Volume 27, Issue Number 1, Fall 2022
Financial Matters


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Coming Out Behind

The Last Word

By Lyndsey McNally | Other articles by Lyndsey McNally

It's been two and a half years since "fourteen days to flatten the curve." What a wild couple of years it's been. Who would have predicted two years of lockdowns and restrictions that taxed everyone's pocketbooks and mental health? In early 2020 we all knew that COVID-19 would have financial impacts on condominium corporations, but our thoughts were short-term. Will owners be able to afford to pay their condo fees with businesses closed? Are receivables and unexpected sanitation expenses going to create short-term cash flow concerns? How will we manage condo fee increases with so many community members out of work?

What we didn't expect was the drastic impact of inflation and a struggling supply chain. These financial impacts will be felt by condominium corporations for a very long time. According to StatsCan, the Residential Building Construction Price Index increased by 35% in the GTA over less than 2 years (from Q1 2020 to Q4 2021). The Consumer Price Index in March 2022 was 6.7%.

These statistics are going to have a major impact on condo fees, especially when we apply them to long-term capital repair plans. Let's break it down simply. If you have a $600 condo fee, with 50% going towards Operating expenses and 50% going towards the Reserve Fund. Your increase might look something like this:

This assumes that the condominium corporation was already adequately funded. But in the last two years, we've seen two reports indicating that we had an existing problem with the adequacy of our Reserve Funds in Ontario. The Auditor General of Ontario released a report in 2020 suggesting that many of our buildings built between 1980 and 2000 would require an increase to Reserve Fund contributions of 50%. The Canadian Institute of Actuaries released a similarly concerning report in 2022. So, let's add another 50% to the Reserve Fund contributions from our table below:

It is a very real possibility that many condominium corporations will have to implement increases of between 40-50% to their condo fees to meet their ongoing capital repair obligations. This creates concern that with our new interest rate environment post-COVID (impacting/increasing mortgage payments), and the rising cost of simply living, that increases to monthly condo fees will be unaffordable for many.

We are just beginning to feel these pressures. Because condominium corporations update their Reserve Fund Studies once every three years, we need to be prepared to see the full impact towards the end of 2022 and into 2023 (when condominium corporations that completed studies in 2019 and 2020 update their current plans.

In this issue you read about the need to increase clarity, consistency, and transparency in the use of loans to fund capital repair shortfalls. The article is timely, as loans are becoming a more common, powerful, and crucial tool in keeping condo fees at affordable levels.

Deferring work isn't an option. The only thing it accomplishes is increasing the cost of the repairs, thus increasing condo fees by even greater amounts.

Special assessments may create even more financial hardship on owners, driving those already feeling financially strained into an even more critical situation.

In today's economy, loans are worth considering as an option that helps manage cash flow and buy more time to catch up. But more than just a tool to manage cash flow, the process to pass a borrowing by-law requires owner engagement and education – education in particular is one of the most important tools that you can give your owners to minimize conflict in your community with respect to financial challenges.

While it looks like we're finally returning to normal life post pandemic, we're coming out a little behind. Let's drive social and financial success in our communities by ensuring we are all appropriately educated about the financial options that exist.

 

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Fall 2022
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