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B.C.'s provincial government has significantly cut the amount by which landlords can increase rental rates, winning praise from tenants' advocates for acting on a recommendation made earlier this week by a government-appointed task force.

But while the NDP government said the decision would make life more affordable for renters, critics warned the policy change could discourage developers from building new rental housing and put more pressure on already-limited rental supply.

The government changed the formula that determines the amount by which landlords can increase rent for existing tenants in a 12-month period. Until now, landlords could increase rents by the rate of inflation plus two percentage points; for 2019 that would have been 4.5 per cent – the highest in more than a decade. The new formula removes the automatic two-percentage-point increase, bringing next year’s maximum rise to 2.5 per cent.

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The changed formula will have a "significant impact on the profitability of a project,” said David Goodman, a principal with HQ Commercial and publisher of the Goodman Report, an industry newsletter. “When you have this type of limitation, the lenders or the banks take a somewhat dim view of the long-term prospects of this project,” he added.

Mr. Goodman, whose firm tracks proposed and under-construction rental projects in the Vancouver region, said he expects dozens or even hundreds of those projects could be postponed or turned into condominium projects.

Landlord BC, which represents landlords and property managers, warned that limiting a landlord’s ability to recover costs may delay or prohibit renovations.

Asked about the potential impact on investment, Premier John Horgan told a news conference in Vancouver the policy change strikes a balances between tenants' and renters' concerns.

"We had over 1.5 million renters who were looking at a 4.5-per-cent increase when their wages hadn’t gone up by 4.5 per cent. … This is a balance. This is something we set out to do to not discourage the development of more rental housing, quite the contrary.

“But we need to make sure the people of B.C. can live within their means."

B.C. launched a review of the province’s rental market earlier this year, with a final report and recommendations due in November. Rental housing has been a significant issue in the Vancouver region, where rents are among the highest in the country and vacancy rates are near zero in many communities.

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The change to the cap on rental increases was outlined in a report released earlier this week by a government-appointed task force on rental housing.

The policy change is a step in the right direction, said Andrew Sakamoto, a spokesman for the Tenant Resource and Advisory Centre. “Year after year, one of the most common complaints we hear is about rental increases, and the general unaffordability of housing in B.C.”

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