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Friday, April 21, 2017

Rent Control returns to Ontario

Ever since 1991 there has been a loophole that allowed the owners to set and change rents as they saw fit, which meant they could gouge renters for more money if they wanted to.

Rent control still applied to buildings that were built prior to 1991, guaranteeing that rentals could not be increased annually by any amount above and beyond the rate of inflation - and was capped at 2.5% even if the rate of inflation was more than that.

But new buildings that were built in 1991 or after, did not have rent control.

The loophole was created in 1991 in order to encourage property developers to build more rental units. Rent control was considered to be cost prohibitive, ie. not profitable enough. Building rental units made no sense to someone meaning to make a profit, as it would take significant time to finally get back their investment in building the property.

So to remedy the problem, the province got rid of rent control for all new buildings that were built after 1991.

Unfortunately the industry took advantage of the situation, built lots of condos instead, and then rented them out.

And then more recently, renters would see their monthly rent skyrocket to double to whatever they were paying before.

eg. Valerie Bruce, a renter living in Liberty Village, recently received a notice saying her rent would double from $1,600 to $3,200, so she decided to move.

And she was not alone. Many other Torontonians saw their rent double within the last year, as they are quite literally being squeezed out of the market.

Part of the current problem is that vacancies right now are really low. It is currently 1%, the lowest vacancy rate Toronto has seen in 7 years - not since 2010 has it been this low.

And when availability is low, prices tend to go up because the demand is high.

However doubling the rent on people who already are living in a particular place, well that is just ridiculous. It is that kind of flagrant disregard by landlords that has basically given them a bad rep and caused the provincial government to step in and put a stop to this nonsense - see the Ontario Fair Housing Plan below.

So it is the fault of landlords for getting greedy in the first place.

It is also the fault of real estate developers for taking advantage of the 1991 loophole to build condos between 1991 and 2017, when they were supposed to be building affordable apartment buildings. The purpose of that 1991 loophole was so they would build more affordable apartments, but they didn't build more apartments, they built condos instead - some of which ended up being used for high priced apartments by investors. There was nothing affordable about it at all.

The Ontario Fair Housing Plan
  • Expanding rent control to all units, including those built after 1991.
  • Annual rent increases for existing tenants can be no higher than the rate of inflation. 
  • Rent increases will be capped at 2.5 per cent, even if the rate of inflation is higher.
  • A standard lease will be developed in multiple languages.
  • Tenants will be adequately compensated if asked to vacate for "landlord use."
  • Change becomes effective as of April 20, regardless of when legislation is passed.
That last part means landlords will not be able to raise rent by more than 1.5 per cent this year — the annual provincial rent increase guideline for 2017, which was determined based on the inflation rate in 2016.

However, a landlord can raise rent by any amount in between tenant residencies. For example, if one tenant paying $1,600/month chooses to move out of their unit, the landlord can charge the incoming tenant $2,000/month or more.

It is also theoretically possible for renters to get in a bidding war if multiple people end up vying for the same unit at the same time.

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