November 19, 2018
Ontario Government to Roll Back Rent Control as Part of New Housing Strategy
With a vacancy rate of less than 1%, the City of Toronto has a reputation for being one of the tightest rental markets, not just in Canada, but in the world. Now, new measures to alleviate the strain have been announced by the Province of Ontario – but they may actually worsen rental affordability, depending on who you ask.
In its first economic statement on November 15th, the new Progressive Conservative government announced the Housing Supply Action Plan, to be launched under the Ministry of Municipal Affairs in Spring 2019.
The plan is designed to increase housing supply by reducing the red tape facing developers looking to create more ownership and rental units. While it will be implemented over 18 months, the province is taking immediate action with a few items, the most notable of which is the roll-back of some of the rental protections put in place by the previous government’s Fair Housing Plan (FHP) last April.
Those protections mandated that all units be subjected to rent controls regardless of their age, meaning landlords could only raise rents by a provincially-prescribed amount (1.8% for 2019) upon lease renewal. Prior to the FHP, only units built before 1991 were rent controlled. The measures were introduced by the previous provincial Liberals in response to intense media scrutiny of sky-rocketing rents; according to reporting by CBC, some tenants faced rent hikes as much as 100% upon lease renewal in 2017 as the rental market sizzled.
New Units to Be Exempt from Rent Control
While the Ford government is leaving the majority of these controls in place, it will now exempt brand-new or recently converted rental purpose units with occupancy as of November 15th, meaning the rents on these units can be raised as high as the landlord wishes upon lease renewal.
The province says it’s an important measure in incentivizing developers to continue to create rental units, arguing that placing rent controls on the entirety of the rental market will only stifle future supply.
“Rent control policies that weaken investment incentives and construction activity have played a role in limiting supply growth in purpose-built rental housing,” states the province’s economic plan.
The plan will also cancel the Development Charges Rebate Program. Also introduced last April, this was intended to encourage developers to create more rental by offering rebates on regional and educational development charges, which builders must pay to the city upon completion of a project. The program was to dole out $125 million over five years in 13 cities, prioritizing markets with low vacancy rates, and plans for walkable, accessible communities. The Ford government claims the cancellation will save $100 million over four years.
Advocates Say This Will Harm Renters
While the province says it’s making good on its promise to preserve rent control for existing tenants by only exempting new units, the move has been met with criticism from affordability advocates who say it will only make rent more unaffordable, especially in competitive urban centres like Toronto.
Concern has been voiced by a number of provincial and municipal politicians including leader of the official NDP provincial opposition Andrea Horwath, who warned that typical renters will be priced out of newly-created units moving forward. Toronto Mayor John Tory also weighed in, stating it’s too early to consider the removal of rent controls. “The housing affordability issue in Toronto is too serious to consider relaxing rent controls before increasing rent supply,” read a statement released from his office.
Opponents Say There’s No Proof Rent Control Stymies Supply
One of the most vocally opposed has been Josh Matlow, councillor-elect for Toronto’s Ward 22 and chair of the city’s Tenant Issues Committee. In a statement released by his office, he said, “Landlords and Doug Ford must be the only people in Toronto that think rents aren’t high enough already. Tenants deserve to have the security of knowing they won’t be evicted from their homes because they can’t afford an overnight doubling of their rent.”
Matlow’s statement also questions the province’s argument that a lack of rent control will spur builders to create more rental purpose stock, saying there’s no proof to support the claim.
“[The] change to the Residential Tenancies Act is not only unfair to already overburdened tenants, but the move is also unnecessary,” it reads. “Claims that returning the loophole will increase apartment supply, eventually leading to lower rents, are not supported by evidence.”
Indeed, prior to 2017, developers did little to create new rental supply, preferring to invest instead in more profitable condo projects – a trend that was actually starting to reverse in a rent-controlled environment, says data from think tank Urbanization, which reveals construction is actually at a 30-year high.
According to its tracking of new builds, there were 2,635 new rental projects started in the second quarter of the year, boosting the total number of projects underway to 11,073 – a whopping 69 per cent higher than in 2017. Urbanation also reports that there are 3.5 times the number of applications to build 5,920 new units than there was a year ago, with 120 projects – representing 37,403 units – currently in the market.
How Will This Impact the Rental Market?
While it remains to be seen whether the province’s measures will improve supply, exempting new units from rent controls will likely reduce new rental stock affordability for the average renter, and dissuade tenants from moving on from their existing rentals where they are protected.
This was reflected in survey responses collected for Zoocasa’s 2018 Housing Trends Report: A total of 56% of Ontarians said they felt the rent caps would improve their rental affordability, while 57 per cent indicated they would stay in their existing rental longer as a result of the rent caps.
It’s a great idea for those currently on the market for a rental to work closely with an agent with access to all of the Toronto MLS listings, and who can factor rent protection into the list of must-haves when searching the market for rentals or homes for sale.