Listen up! The Ontario government has announced that all new dwellings, any additions to existing dwellings that are used as apartments, and any older units that were unoccupied as of November 15, 2018 will NOT be covered by rent control in Ontario. It’s a decision aimed at improving the housing crisis in Toronto by incentivizing developers to build more units. But what about the renters?
Ontario government removes rent control on all new units
Anyone who is currently renting can rest easy. Whether your rental apartment is on a year lease or you’re renting month-to-month, rent control will continue to protect you. “The units in an existing residential building, where any part of the building was occupied on or before November 15, 2018, would be subject to rent control. However, if an addition is added to the building, and the new unit or units are completely within the new addition, those new units would be exempt from rent control.”* For rent controlled units, the landlord can raise rent only the annual capped amount, which is set at 1.8% for 2019.
Doug Ford quotes Ontario’s low vacancy rate (1.6%), and it is very true that we need to build more housing across the province. However, that housing needs to be affordable, especially in Toronto where rising prices are driving people away. Is removing rent control really the solution?
The assumption is that the lack of rent control will create an environment of freedom and opportunity for developers to create profitable buildings for future landlords, which should translate into the development of more purpose-built rental buildings.
It may also create two classes of renters; the rent-controlled tenants who will be fearful of ever moving from their units because they cannot afford to start new leases and the new renters who may never be able to find affordable rental housing in the first place. It will very likely reduce rental apartment turn over as people will choose to rent for longer, and we’ll see inventory decreases while the city waits for developers to build more Toronto condos. More on that from 680 News.
Ontario has a history of removing rent control
Back in 1997, the Ontario government similarly slashed rent control on new buildings. The construction boom that followed was overwhelmingly dominated by privately owned condo apartment buildings. Much of that inventory has maintained the rental market in Toronto, or should we say it was required to maintain the rental market because there were so few purpose-built rental units. The lack of rent control is one of the reasons why rents in Toronto have risen at a much greater rate than other cities such as Montreal. But maybe we are being too harsh. Our Condo Pros work with many renters and we know it’s tough out there right now. But it’s tough on landlords, too.
Rent controls can easily have an adverse impact on small-business landlords, such as private condo owners who rent out their unit. The cost of condo maintenance fees, property tax, and any incidental fees throughout the year can often exceed the maximum allowed rental increase under rent control. When that happens, landlords suffer just as much if not more than their tenants, forced to pay out of pocket and risk big financial strain.
Then again, maybe that’s the name of the game. Much like a well-organized condo corporation, every landlord should have a reserve fund in case of such emergencies and then toe the line with everyone else under fair rental control regulations that help create an affordable housing market for lower income families and individuals. According to the Toronto Star, experts think removing rent control will do little to fix the housing affordability crisis in Toronto.
Will removing rent control increase the construction of new units?
Doug Ford claims that builders are complaining about the lack of return on investment if they build new apartment buildings under rent control, and so he has no choice but to open up the market.
According to an Urbanation report on Q3-2018 rental growth, the total inventory of purpose-built rental housing units under construction increased to 11,172 units, “the highest level in more than 30 years and 56% higher than a year earlier (7,167 units).” The inventory of proposed purpose-built rentals also increased to 39,750 units across 128 projects. However, the purpose-built rental new “construction starts” (which means actually breaking ground on the build site) dropped to 826 from 2,635 in Q2-2018.
So, what does that mean? It means rent control was introduced in April of 2017, and the year ended with a “multi-decade high” for purpose-built rental units under-construction. That number increased 56% in 2018, with a simultaneous increase in the number of proposed purpose-built rentals, and new construction starts reaching 2,635 in the spring of 2018. All of that together suggests that the goal of creating more affordable rental housing, protected under rent control, was gaining traction in Toronto. But developers are complaining about a lack of ROI. . . of course they are.
What’s behind the decision to remove rent control?
Geordie Dent, Executive Director of the Federation of Metro Tenants’ Associations, wrote a blog post for The Huffington Post that suggests there may be some shady sideline deals at play in Doug Ford’s decision to remove rental control. Definitely worth a read. Also, here is the full Urbanation report on rental growth, plus many other insightful reports and research.