Ontario’s ‘Rent Control’ Bait-and-Switch

By Steve da Silva

Renters and prospective home buyers in Toronto await an official announcement from the Ontario Liberal government on how the province plans to take action on runaway rents and rapidly inflated property values. But based on what sources in the government have already released to the Toronto Star, there is little cause for celebration.

On Tuesday, April 18, while Ontario’s Minister of Finance Charles Sousa met with the Federal Minister of Finance Bill Morneau and Toronto Mayor John Tory to talk about the housing crisis, the Toronto Star leaked a few key details of what Sousa would be announcing in the coming week. The provincial government’s long-overdue intervention of rent control is of particular interest: it has been reported that the annual rent increase in buildings constructed after 1991 will be limited to 1.5% above the inflation rate.

The steady stream of news stories over the past year detailing how landlords in buildings built post-1991 have been gouging tenants with exorbitant increases have terrified residents of Toronto. In some cases, tenants have seen their rents doubled, which landlords have been able to do as a result of Toronto’s inflated real estate market and record-low vacancy rates. In such desperation, any regulation will be a welcome relief and may even seem like a progressive move on the part of the provincial government.

But permitting a 1.5% annual increase above the inflation rate still amounts to 3.5% in rent increases annually, with inflation sitting at 2% in February 2017. According to the province’s anticipated “rent-control” regulation, someone renting the same one-bedroom unit in downtown Toronto for $1500 in 2017 will be paying $1720 by 2021.

Furthermore, it is unlikely that any meaningful action will be taken to reverse the massive rent hikes made by landlords of post-1991 buildings in the last two years. Any regulation proposed by Sousa in the coming days will probably only affect rent control moving forward, but much of the damage has already been done.

As for pre-1991 buildings, no details have been provided thus far. But if landlords of newer buildings will be permitted to jack up rent by approximately 3.5% per year, the provincial government is almost certainly going to change the regulations for landlords of pre-1991 buildings.

Up until now, buildings constructed prior to 1991 have been exclusively subject to a 1.5% total limit on how much they can increase rent. In practice, however, landlords of pre-1991 buildings often hike rents above the 1.5% limit by petitioning the province for an Above the Guideline Rent Increase (AGI) based on capital improvements to their properties. In other words, to finance capital improvements, which are often cosmetic and done to exterior facades and common areas, landlords in Toronto avoid using their own profit margins and instead dip into the pockets of their tenants, many of whom never benefit from substantial repairs inside their units.

For months now, newspaper editorials and direct statements from some of Toronto’s titans of capital have been weaving the narrative that the pre-1991 rent control policy — not slumlord profiteering– is to blame for the serious state of disrepair in older buildings in this city.

On April 4, a mouthpiece for one of Canada’s biggest banks, CIBC economist Benjamin Tal, warned the Ontario government against rent control in a report where he argued that landlords “spend the bare minimum to maintain their units given that, in many cases, they do not need to attract other tenants.”  Tal excused slumlord policies because, apparently, these capitalists are not being enticed by high enough profit margins. Tal also blamed rent control for having created a disincentive on the construction of new rental properties in Toronto, and that any further measures would scare away investors.

John Tory parroted this line in an interview with CBC’s Metro Morning this past Tuesday before his meeting with the provincial and federal finance ministers: “I worry this will choke off those developments and people will stop building rental apartment buildings.”

 

The Canadian housing market is severely overpriced, with house price to income ratios that outstrip the U.S.

The Canadian housing market is severely overpriced, with house price to income ratios that outstrip the U.S.

 

Ontario’s largest landlord association, the Federation of Rental-Housing Providers of Ontario — one of the least impartial commentators on the subject — had recommended to the province to limit annual rent increases in buildings built after 1991 to 10%, and give newly built units an exemption from the cap for 20 years after construction.

Toronto’s real estate market has gained worldwide attention and it is highly improbable that rent control will intimidate investors from constructing residential properties in the city’s lucrative industry. The housing crisis is not a crisis for bankers, developers and landlords. Their businesses are flourishing at the expense of the city’s and the region’s majority, who are being squeezed for every penny they have. These capitalists personally benefit from a deregulated housing market, and want to protect their ability to exploit renters for larger profits.

More importantly, the notion that regulation and rent control will “spook the market” highlights the true nature of “the market,” i.e., capitalism: that it will always prioritize higher profits at the expense of people’s basic needs and dignities.

Other regulatory tweaks are expected to be announced in the coming week by Minister of Finance Charles Sousa, specifically dealing with certain types of speculative behaviours in real estate developments and the potential of imposing a tax on foreign buyers.

Amidst the applause we can expect from liberal media outlets, it is important to question the half-hearted attempts made by the Ontario government to regulate an increasingly extortionist real estate market. We deserve and must demand better.

Politicians at every level of government will do everything in their power to avoid blame for pricking or even deflating a real estate bubble that is, ultimately, bound to recede, if not pop. The Ontario government is making a big show of taking action, but the policies that are being proposed are ignoring the damage that has already been done, and condoning a more gradual increase in rent levels in what has rapidly become one of the most expensive rental markets in the world.

If there is one landmark that is sure to be established in the coming days, it could be Ontario pulling off one of the craftiest bait-and-switch manoeuvres in years.

 

Stay connected to www.basicsnews.ca in the coming weeks and months for extensive and in-depth analyses on how the housing crisis is impacting Toronto’s working class communities.

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