Con­trol­ling rent by end­ing rent con­trol

Could the move re­sult in more pur­pose­built ren­tals eas­ing mar­ket pres­sure?

Village Post - - News - by Eric Sto­ber

Dur­ing the last mu­nic­i­pal elec­tion, the most dis­cussed is­sue was af­ford­able hous­ing — what was the magic for­mula to deal with the city’s af­ford­abil­ity cri­sis?

Cut­ting rent con­trol was not one of the reme­dies that came up very of­ten in pub­lic de­bate.

Nev­er­the­less, on Nov. 15, On­tario Premier Doug Ford an­nounced that he will re­move rent con­trols in On­tario put in place in 2016 by for­mer premier Kath­leen Wynne.

Some ex­perts sug­gest that re­mov­ing rent con­trol will help in­crease the lim­ited stock of rental units in the GTA and, hope­fully, ad­dress af­ford­abil­ity that way, whereas oth­ers warn that it will leave ten­ants less pro­tected.

The new rule (or lack thereof ) that was an­nounced was for new build­ings con­structed af­ter Nov. 16, 2018. Rental units in these build­ings will not be sub­ject to rent con­trol, but units oc­cu­pied be­fore that date will keep the past mech­a­nisms.

Rent con­trol prevents rents from be­ing raised over a cer­tain per­cent­age, which is set by the gov­ern­ment ev­ery year.

This year it was set at 1.8 per cent. With­out rent con­trol, land­lords can raise the rent how­ever much they like.

“Ninety-nine-point-nine per cent of the mar­ket is still go­ing to be rent con­trolled. It will be a small por­tion that isn’t,” said Shaun Hilde­brand, pres­i­dent of Ur­ba­na­tion, a real es­tate mar­ket re­search web­site.

“On a good year, you’ll only see about 10,000 new units com­ing into the mar­ket [in Toronto], both con­dos and apart­ments,” he added.

“You have 500,000 rental units that will still be rent con­trolled.”

So what is the pur­pose of re­mov­ing rent con­trol?

Brad Lamb, pres­i­dent of Brad J. Lamb Realty Inc., said that, by re­mov­ing rent con­trol, you are able to in­crease the sup­ply of pur­pose-built rental build­ings, which Toronto is in very short sup­ply of, but there is a lot of de­mand.

“Rent con­trols essen­tially froze out any will­ing­ness f rom any in­vestor to put money into the On­tario mar­ket through pur­pose­built build­ings,” he said, due to the

in­abil­ity for builders to make the profit needed to war­rant the in­vest­ment.

With­out rent con­trol, builders will typ­i­cally raise rents by two to three per cent, in line with in­fla­tion, Lamb said.

“But some­times [land­lords] will raise the rent more to five per cent be­cause of eco­nomic boosts,” he said. “That makes a dif­fer­ence. At the end of the day, it is a busi­ness of very tiny mar­gins, and the ex­tra abil­ity to raise rent with tiny mar­gins is very im­por­tant.”

Ben­jamin Tal, the deputy chief econ­o­mist at CIBC World Mar­kets, said that builders typ­i­cally have a plan of how much they would like to in­crease the rent over a long pe­riod of time so that they know the kind of re­turns they will get on their in­vest­ment, which should take away anx­i­ety from ten­ants wor­ried about a very large in­crease in their rent.

With­draw­ing rent con­trol makes build­ing rental units more prof­itable and at­trac­tive to de­vel­op­ers.

The hope is that it will lead to an in­crease in sup­ply, so land­lords can’t go hay­wire de­mand­ing ex­or­bi­tant amounts of money, but will set their price at the mar­ket stan­dard be­cause oth­er­wise the ten­ant can just find a dif­fer­ent place.

“The more sup­ply you have, the less power de­vel­op­ers will have to raise rent. That’s the point,” Tal said.

Tim Hu­dak, CEO of the On­tario Real Es­tate As­so­ci­a­tion, said that ul­ti­mately no rent con­trol will keep prices lower.

“What hap­pens to­day is, if land­lords know they’re go­ing to be locked in, they jack up the price as high as they can be­cause they’re go­ing to be locked in,” he said.

“The price will be more af­ford­able with­out rent con­trol be­cause they’ll be look­ing at the long-term re­turn in­stead of try­ing to scoop it all up at once.”

Not ev­ery­one is in favour of re­mov­ing rent con­trol, though.

Ge­ordie Dent, the ex­ec­u­tive di­rec­tor of the Fed­er­a­tion of Metro Ten­ants’ As­so­ci­a­tions, said that rent con­trol prevents what he calls “eco­nomic evic­tions.”

“This is when the land­lord is cash­ing in on a hot mar­ket, or is push­ing back on a ten­ant try­ing to en­force their rights by ask­ing to get a fridge fixed, by then say­ing they [the land­lord] will have to raise the rent $1,000,” he said.

“This hap­pens when you don’t have rent con­trol. It ren­ders res­i­dency laws use­less. My agency takes 10,000 calls on this. We’ve seen it re­peat­edly.”

Dent told a story of an en­tire build­ing be­ing evicted about a year and a half ago be­cause the land­lord raised the rent by $1,000 in ev­ery unit in the build­ing, caus­ing ev­ery­one to move out since no one could af­ford it.

How­ever, Hilde­brand said that in­ci­dents like these were “very iso­lated in­ci­dents in the condo seg­ment” of the mar­ket.

“[These in­ci­dents] led to a lot of sen­sa­tion­al­ized sto­ries. It was ex­trap­o­lated as some­thing that was oc­cur­ring across the mar­ket and was wide­spread, and it wasn’t the case at all,” he said, not­ing that the in­ci­dents were used by the Wynne gov­ern­ment to sup­port rent con­trol.

Tal also pro­posed that these in­ci­dents were not the com­mon trend.

“These [rental build­ing] com­pa­nies are not in the busi­ness of tak­ing ad­van­tage of ten­ants,” he said.

“They have rep­u­ta­tions, they don’t want news­pa­per head­lines that say they are tak­ing ad­van­tage of poor ten­ants.”

Since devel­op­ment of apart­ment build­ings has slowed down be­cause it did not seem worth the in­vest­ment, the condo mar­ket has sup­ple­mented apart­ments.

“That’s why I want to move the rental mar­ket f rom the condo mar­ket. I want pur­pose-built,” Tal said.

“We need to pro­tect ten­ants by al­low­ing more sup­ply.”

Don’t ex­pect to see the ef­fects of no rent con­trol take hold quickly, though.

“In Toronto, it takes six years to plan and de­velop an apart­ment build­ing,” Lamb said.

“It is prob­a­bly go­ing to take some time, at least 10 years, for the mar­kets to get in the po­si­tion where we have a bal­ance of sup­ply and de­mand.”

“The more sup­ply you have, the less power de­vel­op­ers will have to raise rent.”

CIBC econ­o­mist Ben­jamin Tal

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