Effects of The New Rent Control Policy

Whether you’re thinking of becoming a Landlord, or a Tenant, you’re going to want to know the implications of Ontario’s new Rent Control policy. As part of the Ontario Fair Housing Plan, rent control was implemented in April 2017. The government took this action in an attempt to protect tenants by controlling the maximum allowable rent increase by any Landlord in Ontario over a 12-month period, set annually, but capped at a maximum increase of 2.5%.

In a poll of 464 economists, 93% believe this ceiling on rents actually REDUCES the quantity and quality of rental units available. Landlords will offer smaller units to encourage higher turnover (as market rent can only be charged once a unit is rented to a new tenant.) Therefore, builders and developers will design smaller units to sell to investors, and overall the housing availability will be smaller units. Initial rent prices will be higher to make up for the lower year over year increase. Tenants will stay longer to benefit from the capped rent increase and Landlords will not be able to improve units because of the low returns, therefore housing quality will decrease. Landlords also won’t care to retain tenants as they will have many other tenants looking to rent units that became available, at a higher rent than the current occupant. Lower annual returns will turn off investors from becoming landlords, decreasing the supply of rental units. The lack of inventory will further increase rental prices for new tenants due to a shortage of options making the rental market more competitive and making it more difficult for tenants to secure rental housing.

Sources:

Government of Ontario

Ben Myers, The Market Manuscript Fall 2017

Nicole Gelinus, The Manhattin Institute Prager University