rent control in Ontario condo sales

Push for revised rent control in Ontario

Toronto city councillors call for stricter rules in the GTA
Tuesday, February 28, 2017
by Erin Ruddy

The controversial topic of rent control in Ontario is back in the news after two Toronto City councillors voiced concerns about what they are calling “unethical” rent hikes across the GTA.  As such, Councillor Josh Matlow and Councillor Ana Bailão announced that they will be holding a special meeting of the Tenants Issues and Affordable Housing committees this April for a review of the Residential Tenancies Act.

Currently, rent control in Ontario dictates landlords are limited to rent increases of 1.5 per cent, unless the building was constructed after the year 1991. Councillor Matlow asserts that this exemption has led to unfair rent increases—specifically for young people and seniors who are unable to afford the additional funds and are being “forced out of their own communities.”

As Toronto rental housing providers are well aware, the exemption policy was introduced in the 1990s to give developers an incentive to build much-needed new purpose-built rental stock—in other words, to spur investment interest in a critical sector that was lagging. Today, with rental vacancies sitting at record lows, the rental industry at large is concerned that new restrictions could yet again deter developers from building.

“The 1991 exemption is important for rental housing providers because it provides certainty,” comments Jim Murphy, FRPO President and CEO. “At a time of tight housing, changing the rules and enacting more regulation will only act as a disincentive to new rental housing and tenant affordability.”

Rent control in Ontario: facts, findings and opinions for and against

Though rent control is a well-meaning attempt to help alleviate unfair rental hikes, many naysayers assert that the impact it has on housing quality is largely a negative one. Tighter rent controls can limit building owners’ resources  to make necessary investments in repairs and maintenance. Also, there is some economic evidence that rent control can lead to a shortage of housing when the price is artificially suppressed, curtailing new supply and stoking demand—an opinion FRPO shares.

According to CMHC data, in some cases, rents in cities with rent control actually went up more than in non-rent controlled cities. From 2008 to 2010, average 2-bedroom rents in cities without rent control (such as St. John’s, Halifax, Regina, Edmonton and Calgary) increased a total of four per cent over the two-year period, whereas in Toronto and Ottawa, the same sized rental units saw rents go up by almost six per cent over the same period.

According to economists worldwide, high rent levels in big cities are driven by the same phenomenon as high house prices — a chronic under-supply of new properties in areas where people want to live. In that regard, the rent increase increment is often less than for house prices, suggesting that landlords aren’t being greedy, but merely setting rents according to market conditions.

Essentially, it can’t be ignored that real estate investment is a business and landlords are looking to see a return on their investment. Ignoring market rents and going by the guideline year-over-year would limit that return and create less incentive for development.

On the other hand, proponents of rent control in Ontario, like Councillors Josh Matlow and Ana Bailão, assert that landlords often use basic building improvements as a means to justify unfair rent increases—a trend that is effectively turning the downtown core into a “playground for the rich,” Matlow has contended. By putting a cap on what they can charge, tenants will have at least some degree of protection.

Some investor groups, such as The Global Property Guide, maintain that rent control is generally harmful, but it can be benign if it is implemented so that “its market-restraining effects are modest; that it helps to defuse public protest about high rents; and that it assists citizens by providing an agreed framework for contracts.”

Germany’s “Rent Price Brake”

In Berlin, for example, a new law was put into effect in 2015 in order to prevent the huge rent jumps that were causing residents to be priced out of their neighbourhoods. In a city where rental tenants overwhelmingly outnumber owner-occupiers, the law was largely embraced.

Rather than imposing a blanket rent cap across all apartments in Berlin, the system calls on an observatory to calculate the typical rent per square metre for a given area, creating different rates for apartments deemed “simple,” “medium,” or “good,” while also factoring in the building’s age. Over the following five years, no new rental contract is allowed to exceed these rates by more than 10 per cent.

Whether an indexed system, like Berlin’s, is on the horizon in Ontario, or a blanket rent cap with no exemptions, all industry eyes and ears will be on the upcoming April meeting.

8 thoughts on “Push for revised rent control in Ontario

  1. Two left-wing downtown councillors can hold all the meetings they want. Rent controls is long gone and like collective farming, its a political idea that’s not coming back.

    If imposed, rent controls will result in a flood of condo units going up for sale as small-time investor-landlords bail out. Condo prices will drop accordingly as 50% to 80% of the market for condo units in downtown Toronto dries up. Better a large one-time loss than being bleed month-by-month forever.

    Neither the provincial Conservatives or the Liberals would be interested in killing the construction industry.

    • If what you are saying is correct, then the city should enforce rent control, to make condo prices drop so most buildings will be primary owner occupied units instead of owned by small landlords who can’t afford the units when their mortgage rates are renewed, and try to pass all the costs of ownership on to their tenants.

      The real problem with Toronto is speculators are buying the units to sit on them to flip, they have no interest in renting them out because that would decrease the price they could get once they sell. So there is a supply shortage of condos for rent driving up the monthly rent on the limited units who do want to rent.

      The city should impose the rent controls based on the median income of the residents in the area, an empty home tax of 4% a year to deter anyone from leaving the unit empty as well as a speculator tax of 10% when the unit is purchased and another 10% taken when the unit is sold by domestic and foreign “investors” who do not plan to live in the unit and leave the property empty for years waiting for the value to go up and hollowing out neighbours and turning them into mini ghost towns. This would also bring in some needed tax dollars for the city since they are not receiving any extra tax revenue annually other than property tax from the speculators who do not have people who should be living in the unit and spending money (paying tax on the goods and services they buy) in and around Toronto.

  2. I’ll have to say, condo’s are over valued. Maybe these speculators should consider the downside, to purchasing a property that has detached itself from economic fundamentals is a risk. If a person needs to rely on inflated rent prices to have a cash neutral investment, maybe they should consider waiting for the correction.

  3. Read some history: Old style rent controls dramatically reduced the supply of rental units.
    Instead of stealing from landlords to subsidize renters, the city should look at deregulation instead.
    1. Legalize all basement apartments.
    2. Allow conversion of single-family houses to multi-unit apartments in all neighborhoods.
    3. Reduce property taxes on houses that support more people per square foot.
    4. Relax all zoning laws to allow multi-unit residential in all areas of the city.

    • Matlow has been grandstanding for votes at Public Hearings for rezoning applications to build High-Rise Rental Buildings in the Yonge-Eglinton neighbourhood. He does all he can to frustrate the rezoning even though our City desperately needs more rental housing. Now he wants to remove the exemption from rent control for buildings built after Nov 1991 to further reduce our rental stock. I think he has a lot of wood between his ears. The real reason for our high rents is the vacancy de-control provision in the Residential Tenancies Act which allows older buildings to go straight to market rent on turnover.

  4. Building assessments going up 20, 30+ % , with rents @ 1.5%. Hmm. Somethings got to give.

    Commercial taxes shutting down or forcing businesses out of the city. Let’s eliminate the tax breaks on vacant stores then cities can get funding to offset the hollowing out of their center cores.

    Polititions hands in all of this are clean?

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