Lands vote could impact Nunavut rental market: experts weigh in

This map shows the lands currently owned by Iqaluit’s municipal government. If there is a Yes vote in the May 9 referendum, they would be eligible at some point in the future for a transfer from leasehold to fee simple title. (GN IMAGE)

What effect would a “Yes” vote in the upcoming land referendum have on the many Nunavummiut who pay rent, whether for public, staff or privately-owned housing?

That’s a question worth asking because far more Nunavut residents rent than own their homes: home ownership in the territory is, by far, lower than in any other Canadian jurisdiction.

And the rental market is dominated by such a small number of players that a near-monopoly exists, especially in Iqaluit where rents are higher than anywhere else in Canada, say experts.

Without policies encouraging a more competitive market, some say privatizing municipal lands could drive rent rates even higher.

On May 9, Nunavummiut will vote whether to give municipalities the option of selling lots. Each municipality will decide its own fate.

Under the Nunavut Land Claims Agreement, homeowners can currently own their homes but can only lease the property on which their homes sit.

But for many Nunavummiut, owning a home is a remote option anyway.

That’s because more people in Nunavut depend on social assistance and public housing, per capita, than anywhere else in the country.

According to the Government of Nunavut’s 2010 Housing Needs Survey, eight out of ten Nunavummiut rent.

And if the May 9 referendum results in a win for the “Yes” side, some experts say that could either mean a more competitive rental market — which could drive down rent prices — or a less competitive, more expensive rental market.

The current rental market in Iqaluit is dominated by a single player: Northview Apartment Real Estate Investment Trust, formerly called Northern Properties.

The company became the third largest owner of residential units in Canada in 2015 after acquiring a number of companies and nearly doubling its assets to more than $3-billion.

And Nunavut is the company’s most lucrative jurisdiction.

According to its financial statements, Nunavut holds less than four per cent of the company’s residential units but they comprised 26 per cent of the company’s third-quarter net operating income in 2015.

In 2014, there were a total of 2,045 rental units available in Nunavut’s capital, according to the Canadian Mortgage and Housing Corporation’s 2015 Northern Housing Report.

Northview owned 914, or about 45 per cent of those units, according to the company’s website. That includes the building Nunatsiaq News rents in Iqaluit.

That creates a near-monopoly situation, defined as when a single company owns at least 50 per cent of a market, a Toronto professor specializing in competition policies said May 4.

“There’s very little pressure to keep prices down in that sort of situation,” said the University of Toronto’s Mikhel Tombak.

What’s more worrying, the professor said, is the combination of Northview’s dominance in the private and public rental markets.

According to Nunavut Housing Corp. reports, the GN paid more than $15.5-million to Northview in 2013/14 for staff and public housing units — about 40 per cent of the government’s residential leases.

That same year, the government procured $7.3-million more in leases from the company, documents tabled in the legislature show.

The danger, Tombak said, is that companies with dominance in one market can use that power to leverage dominance in another market.

That tends to drive prices up beyond what a competitive market could sustain, he said.

So what happens after Monday’s vote could be a game changer.

Selling off municipal land could have a number of effects on the rental market, Tombak said.

“It might increase the supply of land in the market, which could make land more affordable,” leading to more rental units at lower rates, Tombak said.

“Or, another possible effect is that one company starts buying up those pieces of land and corners the market.”

Although the rental market in Nunavut is made less competitive by fewer players and by a lot of government housing, a northern regional economist with the CMHC said it’s crucial to remember that companies investing in real estate in the North are taking on a lot of risk.

“In the North, building anything takes quite a bit more planning… and there’s more risk involved in rental properties in terms of maintenance,” Lai-Sing Louie, editor of the Northern Housing Report, said April 29.

The expense of shipping materials north and finding skilled labour contributes to Iqaluit’s high rents, Louie said.

A “Yes” vote in the land referendum could also stimulate housing and economic development with southern investors, attracted by property sales, providing the innovation private markets are known for, said Louie.

But that’s speculation and likely applies less to smaller communities where it is harder to attract investment, he added.

And a “Yes” vote might not translate into more Nunavummiut qualifying for mortgages, the economist said, because more money is needed to buy a house and property than just buying a house and leasing the land, as is done today.

But if more Nunavummiut can enter the housing market, a secondary rental market could ensue as homeowners rent out portions of their home, Louie said.

If rents become unaffordable to enough people, the government can also introduce rent control, Louie said, as some Canadian jurisdictions have done.

And, given the wealth gap in Nunavut, preferential treatment could be built into a land-sale system to give Inuit a better chance of participating in the economy and closing that gap, said the U of T’s Tombak.

Policy-makers in Nunavut could draw on “loads of examples” from around the world where governments have privatized a public commodity, Tombak said.

“Perhaps there aren’t situations precisely like in Nunavut… but one really needs to do their homework, because there have been cases of privatization that have worked out very well, and others with very sad stories,” said the professor.

But the GN doesn’t appear to have done that research.

Darren Flynn, assistant deputy minister with the GN’s Department of Community and Government Services, told Nunatsiaq News May 2 that the government did not research instances of privatizing a public commodity in other jurisdictions.

“We haven’t looked at this type of thing in other jurisdictions… the key difference is we have a land claims that speaks directly to this topic. I’m not aware of anything as unique as Nunavut.”