October 2024
Condo boards continue to rely on the Consumer Price Index (CPI) when determining the proper rate of inflation applied to their reserve fund study.
The inflation rollercoaster we’ve been on for the past few years has played havoc with reserve funds. The general inflation rate reported in the news generally ranged from two to eight percent. Less talked about is the Residential Construction Price Index (RCPI) which is a better indication of inflation for most reserve fund expenditures.
The RCPI has consistently been considerably higher than the general inflation rate, a factor identified as impacting reserve fund levels in the Condominium Authority of Ontario’s report on the state of condominium corporation reserve funds.
The RCPI for Toronto reported by Statistics Canada has increased by 83 percent between Q1 2020 and Q1 2024 which is approximately 15 percent per year. During this period, some condominium communities raised fees by less than five percent annually. Many managed this by reducing expenditures for preventative maintenance which means future maintenance costs will increase and equipment is likely to require replacement sooner. Others may have chosen to reduce the quality of cleaning, security or other services, or to eliminate social programing to balance their budgets.
A recent study of a 144-unit condo building built in 1975 was found to require a 44 percent increase spread over three years to pay for projects planned for 2031 to 2033.
A five percent increase in condo fees is simply inadequate to pay for these recent increases in costs. While it may be a few years before condo owners realize their reserve funds are insufficient to cover necessary expenditures, all communities will have to find a way to balance their budgets through some combination of higher monthly fees or special assessment to increase revenues, or reduction in expenditures which may entail a lower quality of services.
In communities where owners are unable to finance necessary expenditures when they are required, condo loans remain a practical option for lowering the amount of an immediate increase in fees and spreading the cost over multiple years.
