‘The Ontario Experiment… Rent Controls ‘
Tim the Tenant
Tim Fuller March 2012
“…there is nothing inherently good nor bad about rent regulations. I know of no researchers who support rent controls in principle. If conditions in particular rental markets require them, fine. If not, fine…. The objective public policy question, however, is whether a particular set of circumstances requires a particular set of regulations.” J. David Hulchanski, University of Toronto
Canada is a very large country with a small population. There are only twelve countries in the world with a smaller population density than Canada, but much of what is seen on a map is frozen tundra and largely uninhabitable.
The warmer, softer lands lie to the south. 75% of Canada’s population live within 100 kilometres (60 miles) of its border with the U.S. Canada as a whole has only 3.1 persons per square kilometre (5 per square mile), but its biggest city, Toronto, has 7% of its entire population and a density of nearly 4,000 persons per square kilometre (6700 per square mile).
It’s also estimated that, though the General Toronto Area is enjoying steady population growth, the city of Toronto is shrinking, and most of those that remain are getting poorer. According to the 2006 Census on Income and Shelter Costs, “Toronto continues to have a higher incidence of low income (almost double) than the rest of Canada, Ontario and the RGTA.” 46.6% of renters in the city are paying more than 30% of their income – the generally accepted maximum — for shelter. Only about 23% of homeowners were paying at that level.
Condominium building in the city continues to boom. An average of 15,000 to 20,000 new units have been built each year since 2000. Meanwhile, the stock of rental properties has started to drop, falling by 1,000 units during the same period, with most of those units close to 40 years old.
And while the median income for the city fell between 2000 and 2005, the cost of renting a place in the city rose in that same period by more than 11%. Not surprisingly, there were 4,000 more people receiving eviction notices in 2005 than in 2000. Granted, these stats are a bit dated; we may have to wait until next year for results from the 2011 census. But the growth in condo starts and the dearth of rental units has continued in the meanwhile. In addition, the city’s middle class is evaporating:
“Between 1970 and 2005, the number of middle-income earners – those making between 20 per cent above and 20 per cent below the average individual income – collapsed from 66 per cent to 29 per cent of the city’s population. It could fall to 20 per cent by 2025. Meanwhile, those making 40 per cent above the average more than doubled to 15 per cent, from 7 per cent. And the very low-income earners, making 40 per cent below the average, jumped from 1 per cent in 1970 to now about 15 per cent.”
The basics of supply and demand dictate that a decrease in rental units leads inevitably to an increase in costs. But what do you do if you’re responsible for all those folks who may get squeezed out of housing altogether?
If you’re the Government of Ontario, you revisit for the umpteenth time the rent control policies that have been in place for almost forty years.
The modern era of rent control in the province began in 1975, as Ontario was experiencing a housing crisis brought on by “stagflation”, a term that combined economic malaise and rampant inflation. Between 1971 and 1974, vacancy rates in Toronto fell from about 3.5% to close to 1%. Private rental starts fell from a peak of about 40,000 per year in 1972 to a few thousand in 1975. Ontario’s consumer price index climbed dramatically throughout the 1970s, with peaks of 14% in 1973 and 13% in 1979.
By the time of his 1975 re-election, Ontario Provincial Premier Bill Davis had been forced to change his strong stance against rent controls. Pressured by the rising popularity of the left-leaning National Democratic Party (NDP), which strongly favoured controls, Davis attempted to bridge the gap between his Conservative party’s free-market values and an urban population that had been buckling under rent hikes that had jumped an average 13.3% in Toronto the previous year.
In November of 1975, housing minister John Rhodes introduced the Residential Premises Rent Review Act, legislation that set a limit of 8% on rental rate hikes, in addition to establishing a rent review board that would review appeals from landlords wishing higher increases.
With guidelines that were set to rise or fall based on the the yearly consumer price index, the ceiling on rent hikes fluctuated between 6% in 1976 and 3% in 1998.
In 1998, the highly contentious Conservative government of Premier Mike Harris, in the midst of what it called its Common Sense Revolution, imposed Ontario’s first ever system of “vacancy decontrol” as a part of its new Tenant Protection Act. The legislation attempted to loosen price restrictions on developers and landlords:
“Intertenancy rent de-control provides for the temporary de-control upon vacancy of the controlled rent on a unit and the re-control again at a new negotiated rent upon occupancy by a new tenant. Existing tenants in this system are protected from eviction and rent increases on their unit are controlled.”
This meant the landlord could raise the rent as much as he wanted in-between tenants, but had to stick to the province’s yearly guidelines for any future rent hikes with new and previously existing tenants.
Five years later in 2003, Liberal party leader Dalton McGuinty won a majority government by taking advantage of a backlash against a Conservative party that had slashed spending for social programs, especially in housing. Part of his party’s platform was to repeal the so-called Tenant Protection Act. Prior to the election, McGuinty stated:
“I want to be clear about our plan for rent control. We will repeal the Harris- Eves government’s Tenant Protection Act and bring back real rent control that protects tenants from excessive rent increases. We will get rid of vacancy de-control which allows unlimited rent increases on a unit when a tenant leaves.”
Though it took four years to write and pass the legislation, McGuinty’s Liberal party passed the Residential Tenancies Act (RTA) in early 2007. In addition to making it harder for a tenant to be evicted, the bill had two provisions specific to rent pricing:
120. (1) No landlord may increase the rent charged to a tenant, or to an assignee under section 95, during the term of their tenancy by more than the guideline, except in accordance with section 126 or 127 or an agreement under section 121 or 123. 2006, c. 17, s. 120 (1).
(2) The guideline for a calendar year is the percentage change from year to year in the Consumer Price Index for Ontario for prices of goods and services as reported monthly by Statistics Canada, averaged over the 12-month period that ends at the end of May of the previous calendar year, rounded to the first decimal point. 2006, c. 17, s. 120 (2).
(3) A landlord shall not increase rent charged under this section by more than the guideline plus 3 per cent of the previous lawful rent charged. 2006, c. 17, s. 121 (3).
In addition, the act laid out the specifics that allowed a landlord to increase rent above the stated yearly guideline:
121. (1) A landlord and a tenant may agree to increase the rent charged to the tenant for a rental unit above the guideline if,
(a) the landlord has carried out or undertakes to carry out a specified capital expenditure in exchange for the rent increase; or
(b) the landlord has provided or undertakes to provide a new or additional service in exchange for the rent increase. 2006, c. 17, s. 121 (1).
A landlord could also apply for an increase above the legal rent if:
“…their costs for the municipal taxes or utilities have increased by more than the guideline plus 50 per cent. “
Despite McGuinty’s promises, the RTA did not do away with the Tenant Protection Act’s intertenancy rent decontrol. As was the case in 1998, a landlord would still be able to raise the rent as much as he chose once the rental unit became vacant.
Under the RTA, the last two years has seen both the lowest allowable rent increase – 0.7% in 2011, and the highest – 3.1% for 2012. This last number, predictably, has brought condemnation from both housing advocates — who claim it’s too big a hike, and from landlords and property owners — who claim its not high enough to compensate for rising energy costs.
Currently, the McGuinty government is trying to pass an amendment to the 2006 RTA that, though still tied to the Consumer Price Index, would see a ceiling on rent increases of 2.5% and a floor of 1%. (The amendment states, again, that the guidelines do not apply to vacant residential units.)
Regardless of legislative initiatives or amendments, the city of Toronto – the fifth largest in North America – will have to continue to work with its provincial counterparts to combat the ever-shrinking supply of rental units and aging buildings.
Alongside New York City, Toronto has a long and predictably controversial history with rent control. Despite having a relatively huge amount of breathing space compared to Manhattan, the city of Toronto continues to deal with the challenges of keeping its lower-income citizens in affordable housing while at the same time maintaining a vibrant market for rental housing.
Expect the debate to rage on.