Finances

June 22, 2023 Published by Toronto and Area Chapter - By Murray Johnson

Condominium Financial Pressures

From the Summer 2023 issue of CCI Toronto Condovoice Magazine.

Areas That Are Putting Financial Pressures On Condo Budgets

Setting the annual budget for a condominium is a balancing act at the best of times. At this turbulent period, this article identifies some of the different areas that are putting financial pressures on condominium budgets – it identifies where future costs are estimated vs. costs that have been announced by various entities. This information can be used to budget as well as to identify reasons that some budget lines may be over budget throughout the fiscal year.

Construction Materials
Much of the materials required for reserve fund projects are considered construction materials (concrete, wood, steel etc.). According to industry engineers, cost of construction materials increased by 14% in 2020 – 2021 and for the period of 2021 – 2022, increased by 26.5%. These costs may adjust downwards as supply chain shortages start to return to pre-pandemic levels. If you are having a reserve fund study updated soon, the above 40.5% increase may come as a shock. Many corporations will no doubt need to increase contributions to the reserve fund to hedge costs as we wait for any market corrections. This is not an estimated increase and many reserve fund planners are already accounting for the increases in material costs.

Natural Gas
After years at near historic low prices, there have been large, compounding quarterly increases in natural gas. The Ontario Energy Board has recently announced the cost of the commodity (the gas itself) will decrease by 2.4% effective January 1st. This follows the 20% increase on the commodity that was effective April 1st. In 2021, the commodity costs for a cubic meter of gas was 11 cents – it rose to 27 cents per cubic meter on July 1st, 2022. Those corporations on a natural gas agreement will feel much less of an impact, but were paying more than the market rates when they entered into their agreements. Natural gas agreements do not protect corporations from all costs increases, however. All natural gas users saw their Delivery charges increase by 30% year-over year, and Carbon Taxes increase by 25% year-over-year. The above increases are further compounded when you add the impact of the HST. The full impact of these increases on your budget started in September/October 2022 when the use of natural gas is much higher than in warmer months. Costs remain an uncertainty beyond the recent OEB announcement.

Consumer Price Index
For the last number of years, we saw the Consumer Price Index hovering around 2% - 2.5% and today we are looking at nearly 7%. This alone will affect the cost of living in terms of increased labour costs and the cost of gasoline at its highest levels over the past year will no doubt affect contract renewal costs. It should be noted that most materials for reserve fund projects will be subject to the Consumer Price Index. The increase in the cost of living is a publicized and accurate number.

Supply Chain Shortages
We continue to see supply chain shortages being affected by lower production during the pandemic as well as the war in Ukraine. Historically, as the supply of goods and materials is strained, the cost of the goods and materials rises comparatively. Lead time for large reserve fund projects should take into consideration the extended lead times for materials. It is unknown when supply chain issues will return to pre pandemic levels, if ever.

New TSSA/CSA Safety Standards for Elevators
As of October 1, 2022, new safety equipment standards were mandated. These new standards require elevators to be fitted with phone/video capabilities, and changes to safety features which are retroactive to all elevators. Recently, KJA Elevator Consultants shared that the average cost per elevator cab to become compliant will be in the range of $20,000 to $25,000. If there is any good news about this regulatory change it’s that it is a one-time expense.

Community Tolerance for Increased Fees
Boards will experience more pushback from owners who were negatively impacted by the pandemic. Medicine shortages, extended lead times, decreased production and in some cases two years of no employment all contribute to condominium residents being much more critical of any increases to fees.

All of these pressures are essentially out of our control, but we nevertheless need to ensure that condominium communities are more focused on financial health in spite of the aforementioned pressures. Being aware of the pressures and the need to remain financially viable will no doubt make it a little easier to increase fees to cover increased costs. There is no magic pill and boards will have to be that much stronger to weather the storm.

Murray Johnson OLCM, CCI (Hon’s), LCCI, CFTA Vice President, Client Operations Crossbridge Condominium Services