deteriorates. We have the whole issue of encouraging apartment owners to convert to condominiums, which further reduces the stock of rental units available. Another point which I think is worth mentioning is that this form of economic protection, or purported economic protection, is like all other similar government measures. Once it is introduced, it is very difficult to remove it.

It's the kind of action by a government…. In this case the decision on the 10.6, I think, was blatantly political. Having taken that kind of blatant political decision — regardless of the logic and the research and the skilled person you called upon…. To just turn your back on him and tell him he was all wrong anyway is really not significant of this government's espoused belief that it will always take the best expert advice it can find. You sought the advice of this expert and then you turned your back on him because it didn't suit you politically to follow his advice. And I'm not talking about 30 per cent. I'll quote what I'm talking about in a minute.

It is very difficult to have confidence in the long-term future of the provision of rental accommodation when we see that this government is so keen simply to take the politically expedient way out. If it was keen and willing to do that by imposing

[ Page 4592 ]

this rent restriction, then we have to face the fact that it is unlikely that it would ever remove the rent control even when the need is gone. The need would be gone when we have a vacancy rate as they have in Alberta of 3, 4 or 5 per cent on apartments in Edmonton.

But at any rate, the overall consequence of what has been happening is that the shortage continues to increase, the quality of accommodation continues to deteriorate, and you create a black market and under-the-table dealings when people become desperate to have a roof over their heads. You are encouraging, if not actually inciting, people to enter into a black market situation, and that's the way it always has been down through history.

But then again, you don't accept this supply-and-demand situation which we realists on this side of the House try to acknowledge. As long as men have been on the face of the earth, when a commodity is in short supply and you are desperate to obtain it for whatever reason, there is always the drift to illegal dealings.

So when you think of these three points I have made — that the shortage will continue to increase, that the quality of accommodation will deteriorate, and that you will have created a black market situation — I think the clear conclusion is that rent control does not even begin to solve the problems we have in the rental housing field.

This isn't just my opinion or the opinion of the people here. There's a quotation in the Province newspaper of November 6 showing a classic example. The writer was Mr. Len Taylor, who titled his column: "Rent Curbs Don't Work." He goes on to give some specific documentation in other parts of the world where it has been tried. Just to quote one paragraph alone, he says:

"The classic example of the corroding effects of rent control can be found in New York city, where it has been shown that upwards of 400,000 housing units have been abandoned to the vandals and city control in the past 20 years."

I understand that an apartment owner in Vancouver yesterday is offering his apartment for $10. These measures have been tried elsewhere, and the effect of the rent control has been the three areas that I have described.

So what are the alternatives to the measures we consider are undesirable which the Attorney-General has put forward? Well, I happen to believe and support the essential statement that the Castonguay commission put forward and which I quoted earlier. I do not in any way fail to see the problem in this province, and that we must make the most serious efforts to provide the decent housing for citizens at costs they can reasonably afford. I happen to believe that if basic subsidizing from general revenue applies to health and education and social assistance, it is equally reasonable and logical to apply a subsidy from general revenue to housing.

There are two main ways, I believe, in which this has been done successfully and can be done; it is either by demand subsidy or supply subsidy — in either case derived from general revenue.

The demand subsidy is paid in cash to the consumer, and this, of course, leaves the consumer with some measure of choice as to what kind of accommodation he will spend the subsidy on.

The other is the supply subsidy, which is applied to the actual property occupied. In one sense the supply subsidy is less attractive because it ties down the consumer to that particular property, whereas a demand subsidy leaves the resident some measure of freedom of choice.

It is really quite interesting, Mr. Speaker, that no one else has raised the concept that has applied in the United Kingdom for years and years and years. We all called it "council housing" in the old country. It is very simply housing which is subsidized out of general revenue for a fair percentage of the residents in the United Kingdom. The money comes from general revenue and is in the form of a direct subsidy by government to housing.

I feel that the very least that should be done is to explore the more successful areas of housing subsidy in parts of the world where there has been some measure of success rather than to follow the example of these places that have been mentioned, whether it's New York or St. Louis, or wherever the subsidy system has lead to the consequences that have been described by so many speakers in this debate.

I am not suggesting, if my friend from West Vancouver–Howe Sound (Mr. L.A. Williams) is wondering, a massive intervention of the state as an owner and developer of housing. I'm certainly opposed to that. I can't think of any clear example in any country in the world where massive intervention into the business world by government has been a riotous success. It usually is an abysmal failure.

Most people in the debate have already touched on the Cragg report in great detail and I think it would be repetitious to repeat some of the statistics. But I think the Attorney-General, with respect, came to the wrong conclusions and has made one particularly serious contradiction in his decision on the Cragg report.

We oppose rent control as such and believe that subsidies from government revenue are the answer to provide fair return to the owners. Putting that aside for the moment, basic as it is, there is this question: how did the Attorney-General ever come up with the figure of 10.6 per cent?

As I said earlier, this government has repeatedly stated that it believes in seeking the best professional advice available in whatever field is being considered.

[ Page 4593 ]

So the Attorney-General sought the advice of Dr. Cragg who, I understand, is a highly respected professional in his field.

I don't want to repeat all the pages of the conclusions where he gives various alternatives. But even if you look at the extremes of the two figures which Dr. Cragg mentioned as being reasonable, the lowest mentioned anywhere is 10.6 per cent and the highest is 40 per cent. Even if he was wildly out on the 40 and wildly low on the 10.6, one would expect on the law of averages that surely the fair final figure should lie somewhere between the minimum and the maximum which he covered.

In effect, regardless of this argument about how much return on capital is fair, the final figure which was arrived at depends on the amount of time over which Dr. Cragg suggests the owner should be given a chance to catch up with inflation. He talks about the extreme, the moderate and the minimal.

It's been covered by many others in the debate but just let me very quickly make my point. He says, "An allowable rent increase of 30 per cent would cover completely the past changes in costs." On page 86 he says:

"An allowable rent increase of the order of 21 per cent provides a significant easing of the burden on tenants, though these burdens would still be heavy. Such a figure does provide important protection from gouging. Announcement of such an increase," — that would be 21 per cent — "would be a sufficiently strong move that there would be an adequate incentive for the provision of needed new accommodation and the maintenance of existing premises."

That's just the point we made earlier. If any other measure leads to no creation of new facilities and the poor maintenance of what you've already got, the only person who suffers is the tenant.

Then he goes on in the next paragraph and says:

"An allowable increase of the order of 16 per cent is probably a lower bound on the feasible operation of rent control under section 28. This figure leaves a very large adjustment still to come."

Meaning that as inflation continues and since this is a minimal amount, the owner is still falling further behind than what should be a fair return. He makes the clear point in the paragraph at the bottom of page 87:

An allowable rent increase of a still smaller magnitude" — that's smaller than 16 per cent — "can be expected to entail very strong dangers. The usually cited, undesirable effects of rent control will begin to emerge and new rental construction will not occur."

Anything less than 16 per cent.

"These effects may easily impose costs on rents that are heavier than the gains from the reductions from the 16 per cent figures."

Of course, when he wrote this paragraph, he was under the impression that section 28 would still be in effect and there would be some mechanism of appeal. I go on to quote Dr. Cragg:

"Applications for justification can be expected to occur in unmanageable numbers. If it should be possible to handle them adequately using the reasonable-cost basis of section 28, they may well lead to typical rent increases at a size quite divorced from the allowable rent increase."

That paragraph sums up the whole terrible mess that you're in with this legislation, Mr. Attorney-General, with respect.

The first 8 per cent stabilization bill was interim, and this is interim. The reason that you scrubbed section 28 was that you knew very well that those owners would appeal under section 28 and that two things would happen: there would be large numbers of them because 8 per cent is just completely unrealistic and the numbers would be unmanageable. You would have to create a bureaucracy of staff which would be an embarrassment to you.

Secondly, if all these appeals were heard under section 28, the kind of figure which the rentalsman would have had to accept as being reasonable under the circumstances would also have embarrassed you because the figure would be quite divorced from the 8 per cent.

It's very obvious why the Attorney-General scrubbed the appeal section that was in the stabilization bill. The appeals would have been so frequent that we would have needed an army of people to deal with the appeals. If the appeals had been heard fairly, as I'm sure they would, the awards would have been far in excess of 8 per cent, which would have shot the validity of your legislation all to pieces in the first place.

These are some of the contents of the Cragg report which I think the Minister has very cleverly skated around. He has avoided saying anything about these last two or three pages and paragraphs which really are essential to understanding the Cragg report. The Cragg report offers varying approaches based on the length of time that owners might be expected to recoup their fair return. The figures vary from 10.6 to 30 per cent.

I think the Minister has simply chickened out of the real responsibility of trying to be fair to owners of rental accommodation by choosing the lowest single figure that was mentioned, namely the 10.6 figure. He has completely overlooked what is the long-term challenge in this whole matter — and that is the statement by Dr. Cragg on page 87. If the lowest figure is used, then the "cited undesirable effects of rent control will begin to emerge and new rental

[ Page 4594 ]

construction will not occur." That's right at the bottom of page 87.

We have to look at alternatives and come forward with a more positive way in which we should attempt to solve the problem.

I have already mentioned that I think this bill is worse than the rent stabilization bill because it has removed the appeal against 10.6 per cent when there used to be an appeal against the 8 per cent. But I've tried to point out that the Minister, in doing this, has done it by intent. It is no mistake, for the reasons I have mentioned, that he does not wish to be embarrassed by a flood of appeals and a flood of awards that far exceeds 10.6.

On our programme last night on CBC radio I know the Attorney-General made a very heated defence of this bill, and repeated again the statement that it is only interim.

I think when he winds up this debate that we should have some statement from the Minister as to what he visualized as the date when a more realistic and fairer avenue of approach shall be afforded to owners of rental accommodation. Does the Minister intend to reinstate at a certain date an appeal mechanism? I presume the rent review commission will be the body that will be advising him in this regard. I would like the Minister to make notes because I am asking a series of questions and I would be very interested to get answers to each and every one of them. I slipped up yesterday and didn't get an answer to one of the questions I asked the Minister of Health. I wouldn't miss a question two days in a row.

I am asking if there is a date in the Minister's mind by which the rent review commission will report to him regarding the new appeal procedure. Has the Minister made up his mind as to who is going to…?

Interjection.

Mr. Wallace: I am sure he would like to put that on the Hansard record when you reply and wind up the debate, Mr. Attorney-General.

I am rather interested that whoever is serving on the rent review commission would have to be thoroughly independent and above any question of political influence, and since this was exactly the role filled by D r. Cragg, and ignored by the Attorney-General….

Interjection.

Mr. Wallace: Well, he was an adviser, but a professional and an expert whose advice has been totally disregarded. I would wonder if the Attorney-General can give us any idea of who he has in mind to serve on the rent review commission, and in what way we can be assured that rent review commission recommendations will not be given the same kind of political appraisal as the Cragg report.

Interjection.

Mr. Wallace: Oh, I wouldn't want to make you feel hurt, Mr. Minister, but that happens to be my decision and my opinion as to why the 10.6 figure was chosen.

The other fact about this bill, Mr. Speaker, is this incredible…. I just find this incredible that while on one hand we're to have rent control on existing property, it seems to be justified to have no control whatever on new property in the hope that that new property will be built.

We've had the Minister change gears two or three times and mislead investors with the statement that the 8 per cent is interim and that the 10.6 is interim. When we debated the stabilization bill and the figure of 8 per cent, it was clear, as I said earlier in my remarks, that there would be an appeal mechanism, and that if they could open their books and justify that 8 per cent wasn't enough, then, of course, they would not only have a chance to prove that it was too low but they would even have the help of economists, for example, in the rentalsman's department.

Of course, all that high-powered help has disappeared and the appeal has disappeared, and the owners of rental properties are now told that the maximum is to be 10.6 per cent.

I just want to ask the question: in the light of that kind of performance by the Minister, can investors considering the construction of new buildings really have any confidence that this five-year promise means anything, or is it just a come-on gimmick?

HON. R.M. STRACHAN (Minister of Transport and Communications): Oh!

MR. WALLACE: The Minister of Transport says: "Oh!" I've just tried to point out that when the Attorney-General has already changed his direction twice on what the content of the bills would mean in relation to the right of appeal, I don't think if I was contemplating investment in a new building that-I would be so sure that this suggestion and promise of a five-year programme with no rent control was really something that we could be completely sure of.

HON. MR. STRACHAN: I only said oh! I didn't say oh, oh!

MR. WALLACE: Or, oh no!

I acknowledge your correction, Mr. Minister. (Laughter.) Seriously, Mr. Speaker, this proposal for the five-year lack of control on new buildings has two very serious aspects to it — the one I've just mentioned, that investors really can't be too confident that that will be adhered to, or for that

[ Page 4595 ]

matter, that a change of government would necessarily adhere to some measure brought in, and that applies to any government. So I'm saying that as a measure on its own….

HON. MR. MACDONALD: There is some fear of the Conservative Party coming in.

MR. WALLACE: Are you trying to give me a sense of optimism, Mr. Attorney-General?

But the other aspect of the five-year fact is, of course, that in fact they will be completely uncontrolled as far as rents are concerned. With the rising costs of construction, with the cost of money and the cost of land, the new accommodation is certainly bound to be expensive, and this can only result in a very undesirable two-class system of renter. A person with better means and a better income can afford to live in the new apartments. The other section of our society, the middle and low-income group, are not only compelled to put up with what they have but also face the deteriorating quality of accommodation and the impaired mobility that I mentioned earlier on.

So I do feel that the suggestion that new accommodation would be free of any control for five years is a very short-sighted and ill-considered suggestion, I've certainly had owners contact me and their statement is very simple: "If we can't trust the Attorney-General over the last few months, how can we trust him on a five-year proposal?"

I think another factor would be that this proposal would, perhaps, encourage the demolition of old buildings in order to create new construction, and however old the buildings might be, they would be available at lower rents for the tenants than the rents that would apply to new buildings.

I would just like to close my remarks by offering some positive proposals. The basic positive proposal is that subsidies should come from general revenue, and should be channeled through either demand subsidy or supply subsidy.

I do believe that the point made earlier this afternoon, which would be most useful, perhaps more useful than any other commitment by this government, would be to combine incentives to construction with a commitment that all rent controls would be removed by a certain date, and that the condition for removing the rent controls would be an established vacancy rate in excess of 3 per cent.

In other words, it would be a clear proposal that if the arguments of the owners are valid and if a fair percentage of vacancies means that the rents are fairly stable, then the promise by this government to remove all rent controls by a certain date could be contingent on having created, let us say, a 3 per cent vacancy rate.

The basic argument that we have is that the shortage of accommodation can only get worse because of rent control. So the other side of that argument is that if you remove rent control and provide incentive to construction, then the increase in construction should increase the vacancy rate. I pick the figure of 3 per cent as being considered a figure which gives most tenants some reasonable cross-section of choice. It might be a higher figure. I believe the vacancy figure in Edmonton at the moment is 5 per cent.

I certainly appreciated one comment of the Minister of Housing, because I was also going to refer to the situation in the municipalities. The person he quoted was the person that I had planned to quote — the Mayor of Surrey, Mr. Vander Zalm, who said — I'm quoting from the Vancouver Sun of October 15:

"More housing would only add to Surrey's already severe imbalance of taxation revenue and place further burdens on homeowners,

"He explained that only 8 per cent of Surrey's tax revenue is derived from industrial and commercial property, compared to Richmond which receives about 40 per cent from industry and commerce. Present homeowners would be strapped with paying for more police and fire protection, schools, roads, recreational facilities and other amenities which newcomers would require.

"Vander Zalm said that he wants Victoria to lease to the municipality serviced lots on Surrey industrial land which the government owns but is not using."

Now if this is valid information, I think there is great potential for this provincial government to hold meetings with the municipalities or with the B.C. Union of Municipalities with a view to finding out why there are financial disincentives to the creation of more residential accommodation in many of these municipalities.

It's also interesting that the Minister of Housing made a bitter attack on the concept of allowing depreciation on apartment buildings as a tax allowance. Again he chose, in his rather blinkered fashion, to malign professional people who invest their money in such buildings, and he used the phrase "tax loopholes." It is no loophole, Mr. Speaker. The legislation was written with the specific purpose in mind of making this kind of investment legal and desirable, no differently from putting $4,000 a year into a registered retirement savings plan. That is a way of deferring the payment of income tax, and it is legal and honourable and designed for the very specific purpose of encouraging individuals to save for their later years.

This incentive, which the Minister of Housing attacked so vigorously, was supported by the Premier

[ Page 4596 ]

(Hon. Mr. Barrett) just during the closing weeks of the spring session.

I'm delighted that the Premier's back in the House, because I want him to know that earlier today, when his Housing Minister was out of the House — his designated ribbon-cutter, the Minister of Housing — viciously attacked the concept of allowing investors….

Interjections.

MR. WALLACE: Oh, I'm sorry, the Premier has just left. I think he was unhappy, Mr. Speaker, that I should point out this very distinct division of opinion between the Housing Minister and the Premier.

But the fact is — and I've been unable at short notice to get the exact clipping out of Hansard — but the Premier not only said that he favoured this incentive in the form of federal tax legislation, but said he was going to ask the federal government to reintroduce that very principle. So we have a very fundamental difference of philosophy between the Minister of Housing and the Premier of the province, who also happens to be the Minister of Finance.

So I feel that there's great potential for closer cooperation with the municipalities, and there's need for greater cooperation at the federal level. The Premier himself was quoted in the newspapers yesterday in an interview as stating that the amounts of money required are so great that we cannot do it on our own, and that there is a real need for greater help at the federal level.

And I agree; that is so. In fact, housing, as with health and education and social services, is very much a tri-level responsibility. We should, in housing as in these other fields of health and education and social assistance, strive to get the closest cooperation and participation by the federal level and try to build stronger lines of communication and cooperation with the municipalities.

I would only end by saying that although I am in favour of subsidies to housing from general revenue, I would hate anyone to interpret that remark as meaning that the government itself should move in in some massive way with large sums of money and a centrally-directed housing corporation to build accommodation.

The facts have shown in this debate that no matter how you look at it, the costs of accommodation along with all the other costs, due to inflation, are rising. I think the Member for Capilano (Mr. Gibson) made it very plain that if the government were to move in in a massive way and build its own homes, it would become the landlord, and landlords are not very popular when rents have to be raised, however sound and demonstrable and justified the raise may be in the light of economic factors and the cost of living.

So I am suggesting, basically, that we have subsidies from general revenue; that we have a commitment by this government that when the vacancy rate reaches, let us say 3 per cent, all rent controls will be removed; and that we attempt, through greater efforts at the federal and municipal levels, to provide the necessary incentives to get more new accommodation constructed.

Mr. H.W. Schroeder (Chilliwack): Mr. Speaker, we have heard quite a bit of argument over the last two days concerning the effects of control on existing accommodation.

We have heard quite substantial evidence that rent controls which do not afford a fair return to the investor leads to abandonment of the supervision and management and, yes, ownership of the rental accommodation, and hence leads to instant slums. This has been proved and cited in this House in various cities around the world.

We have had a little bit of discussion on the effect of controls on supply, but I would like to discuss with the Attorney-General, through you, Mr. Speaker, that the effect of the controls on supply, of necessity, has to take a two-fold route, because the effect of controls has to affect both kinds of a supply of rental accommodation.

Without argument, there are two kinds: there is the existing rental accommodation, which admittedly, right now, we do not have enough of; and then there is new construction. To take one unilateral action and try to let that unilateral control be the control for existing and new accommodation is folly, in my opinion, because two different rates apply.

I can't see how the Attorney-General — and I sympathize with you — could be expected to come up with any one figure, be it 30 per cent or be it 5 per cent. It's impossible to come up with a figure that would reflect the proper control on both kinds of supply. Existing accommodation is the easiest to control because the prices and costs of that are more fixed than they are on new construction.

I think it goes, without too much argument, that the rent figure, whatever it is, must reflect the actual cost of providing that accommodation and that the allowable rents must reflect the cost of new construction more so than on existing units because, admittedly, right now we do not have enough accommodation. If we want more, then the stabilization of rent has to provide for that new accommodation.

Existing accommodation is more stable — I've already said it. The cost of the land is no longer to be considered. It is one-time cost; it's in the past; it usually, unless it is financed, has no variable. The building itself, once the labour has been injected and the building is constructed, it becomes fairly stable. The other costs that are involved are financing,

[ Page 4597 ]

operations, management, depreciation and repairs — there are variables there. The cost of operations increase, and I have substantial figures here that would lead the House to figures ranging between 16 and 22 per cent. But operations are only a part of the total cost, so you can't say that the 16 to 22 per cent represents a figure which could be considered as a proper rent freeze.

Then there's management. The cost of management is more stable, particularly in "Mom and Dad"-owned apartments, because they're the same managers and although their costs of living rise as do the rest of ours, it can be said that their cost of management could be more stable than, say, in new construction. However, when you come to the area of depreciation and repair, the existing accommodation has a much higher figure when it comes to cost.

So there are fluctuating figures in each of the areas. How in the world, then, could the Attorney-General, Mr. Speaker, be expected to come up with a figure, first of all that was acceptable, and next that was non-political? How in the world could the Attorney-General come up with a figure that would truly reflect the cost? It would almost seem that if he were to direct a control at all, it would have to be a two-pronged control. That again, as has been stated already by a previous Member, would set up a house of horrors as far as trying to control a two-price system.

Now, when you come to applying controls on new construction, the bill provides that no controls on new construction will take place for the first five years. Is that a control at all, or is this a control in mirage? What kind of a control is a control that gives you a five-year holiday? It is a control that exerts yet another pressure on the production of new accommodation.

It can be drawn, by consensus from all of the arguments here yesterday and today, that one thing we're together on is that we have to produce new accommodation. The fact of a control — which is no control — for five years presents then another pressure on the new accommodation in that there will be a pressure to recoup whatever investment was necessary in the early periods, so that the control of the 10.6 which comes after five years can be avoided. There is yet another pressure.

It almost seems, and I'm sure that this has occurred to the Attorney-General, Mr. Speaker, that the whole idea of enforcing any kind of control is futile. Perhaps a little later on in my talk today this will become even more obvious.

I wish by some miracle — this is very elementary now — that we could create existing accommodation. If that were the case, we could come up with a figure, given enough input, that perhaps would relate to the 10.6, if not exactly the 10.6, and it would be just. However, since we cannot create existing accommodation, and we must direct our attention to the construction of new accommodation, it seems that a 10.6 freeze not only is not just, but ought not to have been considered in the first place.

The Attorney-General has said that he believes that those people who provide accommodation, shelter for others, should realize a fair return for their investment. This fair return is part of the reflection of the true cost of providing that accommodation.

If this is yet another fluctuating factor among the ones that I have already mentioned, it becomes still more of a problem for the Attorney-General to state that a 10.6 per cent figure would be right.

We have done some research. We have asked, for instance, HUDAC what various percentages did mean in terms of return. They simply said that the same percentages had been cited in the Cragg report. We said to the housing industry: "What would a 30 per cent increase represent to you?" They said that it would represent a one-increase, catch-up figure, meaning that in one increase of 30 per cent in one year they could catch up in their gross revenues so that they would not operate at losses.

A one-increase catch-up. I suggest that a one-increase catch-up in housing is no more desirable than a one-increase catch-up in assessments. In the assessments it didn't work, and I would suggest that in housing rent control it couldn't work. We asked them about a 21 per cent increase. They said that 21 per cent over a four-year period would represent an eventual catch-up. We asked them about the 11 per cent, because we couldn't anticipate the 10.6. We didn't know it would be 10.6, so we just had to guess. What would 11 per cent represent? To them 11 per cent represents a "never-catch-up."

Under a never-catch-up programme there is no way that they could become involved in producing new accommodation in the province. As a matter of fact, one of them suggested that they were already taking steps to provide accommodation in the neighbouring Province of Alberta, where it was less desirable to create accommodation because their occupancy rates are lower than ours. Their vacancy rates are higher than ours.

In Edmonton it is as high as 10 per cent, depending on which month you cite, So it was less desirable, from a demand viewpoint, to move to the neighbouring province. But here in our province, where the demand is atrocious, they said that under that kind of a plan, under a "never-catch-up" plan, there is no way they could be involved in providing accommodation.

I find that it's a paradox. Worse than that, it's a conundrum. How, in the Province of British Columbia, Mr. Speaker, where we have almost zero vacancy, fantastic demand for housing, we have in this province at the same time a drop…? I have the figures here from the Vancouver area. By the way,

[ Page 4598 ]

these are broken down for Vancouver and Burnaby and North Vancouver City and North Vancouver District, Richmond — but I'm only interested in the totals.

In the totals the value of the building permits for the month of September, 1974, as compared with the previous year, are down $5 million from $33 million to $28 million. That doesn't sound right. There's a fantastic demand for housing, yet building permits in the lower mainland area dropped by some 17 per cent by last figuring — by some 17 per cent from $33.26 million to $28.48 million. At the same time I read in another clipping that British Columbia is the only province that shows a jobless increase.

We have a fantastic demand and we have a supply of the natural product for building of shelters — namely forest products — yet we have a drop in building permits and we have an increase in unemployment. I don't understand it at all. I think that the Attorney-General needs to accept at least part of the responsibility for this conundrum. Surely, somewhere or other, we must be able to inject into the economy enough confidence so that we would provide for ourselves one of the three basic needs of man.

What is the real cost of providing rental accommodation? Let's start from scratch. You're going to start with a piece of land, ground on which to construct it. If you're outside of the central city area, you're going to pay anywhere from $3 to $8 a square foot to build the accommodation on. If you're in the downtown area, it's anywhere from $11 to $16 and $18 a square foot.

The price of land on which to build accommodation has seen fantastic increases in the past two years. Again, Mr. Speaker, the Attorney-General, through the other departments of his government, has to accept the responsibility for these increased costs; and they are not related to 10.6, Mr. Attorney-General.

These figures don't even look or smell like 10.6. The figures of increase for the cost of the land on which to build rental housing represent an increase of anywhere up to 200 per cent. Let me just cite a lot on which I just built my home two years ago. I bought my lot for $5,600. The lot not next to mine but one lot over, not quite as desirable as mine — and at that time not quite as many dollars as mine was — is today on the market for $19,800. Are you listening, Attorney-General? That's $19,800 for a lot not 75 feet away from where I bought mine at $5,600. Now that's personal. That happened over a two-year period. That represents a fantastic increase in the price of land.

Now then, you want to say that my lot has also increased. That's fine and good to argue. The point is that my building already exists; the one that we're interested in is the one that we must create.

Building costs: I just happen to have them here. Building costs on a per-square-foot basis, have increased…. I've got the figures here from 1967 on; any year you want you can ask for it. It went up from $12.49 per square foot in 1967 to $25 per square foot in 1974. Now this is bare, essential construction. If you want a carport, carpets, kitchen appliances and fireplaces, and soon and so forth, it's higher — it's $30 a square foot, That $25 a square foot increased over two years from 1972 from $16 to $25 a square foot.

That doesn't look like 10.6. It doesn't smell like 10.6. I don't see where the 10.6 is related to that. Yet I think that both of us agree, Mr. Speaker, and the Attorney-General agrees with the two of us, that rent prices must reflect the true cost of providing that accommodation. If we don't accept that premise, then we must accept the premise of subsidies, which I'm going to talk about a little later.

Now financing is a fluctuating cost that even affects existing accommodation. I was talking to a fellow who has just a small rental accommodation unit — about $ 100,000. It's in the Chilliwack area. He originally financed the entire project for something like 9.25 per cent interest. That was the going rate at the time. However, there was lack of confidence in the economy at the same time and they introduced into his mortgage draft a clause — a five-year clause; we're all acquainted with it.

Here we go. It is now nearly time for the renegotiation of that clause. The figure quoted yesterday is now 12.5 per cent, the lowest possible. Other quotations were received but that's the lowest possible. So here we have still another fluctuating cost, 9 per cent to 12.5 per cent to 13 per cent. Even if it were at 12 per cent it would represent a 25 or 33.3 per cent increase — whichever base figure you want.

An Hon. Member: Over five years.

Mr. Schroeder: Over five years. However, that cost will be an annual cost from here on in, so it's not an over-five-years cost. The increase is computed over five years but it will be an annual cost from here on in, at least for five years.

Interjection.

Mr. Schroeder: He did know at the outset; he knew it was coming. However, there was no way he could project how much it was and there is no way that he could gouge the tenant to lay by enough funds, hoping to lay by enough to cover a cost that he couldn't even anticipate.

Then the next area of fluctuating cost is the area of operations. And again, the Attorney-General has to accept some of the responsibility for the fluctuation

[ Page 4599 ]

because one of the costs of operation is the caring for both the yard and the building — the facilities in total.

The costs there again have increased from some $1.60 per hour — which in my opinion was not enough — in 1972 to now $2.50, representing another cost. Again, the percentage doesn't have any relationship to the 10.6 per cent.

I would say, in conclusion, about the 10.6 per cent — and this is with all respect to the Attorney-General — that the 10.6 at worst would be a stab in the dark and that, expediently, it is a compromise. At best, it can only be an educational guess. Therefore, the 10.6 per cent leaves itself wide open to question.

What do we suggest? Who is in the best position to know what the real costs are? I would think the operators, the managers, the owners, if necessary, would be in the best position to let the Attorney-General know what the real costs are. They might only be able to let him know on the basis of last year's figures and it may take them 90 days to have it all put through the process. But, nonetheless, they could give him the best idea of what the increase per year is at the present time.

Rather than to go through the charade of trying to decide what the percentage is, knowing full well that they must vary depending on whether it's new accommodation or existing accommodation, it's far better that the Attorney-General should stop rent gouging and excessive profiteering in renting in this province by doing it this way: attack the profits — attack the gouging. Don't attack it at some mystical figure down at the bottom, hoping that you can be right. Even politically that's not smart because you are going to be wrong maybe 95 per cent of the time.

Why not attack it where the problem is? Go after the gougers. Go after the profits. Rather than placing controls at the rent level….

Hon. Mr. MacDonald: That's federal legislation.

Mr. Schroeder: Just a minute now. Rather than placing controls at the rent level, impose those controls at the profit level. Let the tax structure care for the gougers. I understand you're going to have to go to the federal fellows and work out some negotiations, but this is why you were elected. Inject that revenue which accrues into whatever level of the housing provision plan that you wish to choose.

In any case, housing in B.C. under that kind of a plan would be the principal beneficiary because the operators would be allowed to operate at a minimal profit level. They would be encouraged to produce new accommodation; they would be encouraged to invest and help others to provide that accommodation. Housing in British Columbia would be the beneficiary, and both the government and private industry would then feel free to give it its full support.

How much do we need? There are various reports. In your research, sometimes you wonder which figures to accept. But, for instance, HUDAC says we have to have 25,000 housing units each year for the next four years.

I wish the Attorney-General would get a load of this: "We need 25,000 housing units each year for the next four years just to catch up with the backlog of the demand. That's a quotation out of one of their briefs. Do you have your pencil there? It will cost $50,000 per family unit to construct, the amount of dollars that we are talking about is $1,250 million each year for the next four years.

I'm sure the other Members of the House can remember that in the last session, Mr. Attorney-General stood, and proudly so and rightly so, and said: "For the first time in British Columbia the government is going to inject $100 million into direct provision of housing."

Do you remember that, Mr. Attorney-General? I remember. You must remember. You stuck your chest out the size of a sparrow's kneecap. It was a proud day for the Attorney-General. Don't you remember?

[Mr. Speaker in the chair.]

Interjection.

Mr. Schroeder: I ask you to compare $100 million to be injected, supposedly to help answer the crying need for housing in British Columbia, when actually, according to HUDAC figures, we would need $1,250 million every year for four years just to catch up.

I would like to say that there's no way that this government, not under this administration or any other administration, could accept the responsibility of providing that kind of housing for the people on a collective or social basis. No way.

We have to encourage private industry; we have to encourage the private owner; we have to encourage the private investor — the fellows with the savings accounts, if they have any. They must be encouraged to put their money into shelter. There's only one way they can be encouraged and that is, to take the words out of the Attorney-General's mouth, to give them a fair return. There's only one set of people who can tell you what that fair return would be.

And by the way, I don't believe in gouging; I don't believe in excessive profits. No way. But at least the return that could be expected should be equal to the amount of return that can be expected on a long-term deposit. So therefore, there's only one answer, and that is if we accept the premise that rent prices must represent the actual cost of provision. The only other

[ Page 4600 ]

way out is subsidy.

It seems to me that no matter which plan you look at, it's going to come in the form of a subsidy. Either you subsidize the owner so that he has a fair return. Again, you've got to set up a long list of officers and rentalsmen and inquirers and accountants to try to determine what that subsidy should be. Or you have to come with a plan that is already instigated in the province — a rent-grant programme — which is available on application. Or the government is going to have to go into construction on its own.

We've already concluded that there's no way that the government can come up with the finances because that's the most expensive kind of subsidy right there. There's no way that the government can come up with the funds to meet the construction. Therefore, what's the answer?

I believe that we are placing the controls at the wrong level. The controls need to be placed at the profit level and let the tax structure care for the gougers. I repeat it: inject the revenue that accrues back into the housing scene at whatever level you choose. You will then have the cooperation of the government sector. You can determine whether or not you wish to subsidize.

It seems to me to be the way to go. At least it will be a startup. Even if we turn the tap on today to provide full housing for British Columbia, I'm sure that you realize it would take 18 to 30 months before we would realize the effect of that turned-on tap. That's as much of a lag as there is in the construction industry.

I have one other consideration, and I've mentioned this in this House before. I think that perhaps rather than try to control the costs by rent control, it might be better to make housing available at a reduced cost. Perhaps that's what the government should concentrate on. I would like to suggest that the mobile home is still an area of shelter where you can have shelter with dignity, on a fairly low density, at a price which is affordable. I would like to ask this government to use its strength to encourage municipalities that in some instances have been dragging their feet, and we have to admit it.

I believe the pressure should be applied at the level of making serviced lots available, particularly for mobile homes. It would at least solve the problem now. It is not a long-term solution, but it would solve the problem now. Then let's institute what I have already suggested, then in 30 months from now we could see the demand for housing, at least, eased and bring dignity back to British Columbia.

I'd like to see the place where once again we have enough confidence in our own economy to provide one of our basic needs — shelter.

Mr. P.L. McGeer (Vancouver–Point Grey): Mr. Speaker, just a few words; and in the absence of interruption, they will be very few. I want to make a brief suggestion to the government, to which I hope they will give consideration.

Last week we dealt with a bill to regulate marketing boards because we have got a surplus of product, namely eggs, in British Columbia and across Canada, because we have regulated the producers in a fashion to keep the prices high. Now we are considering another control bill, again to regulate the producers, because there is a shortage — in this case because the prices are too low.

The way to solve both these problems, Mr. Speaker, might be to just make a little switch. If, for example, the government were to appoint Bruce York and his friends to the Egg Marketing Board, it wouldn't be very long before we would have a shortage of eggs, in British Columbia, instead of a surplus and low prices. If, on the other hand, they were to appoint the officials of the Egg Marketing Board to the problem of apartment dwellings in British Columbia, it wouldn't be very long before we had a surplus of apartments.

Hon. Mr. Barrett: Now, how do we straighten out the university?

Mr. McGeer: The price, of course, might go up. But in the meantime we would have solved the problem of the surplus of eggs and the shortage of apartments. If the government were to move really swiftly, just about the time the number of eggs equaled the public demand for eggs, and the number of apartments equaled the public demand for apartments, we might be able to do away with both bureaucracies.

All I would like, Mr. Speaker, as a return for this suggestion offered in a constructive way, would be to have the cost of both bureaucracies taken off my taxes — just my share of those which the people of British Columbia are paying for the compounding problem of trying to control the marketplace.

Mr. D.E. Smith (North Peace River): We've just heard a very soft-shell solution, I'd say, to a very aggravating problem in the Province of British Columbia. I don't know how you would solve the problem of cracked eggs or the apartment dwellers' problems either by that sort of a suggestion, but at least it was novel, Yesterday the Attorney-General, in introducing Bill 169, made a number of comments that I think are very valid and certainly ones no one in the opposition would disagree with. At one point in introducing his bill he said, referring to the tenants in the Province of British Columbia: "We will not allow them to be subjected to the vagaries of the marketplace." And lie said it with great gusto and authority.

[ Page 4601 ]

I suggest that we are all concerned about the plight of the tenants in British Columbia, but how, Mr. Attorney-General, do you propose with this bill to really do anything other than on a very temporary basis for those people who are tenants today, who need housing desperately, who cannot find a place to rent in all of British Columbia, at least in the heavily populated areas? You certainly don't solve their problem by the introduction of a rent control measure which discourages new building.

The solution to the problem — and I think everyone who has spoken in this debate has hit upon it — is to provide new units, more accommodation. Certainly you do not provide new units when one of your cabinet colleagues, who is supposed to be in charge of housing, purchases existing buildings that were under construction. Not one new unit, Mr. Attorney-General, through you, Mr. Speaker. Not one new unit.

I think the Member for Chilliwack (Mr. Schroeder) touched upon a very pertinent point when he suggested that you do not create new rental accommodation overnight unless you use mobile homes. It is just not possible to do. The building trade and the people who are in the business of manufacturing and producing new units suggest that it takes a minimum of 18 to 36 months lead time in order to assemble the land that is required, to arrange the financing that is required, in order to put together a contract with a construction company, in order to do all of the background work necessary before one nail is driven. Eighteen to 36 months, Mr. Attorney-General.

What has happened in the last two years in the Province of British Columbia? All we have seen is a completion of housing units that were underway in 1972. With the odd exception, that's all that happened in the Province of British Columbia.

I think you have to be responsible enough to ask yourself why. What has happened? Why have people who would ordinarily be supplying a lucrative market from the standpoint of need, a market that is there…? No question about it, Mr. Attorney-General. Of all the provinces in Canada we need housing accommodation in British Columbia more than any other. And what happened? No new buildings; no new rental accommodation; turning of existing apartment blocks into condominiums. No one in their right mind would even think of building a duplex anymore, which at one time was a means of providing accommodation for two families rather than one.

Answer this question, Mr. Attorney-General: if you had money to invest, would you suggest to anyone under present conditions that it would be a good investment for them to take their savings and invest it in a duplex?

An Hon. Member: He would invest his in commercial property.

Interjection.

Mr. Smith: I presume you will, when your turn comes to get on your feet.

Mr. Attorney-General, land appreciation is not a factor when you are trying to provide accommodation, particularly if the people who are to provide accommodation want to continue in that building themselves. What does it matter if there's an appreciation in the sale of property if you do not wish to sell it?

What people want to do is provide accommodation for themselves and accommodation for other people. The way you express your thoughts on the matter, Mr. Attorney-General, would seem to me to indicate that anybody in the business of providing housing in British Columbia is to be considered a ripoff artist, that for some reason they're going to build a building, regardless of what size or how many units are involved, reap a quick profit in escalating land values and building values, and get out.

That's not the history of building in this province. As a matter of fact, if you look at the record you will find that many of the real estate firms and the people with money to invest have continuously been investing money in the housing market over a period of 10, 20 and 30 years in the Province of British Columbia. Is that speculation? No. But what a builder has to find today is a means of returning to him, over a reasonable period of time, the capital that must be employed. Otherwise, there's no capital available, as the Attorney-General well knows.

If the person who wishes to build houses in British Columbia — or apartment accommodation — is faced with the mortgage he is today, on the basis of renewable increases in mortgage rates at least every five years, then it's very difficult, in the market conditions of British Columbia and under the rules and the regulations that you have imposed, for that person to find capital, let alone have the incentive to provide long-term solutions to the housing problem in this province.

You've picked a figure of 10.6 per cent rent increase. Where did the figure come from Mr. Attorney-General? Is that fair? It may be excessive in some cases in older buildings where the capital cost has been retired and there's no mortgage left any more. It certainly may be far from adequate for anyone considering new building in the Province of British Columbia.

Certainly it's far from adequate when you consider the rate of mortgage money today. On the other hand, it's excessive if you're an old-age pensioner on a fixed income, who must face at this time the sure fact that their rent will increase by 10.6 per cent this year.

[ Page 4602 ]

Mr. Smith moves adjournment of the debate.

Motion approved.

Hon. Mrs. Dailly moves adjournment of the November 8, 1974 House.

Motion approved.

The House adjourned at 12:56 p.m.