One of the key expenses driving up costs for landlords and property owners these days is escalating insurance premiums.
Several factors have gone into that unfortunate environment including the fact that insurance is privatized in Alberta.
But perhaps the biggest factor is the amount of natural disasters the province has gone through in recent years. Flooding has been a big one that has caused massive property damages and losses in Calgary and area. Fort McMurray suffered through a devastating wildfire also in recent years.
Of course, Alberta is also home to nasty hail and wind storms each year with some huge consequences.
Insurance rates are spiking and the belief is that they will continue to move in an upward direction in the coming years.
There’s a risk premium for Alberta and we’re paying for it through the nose.
The only way for building owners to recoup those costs are through rental rate increases and inflation is pushing those rates up these days.
With the vacancy rate at a low level, a continued lack of supply and demand still increasing, landlords can safely raise rents and won’t face a backlash of losing existing tenants or turning off potential tenants in a market like this.
So to mitigate the escalating insurance rates in Alberta, a hike in rental rates is not a bad thing to do.
It’s also important for landlords to have an efficient and effective property management system in place to make sure everything that needs to be done for a building is taken care of – another way to mitigate loss.
Whether it’s single-family homes, condos or rentals, rising insurance rates are a fact of life these days in the Alberta market.
Bigger property owners can negotiate better premiums because they have more rental units, for example. If you have scale, you can negotiate.
Unfortunately, there’s not much a landlord can do these days. We’re all in the same boat.
The hike in insurance is clearly noted by what’s happening for homeowners in Canada and in Alberta.
According to RATESDOTCA, Canadian homeowners are increasingly feeling the financial impact in their insurance premiums as climate change-related natural disasters accelerate in terms of both frequency and cost.
It says the average cost of home insurance has grown at more than three times the rate of inflation over the past decade as personal property damage claims have grown 42 per cent nationwide over the same timeline.
Alberta has seen the most dramatic growth, with average home insurance rates in the province rising 140 per cent since 2011 from $741 to $1,779 as of early 2021.
According to the Bank of Canada, inflation over the past decade has totaled less than 17 per cent.
Growth in total property claims made through home insurance policies explains this trend, says the rate comparison website. According to the Insurance Bureau of Canada, personal property claims nationwide have more than tripled since 1996, rising 213 per cent from $2.3-billion to nearly $7.2-billion.
So all property owners have to live with that reality. And if you’re a landlord, you either eat the cost or your only option is to raise rents to ease some of that financial burden on yourself.
Chris Chornohos has a passion for real estate and helping his clients reach their business goals by providing Real Estate Investors and Owners with the first class valuation and advisory services to close more deals. Chris is also an investor, builder and developer. Reach out to Chris today to help with your Real Estate needs.