Rent Control Laws Lifted

Think about this… .07 percent would be an incredible unemployment rate, or interest rate, but this number is Toronto’s rental vacancy rate. That miniscule number is creating a housing crisis in our city — but will Doug Ford’s plan to lift Toronto rent controls harm or help?

In this article we will look at the varying sides of this divisive issue, including the tenant, landlord and high-level perspectives.

The city of Toronto is attempting to address the housing crisis, albeit their plans have polarized public opinion. Ford’s plans to reverse the 2017 rules on rent control has some people up in arms, including Toronto City Councillor Kristyn Wong Tam who in a tweet called it ‘class warfare’.

The plan to lift the rent caps put in place in 2017 (which stated that landlords cannot raise rent more than 1.5 percent annually) in a market with a meagre supply may mean that many Torontonians are pushed out of the Toronto rental market. Landlords however may be rejoicing at the potentiality of a significant increase in income and having more control over it.

The Tenant Perspective

Current tenants (who rented their unit before November 2018) will be protected from large rent increases, however new units and new tenants may be vulnerable to large increases under the pending rent-control lift. This could limit mobility for renters, with a fear of moving to new areas and units that aren’t under the rent-control umbrella. Also, the new rent-control lift combined with the small supply, rental costs could potentially skyrocket.

Tenant fears may be correct. In 1997 the Harris government hollowed out vacancy rent controls (which governs how much rent can be raised when a unit turns over), and two decades later a one-bedroom apartment in Toronto costs $2,200 on average. When you compare this to Montreal, who maintained their rent increase caps, they pay about $1,000 less. So there is little to no doubt that removing rent caps will increase the cost to rent in Toronto.

The Landlord Perspective

Rental supplies may have dwindled due to the lack of profitability, with many small-time landlords dropping out of the game due to rent controls. Rent increase caps that don’t allow them to recoup the rising costs of things like property taxes and maintenance fees (which traditionally rise 1.5 percent plus per year).

The potential increase in rent prices could help more landlords not only recoup their costs but also be more profitable. And without government controls in their way they can price their units according to current market prices and in respect of supply and demand.

The Supply and Demand Perspective

A lift in rent caps will be tough for renters and idyllic for landlords. But there’s a third, higher-level perspective: market equalization. The common argument for the lifting of rental controls is that the market will be opened up to more developers, programs and small-time landlords. The increased profitability created from the rental controls removal could encourage more units to be put in the rental pool; which if done in a large volume could possibly bring prices down due to an increased supply.

Without the disincentive of rental price controls the current rate of .07 percent could improve significantly. The cost for renters would certainly go up, at least in the short term — but over the long term there’s a possibility that the increase in units could counteract the increase in prices and overall stabilize the market. However not everyone agrees.

“The government gutted rent control on new units yet again, bringing us back to Mike Harris' rent control for a second time. The rationale? The government says it will encourage developers to build more affordable housing,” says Geordie Dent, Executive Director, Federation of Metro Tenants' Associations. "When rent was completely deregulated in Ontario, you saw almost no rental housing construction. I don't think that [argument] has any weight.”

Dent may be correct. A report by Urbanation on Q3-2018 rental growth saw that 2018 purpose-built rental units was at 11,172 units — which is a 30-year high and 56% higher than the previous year. And this was under the 2017 rent increase restrictions.

Alternative Solutions

Lifting rent increase cap rules isn’t the only way to solve the housing crisis (even if it is the one that Toronto opts for).

- Taxation

Reforms in taxation could help increase the amount of units available in the rental pool. For example, multi-residential landlords are taxed up to five times what homeowners pay. Changing tax regulations to tax landlords at the same rate as standard homeowners would benefit both landlords and tenants (if the landlord shared the savings in terms of lower rent).

- Support for those on Government Programs

Additional housing may be made available if landlords were incentivized to rent to people on disability. For example, the rent could be paid directly from their disability payment, guaranteeing the landlord that the rent will be paid.

- Encourage Home Ownership

The new ‘stress tests’ put in place early 2018 pushed a lot of people out of the homeownership arena due to not qualifying for a mortgage. This was despite the fact that evidence shows that mortgage defaulting numbers remain relatively low in the first-time homebuyer category.

- Incentivise Landlords

If there were a program in place to incentivise property owners — especially small-time landlords, to put more units into the rental pool the increased availability would naturally stabilize the market. This could come in the form of tax credits, or even something as simple as allowing landlords to take a damage deposit (which would incentivise tenants to take better care of the property and reducing the maintenance and upgrade costs to the landlords).

Conclusion

In typical David and Goliath fashion this is a battle between the wee people and business (including a massive lobby organization). Renters want to keep their controls in place, and landlords want them gone to increase profits. Like it or not though, they are coming. If you’re a renter the best way to protect yourself is to stay in your current rent-controlled unit or consider becoming a homeowner. If you’re considering the latter, write to us here at Strata.ca for situation-specific information.