Rent control makes Toronto affordability worse, not better, CIBC says

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Rent control policies implemented more than 20 years ago aimed at helping low-income Ontarians get affordable housing are having the opposite effect now, and making accommodation even harder to find, an economist with the CIBC argues in a new report Tuesday.

Amid calls for even stricter caps on how much landlords are allowed to hike rents in Toronto’s competitive market, economist Benjamin Tal argues any such policy would do more harm than good — even to those it’s ostensibly trying to protect.

“Rent control is the exact opposite of what the [Greater Toronto Area] market needs,” he says. “If history is a guide, such policy will mostly hurt the people it’s trying to protect.”

Under current rules that were implemented in 1992 and subsequently left in place by every government that followed, buildings built after 1991 aren’t subject to any caps on how much a landlord is allowed to raise the rent each year.

‘The turnover rate under rent control is lower as tenants stay in properties longer.’ – Benjamin Tal, CIBC

But older buildings have a cap on how much the rent can rise every year, regardless of what the costs are or whatever conditions in the free market are.

The plan was to encourage landlords and developers to build more apartment units by removing artificial caps on their potential profits. But more than two decades later, Tal says, the effect has been to fund a boom in condominiums that operate as rental units largely outside of regulation.

Others aren’t so sure that less regulation is the answer. The Advocacy Centre for Tenants Ontario thinks the rules need to be updated to reflect the modern market.

“The theory is that with an increased supply of units, ‘the market’ will drive rents down,” the group says in a factsheet on the topic on its website. “The reality is that rents have been increasing across Ontario whether the vacancy rate is high or low.”

Toronto’s out-of-control rent problem2:41

Tal argues that rent control on older units causes them to fall into disrepair since landlords have little incentive to maintain them. “The turnover rate under rent control is lower as tenants stay in properties longer,” Tal said. “And naturally, landlords would spend the bare minimum to maintain their units, given that, in many cases, they do not need to attract other tenants.”

Toronto City Councillor Josh Matlow agrees that rules need updating, but disagrees with Tal’s view and thinks more rent control is what’s needed — not less. The chair of the city’s tenant issues committee says the “arbitrary” cut-off of 1991 needs to be removed so all buildings are treated the same way.

“The proof is in the pudding,” he said in an interview. Rent increases have vastly outpaced inflation, which is why he wants the province to update the rules for a modern era.

Fall into disrepair

“There should be strict guidelines for all rentals before and after the arbitrary date of 1991, and a review and reform to ensure above-the-guideline rent increases” are subject to more scrutiny, Matlow said.

So-called “above-the-guideline” rent increases are when landlords make capital repairs and then pass the costs along to the tenant.

Unlike Matlow, Tal blames the problem of when older units fall into disrepair on rent control because there’s no incentive to fix them. And people are less willing to move out of rent controlled buildings, which pushes others into the condo market, because few people are building so-called “purpose-built” rental units — the industry term for apartment buildings.

More “rent control will work to reduce the supply of rental units, and will inflate any segment of the market that is not under rent control,” Tal says.

“More activity will be diverted toward condo construction, a segment of the market that is much more immune to rent control as condo owners have multiple avenues to require a tenant to leave,” he says.

It’s an issue that many at Toronto city hall are keenly aware of Coun. Ana Bailao says the rules on the books today certainly need updating, one way or another.

Different market

“It is a delicate balance,” she told CBC News in an interview. “We understand this is a complex issue [but] something has to be done, because when people are getting slapped with rent increases of $600, $700, $800, it’s not acceptable.”

One way or another, Bailao says, rent control regulations need to find a “balance” and “respond to the new reality of what is today — and increasingly so — a different rental market.”

Bailao, who chairs the city’s affordable housing committee, has worked with Matlow on the issue and the two will soon present eight recommendations to help regulate Toronto’s rental market to the mayor’s office. Among the recommendations are a plan to expand rent control to buildings built after 1991.

For his part, Tal isn’t advocating that a completely hands-off government approach would fix all of the city’s housing problems. Rather, by coupling increased investment in affordable housing with less rent control, he says the market is more likely to fix itself by removing arbitrary limitations on competition.

Part of the problem with Toronto’s housing market, Tal says, is people’s willingness to buy in at all costs. And encouraging the current two-tiered rental market will do little to change that attitude.

“Any solution to the region’s affordability crisis must include a significant increase in the propensity to rent, mainly among young families,” Tal says.

Rather than making the rental market even more uncertain than it already is, the best thing government can do on the issue is fix a decades-old mistake by removing rent control entirely, Tal argues.

“Rent in the GTA is now rising much faster than inflation, and rent control is seen as a way to ensure that households on low and middle incomes are not squeezed out of the city,” he said.

“While the intentions are pure, the suggested remedy is wrong.”

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Rent control makes Toronto affordability worse, not better, CIBC says

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