One enduring theme in condo living is that condo fees tend to go up over time. As prices of goods and services rise, condominiums must pay more to obtain these same goods and services, and monthly maintenance fee contributions are normally increased to fund these more expensive purchases.

This year brought new levels of inflation not seen in decades and that has resulted in property managers and boards wondering what the right maintenance fee increase should be for their annual budgets. Some may look at the headline consumer inflation figures (the latest being 7.0% year-over-year in August 2022) and may worry that condos may be beholden to the same inflationary pressures. However, as you’ll read in our blog, inflationary pressures may be even more intense for condos.

We've written this blog to share with managers data and insights we’ve gleaned from electronic budget distribution campaigns we conducted for Ontario condos in 2022. We hope that this data will help to inform property managers on important considerations when preparing their budgets this year. Secondly, we also intend for this piece to be helpful for educating boards on major industry-wide budgeting themes this year. Finally, we aim for this article to be used as a helpful resource that can be shared with unit owners who require further understanding on why maintenance fee increases are taking place.

Budgets are Experiencing Elevated Inflationary Pressure

Our analysis reviewed an anonymized set of 36 of the latest electronic budget distribution campaigns conducted at Condonexus in 2022. The set of condos analyzed included townhouse, low-rise and high-rise condos spanning Toronto, Halton and Peel with ages ranging from 1 year old to 34 years old.

Our analysis found that condos increased their budgets on average by 6.7% so far in 2022. This number seems to match closely with current inflation on consumer goods and services. However, in the long run, we expect condo fee inflation to outpace consumer inflation, with the primary reason being that condos have a higher exposure to construction related activities, which have seen significantly elevated inflationary pressures compared to consumer inflation (26.5% year-over year in Q2 2022).

As we'll also see when reviewing the reserve fund, gas and insurance budget trends, the overall average budget increase in condos doesn't quite tell the full story of what's taking place in the individual components of the budget.

Reserve Fund Allocations Continue to Rise

Our analysis found that allocation to the reserve fund on average increased by 8.7% across the condos studied, which is further underscored when understanding that reserve fund allocation was on average 26.7% of an average condo’s budget.

Reserve funds are savings set aside for paying the future repair and replacement costs of common elements. Inadequate prior reserve fund contributions can lead to above-inflationary annual increases. This is likely what we’re seeing here.

Moreover, the cost for performing major repair and replacement projects increased substantially during the pandemic, and some condos have yet to see these costs be reflected in updated reserve fund studies. Reserve fund updates generally update the projected costs of repair and replacement projects. As condos begin to update their reserve fund studies, we may see a further bump in reserve fund allocations.

Gas Prices Heating Up

The largest budget expense increase came from gas, which saw an average increase of 19.9% across the condos studied, and averaged a 5.8% share of an average condo’s budget. Supply and demand pressures from the conflict in Ukraine have roiled the natural gas markets, and North American gas shortages have seen the price of natural gas soar in 2022. The Ontario Energy Board approved an approximate 20% increase in natural gas prices this summer, and warned that there could be more increases to come.

Insurance Premiums and Deductibles Trend Upwards

Condo insurance premiums continued to climb in 2022, seeing an average increase of 9.5%, while averaging a 4.7% allocation to the overall budget. The condo insurance market has seen a supply shortage with many insurers leaving the market citing unprofitability due to property losses. Losses arising from situations like water damage, weather incidents and replacement events have been under the microscope for insurers in recent years, and those insurers who have remained in the market have hiked premiums and deductibles to offset their growing understanding of risk. Condos can increase deductibles or reduce claims to minimize premiums, however the trend for premiums in aggregate may continue to be upwards given the changing supply imbalance and declining risk appetite for insurers.

Looking Forward

Overall, condos have seen condo fees increase in 2022 at an elevated rate compared to previous years. Large increases in major underlying components of the budget contributed largely to the overall increase in the budget, and currently do not show any signs of abating. Managers and Boards must carefully consider the key themes discussed above to ensure they adequately budget for upcoming costs in the year ahead and avoid any budget shortfalls. We hope that this guide is helpful for boards and management as they plan their budgets and communicate it to owners in the year ahead.