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.