Ontario Government Announces New Rental Housing Policy
Last Thursday, Doug Ford’s Provincial Conservative Government released its Fall Outlook. In that report, it announces that all new rental units, or those that are currently unoccupied as of November 16, 2018, will be exempt from the rent control rules that were implemented in April of 2017. This announcement comes after the average rental rate in the City of Toronto grew 12.1% since last April. That’s a whopping $2,379 a month!
What does this mean?
Conversely, all existing buildings and tenants will still be covered by the 2017 Rent Control rules under the Landlord and Tenancy Act. As stated by the Government, the intended consequence of rolling back rent control on new rental units is to incentivize investors and builders to create more rental inventory, which the city of Toronto so desperately needs. According to the Government in its press release, “the demand for housing in Ontario has risen rapidly in recent years, driven by strong population growth and low interest rates.” However, the supply of housing has not kept pace. And this only further leads to higher prices and rents. Over the last few years, rent control policies that weaken investment incentive and construction activity play a heavy role in limiting supply growth in purpose-built rental housing.
Shaun Hildebrand, President of Urbanation – a company that tracks the Toronto rental market data – describes the current state of the market, as “rental supply has fallen to a critically low level. Demand has been pouring into the market while rental construction still remains relatively low. Condo projects are taking longer to reach completion, not as many investors are offering their units for rent, and tenants aren’t moving as often.”
Why is this happening?
With immigration continuing to pour into Toronto, we clearly need more supply and according to Hildebrand, “we need to be building at a pace of probably at least 10,000 a year. To get there, we would need to see the level of units under construction triple at least — above 30,000.”
The results of strong immigration into the GTA combined with the stifling effects of rent control have caused near crisis-like conditions in the Toronto housing market. We see the effects of low inventory in our marketplace daily. Recently, we rented out a one bedroom in downtown Toronto. Given the lower price point ($1,800 per month), we advertised privately on craigslist and Kijji. In 36 hours, we received 300 email inquiries, with close to 100 people at the open house. We also got 31 rental applications and in the end, we rented the unit for $100.00 over asking, without even asking. If this is not evidence of a housing shortage, we’re not sure what is.
But, it’s a step in the right direction.
While the issue of rent control is a political hot topic, most economists around the world agree that over the long-term, rent controls will have a very negative impact on affordability. It stifles investment into the new supply and updates to the existing supply. We happen to wholeheartedly agree. Is this new government policy going to solve Toronto’s rental housing crisis? Probably not. However, it’s a good long-term step, heading in the right direction.