Proposed rent increase law will be retroactive to April 20

I moved into a new condo building downtown last July and pay a rent of $1,500 a month, which I thought was a good deal for what the building has and how close it is to the ByWard Market, where my friends and I hang out. On April 1 I got notice of a rent increase to $1620 effective July 1. That is eight per cent. I read in the media that the government has limited rent increases in all buildings to 1.5 per cent. Does that mean I only have to pay a 1.5 per cent increase in July? What about the future?

No, the new rule is going to apply to notices of rent increases given on or after April 20, 2017; and so you still need to pay the eight per cent increase, or negotiate with your landlord for a lower increase, or move. However, while the new rule is not yet law, it will be retroactive to April 20.

The government’s bill is almost certain to be enacted since this is a majority government, and the premier is eager to see the legislation passed.

As to the future, the new rent increase limit for “post-1991 buildings” is the same as the limit for pre-1991 buildings, namely the rate of inflation as measured by the Consumer Price Index (for Ontario). Landlords and developers argue that developers will be put off building new rental buildings by this change. They say rental costs can easily increase more than inflation since they consist largely of municipal taxes, utilities and major repair costs, rather than the basket of goods that makes up the CPI.

Developers might well have accepted a rent increase limit of five per cent, or CPI plus two per cent, but the government decided against a two-tier rent increase limit.

While Ontario has not seen much purpose-built rental supply over the last few decades, many projects were in the approval pipeline, amounting to about 2,000 units in Ottawa and 28,000 units in Toronto. Those projects may well be cancelled or changed to condominiums.

In large part because of the post-1991 exemption, a substantial number of condos were built, sold and rented out. In Ottawa, the condo rental pool amounts to almost 10,000 units out of a total private rental supply of about 110,000 units. A key question is how many investors will still buy condo units to rent out after the provincial’s government’s decision to reduce the likely return on that investment. If investors move away from condo investments, then the rental supply will be negatively affected, and that will put upward pressure on market rents.

What the government has left alone is the rule that allows a landlord to negotiate a new rent with a new tenant when the rental unit turns over. That is known as vacancy decontrol-recontrol. That rule was introduced in 1997. It resulted in a great improvement in the standard of maintenance of many rental buildings, in drawing in capital to pay for major building repairs, and in drawing in life insurance companies and pension funds back into operating rental buildings with high quality standards.

Because of the increased competition, almost all landlords came to provide better maintenance and better services. Vacancy decontrol-recontrol also made life better for renewing tenants since landlords made fewer applications for above-guideline rent increases, but instead took their significant rent increases on turnover from new tenants who were choosing to rent in the improved buildings. That also made life better for politicians, who were no longer blamed for rent increases.