Rental housing advocacy group claims Ontario’s rent control rules have backfired

Approximately 1,000 purpose-built rental units in the Greater Toronto Area that are currently under construction or have been proposed for development will now be turned into condominiums and developers are blaming Ontario’s new rent control rules which they say make building rental-only housing units less profitable.

At least four properties purpose-built for rental housing will be changed into private condominiums, according to a new report released Monday by the Federation of Rental-Housing Providers of Ontario (FRPO), an association of landlords, property managers and developers.

The group blamed the province’s decision to extend rent control to new buildings this April for the shift away from new rental housing construction, exacerbating a housing crunch, Supporters of rent control dispute that analysis, blaming property speculation and other factors for a lack of affordable rental units.

If a total of 62,500 rental units do not enter Ontario’s housing market within the next ten years, specifically in Toronto, the province’s rental supply problem will reach a “critical” level potentially leaving thousands of would-be renters with an inconvenient, expensive problem on their hands, the report said.

“I think with this new rent-control policy, we are going to start seeing a crisis situation here, especially in Toronto,” said Jim Murphy, FRPO’ President. “It’s only going to get worse.”

“This report shows us we’re in short of supply by about 6,000 units every year. The supply situation is much worse than we imagine,” Murphy told VICE Money.

In April 2017, the government of Ontario introduced a 16-pronged housing policy to address skyrocketing home prices that had spilled over into the rental market. One of the measures was capping rent increases at 1.5 percent a year for all buildings constructed after 1991 — all of which weren’t previously subjected to any form of rent control.

In some cases, the lack of rent control saw landlords raise rents by hundreds of dollars a month, compelling tenants to seek alternative housing. “We see rent regulation as a consumer-protection measure enacted to make it more difficult for landlords to take advantage of the shortage of rental housing,” Kenneth Hale, legal director at the non-partisan Advocacy Centre for Tenants Ontario told the Financial Postin May, a month after rent control was introduced.

But critics of the policy, like the FRPO, argue that rent-control discourages the construction of new purpose-built rental buildings because landlords won’t be able to raise rents according to supply and demand.

The number of purpose built rental units proposed for development continued in the second quarter of 2017, despite the announcement of the extension of rental controls for new buildings, although the increase much slower than in previous quarters, the report said.

Purpose-built rental buildings, and units within houses make up the bulk of Toronto’s rental supply market, according to data from the Canada Housing and Mortgage Corporation. Over the last five years or so, condominiums have become a significant source of rental units, accounting for roughly 38 percent of Toronto’s purpose-built rental stock (or 117,000 units). In fact, according to the FRPO report, condominiums continue to far outnumber purpose-built rental construction. As of the second quarter of 2017, the number of purpose-built rental units scheduled for development in the course of the next 12 months fell below 6,000 units for the first time since 2014 — in contrast, there are currently 22,000 condominium units green-lit for development in Ontario, 85 percent set to be built in Toronto.

One of the problems with condominiums becoming an increasingly important segment of the rental market is that they aren’t guaranteed rental-housing. An owner can choose to take his or her property off the market, as soon as a lease agreement ends — he or she can even evict a tenant during the term of the rental contract if there is proof that the owner or a family member will be moving into the property.

Not to mention the fact that in Toronto at least, many people, especially those in the 15-34 age group simply can’t afford to buy a home. Despite Ontario’s new housing rules cooling the housing market (home prices have fallen about 20 percent since May) houses still cost an average of $800,000, and condominiums an average of $450,000.

Data crunched by Urbanation Inc., a co-author of the report, shows that it is still cheaper to rent than own — the average cost of owning a condo in Toronto is $2,365 per month. It is approximately $2,023 a month to rent.

The high cost of owning, combined with an influx of inter-provincial and non-resident migrants into Ontario due to sustained economic growth over the last few years, has increased and will continue to increase the demand for rental housing.

There is currently only one rental unit under construction per 1,000 people in the GTA, according to the FRPO report. Moreover, the vacancy rate, that is, the number of units available for rent in Toronto is at an alarmingly low 1.3 percent.

Jim Murphy’s organization is calling for an exemption of new purpose-built rental buildings from the rental control policy, at least for a period of time.

“We need to be able to encourage new construction, and that also means reducing the 3-4 year approval time for purpose-built rental buildings. Overall costs on consumers are driven by the market. More rental supply is the only answer, and right now our rent-control policy is discouraging that.”

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