Escalating Rental Prices in Ontario Cities: A Call for Understanding

The recent surge in rental prices across various cities in Ontario has sparked debates and calls for action. However, attributing this escalation to the 2018 rent control exemptions or the actions of small-scale Landlords is oversimplifying a multifaceted issue and pinning good hearted, likeminded Landlords and Tenants against each other. The truth of the matter is, the past 10+ years of renting and managing properties has proven to me that the vast majority of small-scale Landlords and Tenants want to follow rules, have a good relationship with each other and view a Landlord/Tenant relationship as a true partnership. 

In the following post I will make an attempt to speak to the complexities surrounding rental pricing and argue that a lack of rental inventory is the primary issue, advocating for a nuanced approach to address the housing crisis.

First, let’s understand the context

Rent Control Exemption
The 2018 rent control exemption, implemented in Ontario, legislated that all new residential units occupied for the first time as of November 15, 2018 would be exempt from the province’s rent control regulations [1]. This exemption allows Landlords to set rents based on market conditions without restrictions imposed by provincial rent control laws.

While the exemption of newer rental units from provincial rent control might contribute to increased rents in those units [4], it's crucial to recognize that older buildings remain subject to annual provincial limits on rent increases [4]. Moreover, Landlords can legally raise rents between Tenants, leading to market-driven pricing [4]. 

The reason the rent control exemption was put in place was to address the chronic low levels of rental unit construction which in turn skyrocketed rental prices AND since the exemption has been legislated, rental unit construction/growth has increased adding much needed inventory to the marketplace.

Evictions for Upgrades

Thinking logically, Tenant evictions for building upgrades (N13 Evictions), often termed "renovictions," can result in higher rents [5] as it effects supply. However, this practice is often referenced and used as the proverbial ‘boogie man’ when arguing for Tenant rights. The truth of the matter is that the number of N13 evictions is relatively low and for those evicted based on a required renovation, i.e. how many were truly justified vs. how many were fake/fraudulent/unneeded (as many Tenant advocacy groups argue). We have to also remember the context of things here, if a Landlord is required to make a repair (generally based on a local property standard bylaw), the N13 process requires the Landlord to offer the unit back to the Tenant after the renovation at the same rent as before AND if a Landlord does not complete the required repairs Tenants can in some cases withhold rents and/or Landlords can be fined thousands of dollars for not completing the work. So how can we expect a Landlord to maintain a property? 

Thinking logically, Tenant evictions for building upgrades (N13 Evictions), often termed "renovictions," can result in higher rents [5] as it effects supply. However, this practice is often referenced and used as the proverbial ‘boogie man’ when arguing for Tenant rights. The truth of the matter is that the number of N13 evictions is relatively low and for those evicted based on a required renovation, i.e. how many were truly justified vs. how many were fake/fraudulent/unneeded (as many Tenant advocacy groups argue). We have to also remember the context of things here, if a Landlord is required to make a repair (generally based on a local property standard bylaw), the N13 process requires the Landlord to offer the unit back to the Tenant after the renovation at the same rent as before AND if a Landlord does not complete the required repairs Tenants can in some cases withhold rents and/or Landlords can be fined thousands of dollars for not completing the work. So how can we expect a Landlord to maintain a property? 

For a Landlord to evict a Tenant based on the reason of a needing a renovation (N13 ‘Renoviction’), it takes a lot of time, is cumbersome and has many hoops to jump through before the province approves the application. It is not an easy or often used eviction technique as many claim.


Next, let’s discuss the the role of Inventory Shortages on pricing

Market Supply and Demand
Put simply, escalating rents are primarily driven by supply-demand dynamics. Ontario faces a huge shortage of rental units, leading to increased competition among Tenants and consequently higher rents [3] and at a time where resale homes have become unaffordable (due to a shortage of resale properties, tougher financing rules and increased interest rates), more and more people NEED rental housing in order to have housing for themselves and their families.

Vacancy Rates
Low vacancy rates, such as Ontario's 1.7%, indicate a scarcity of available rental properties [3]. Limited options empower Landlords to set higher rents, in an attempt to recoup a portion of the negative cash flow many small-scale Landlords find themselves in (i.e., using the imbalance between supply and demand).

Low Supply + Increased Demand = Increased Rents 

It has become politically popular to blame Landlords (especially small-scale Landlords) for the housing crisis. This misplaced blame has led to countless municipal and provincial rules and regulations that score political points but that ostracise and punish small-scale Landlords. Because of this, we are seeing more and more small-scale Landlords selling off rental stock. Those rental units then hit the resale market, get sold, never come back as rental supply and ultimately drive the cost of rental housing up further. Instead of the province and municipalities fighting small-scale Landlords (at a time where governments themselves are either unwilling or unable to build and own rental stock), these governments should be helping/supporting small-scale Landlords and not villainizing them.

The Call for a Balanced Approach

 

1. Avoiding Knee-Jerk Reactions: While advocating for Tenants' rights and affordable housing, policymakers must avoid knee-jerk reactions and populist policies that could exacerbate the issue. Punitive measures against small-scale Landlords has, and will continue to discourage investment and ownership of rental properties, further constricting the already limited inventory.

2. Addressing the Root Causes: Instead of solely focusing on rent control or Landlord practices, efforts should concentrate on addressing the root causes of the housing supply crisis. This includes incentivizing the construction of new rental units, streamlining approval processes for developments, and offering subsidies or incentives for Landlords providing affordable housing options. 

3. The Elephant in the Room: No matter what side of the debate you are on, the only item where consensus can easily be found is the broken Landlord and Tenant Board (LTB). If the province wants to get serious about punishing those Landlords breaking the rules while protecting the Landlords who are following them, the LTB system needs to be fixed immediately. When this happens, the supply of rental housing will increase and prices will adjust.

 

Conclusion
The surge in rental prices in Ontario cities cannot be attributed solely to the 2018 rent control exemption or the actions of small-scale Landlords. Rather, it stems from the complex interplay of factors, with the lack of inventory emerging as a predominant driver. To effectively address the housing crisis, a balanced and holistic approach is imperative, one that acknowledges the multifaceted nature of the issue and seeks to tackle its root causes while safeguarding the interests of both Tenants and Landlords.

For more information on this article or anything Property Management related feel free to reach out and ask!