Rent controls for condos

By early 2017, housing prices in the Greater Toronto Area were rising to dizzying heights and rents, especially for downtown Toronto condos, were reaching levels that some renters could not afford.

In March of 2017, New Democrat MPP Peter Tabuns introduced a private members’ bill in Queens Park to close a “loophole” that exempts buildings constructed since 1991 from annual rent control guidelines. Tabuns’ bill would amend the Residential Tenancies Act. Private members’ bills are rarely passed.

However, two things have changed since I first wrote about rent controls.

Economic evictions
When their one or two-year leases came due, some Toronto renters, including those in condo apartment units, faced very large rent increases. They started hollering.

Tenants of at least two west-end condo units were given notice in March that their rents will double this year, in a move that critics said proves change is needed in Ontario’s rent control laws.

A woman received a letter from KSV Advisory, a company that restructures insolvent businesses, informing her that rent would increase from $1,650 to $3,300, starting July 1.

“It basically says I have two options, either to pay $3,300 a month for a one and a half bedroom that I live in ... or I have to move out July 1,” the tenant said.

These tenants were renting their units from Urbancorp residential developers.

In April 2016, Urbancorp announced it would be restructuring under the Bankruptcy and Insolvency Act. In a press release at the time, Urbancorp said KSV was its trustee. There are reports that residents of one other building where Urbancorp owns units have received rent increase letters.

What is happening above is that a bankruptcy trustee is using "economic evictions" (extremely high rent increases) to get two renters to move. I suspect that KSV wants the two units empty to they can sell them.

Premier Kathleen Wynne stated that the doubling of rent at these two condominium units was “unacceptable” and underscores the need for changes to Ontario’s rent control laws.

A second change is that in June 2018, the governing Liberals are up for re-election. The polls indicate that they may be decisively defeated. So the Wynne's government has a year to re-gain the voters' support.

In late March, the Toronto Star reported that Housing Minister Chris Ballard said it is “unacceptable” that some tenants are facing dramatic rent increases in a market where demand out paces supply.
“My staff are already developing a plan to address unfair rises in rental costs by delivering substantive rent control reform in Ontario as part of an ongoing review of the Residential Tenancies Act,”

What is the PC's position
So the Liberals are onside with the NDP in supporting new rent control laws. So what is the PC's position?

A City News report on 04 April states: "Progressive Conservative Leader Patrick Brown said he welcomes any measure to make housing more affordable, and hopes the government brings forward its proposal soon."

So Patrick Brown has also jumped on the rent control bandwagon.
Toronto politicians
Downtown Toronto councillors Josh Matlow and Ana Bail„o voiced support for expanded rent controls and Mayor Tory, who is also facing re-election in 2018 is in favour of something being done.

What do the economists think?
New rent-control rules are “the exact opposite” of what is needed to deal with housing affordability problems in Toronto, Canadian Imperial Bank of Commerce economist Benjamin Tal says.

In a new report Tuesday, Mr. Tal urges the Ontario government not to proceed with “alarming” plans to expand rent-control protections, saying the Greater Toronto Area needs a significant increase in rental units to help deal with the city’s housing crisis, especially among young families.

Mr. Tal said a University of Toronto study found the impacts of rent control in the province between 1975 and 1986 included:

a reduction in new construction,

accelerated deterioration of buildings,

conversion of rental properties into condos,

and a severe rental-housing shortage.

He also cited the example of New York, calling it an “economic text book” example of a rent-control system that has “achieved the near opposite of its goals.”


Rental property manager's opinion

They aren’t rent increases! (abridged)
06 April 2017

So why are so many of these rent increases happening now?

Negative cash flow
Almost every condo owner I know is putting money into their property on a monthly basis. $300-$400 per month and I even have one who is putting in $600 per month. Yes, their equity is going up but you don’t get to spend that money until you sell.

All these condos are not part of true “rental stock” they are temporary rental stock just waiting for the owner to cash out and get his money out. They’ve been paying into their investment for years and they may just be done. Don’t forget there are a lot of rent thieves out there and every landlord victim almost always sells.

Tenants don’t even know that their landlord is putting hundreds of $$$ per month towards their true housing cost and if they do they don’t care. Instead of being super nice to the people who put thousands per year towards their standard of living, they think that’s normal and even desirable because their landlord is “rich” Unfortunately the only way to crystalize those paper gains is to sell.

Selling a condo and eviction
I wrote an article about that how in Ontario if you want to sell your condo, you have to sell it with the tenant in it. If you have a tenant who doesn’t want to move or who is a jerk about showings or even exists on the actual law being followed (Which is that you have to deliver a written notice for every specific showing, and now you can’t take pictures) you’re screwed.

Also a lot of realtors don’t want to even take a listing with a tenant, lots of agents don’t bother with showing units with tenants, you can’t stage it to get maximum profit, and if the tenant is dirty, smokes, smokes weed and is generally an average person and not an OCD clean freak on a daily basis the owner is going to leave a bunch of money on the table when it comes to the sale.

The tenant has no skin in the game, chances are after the sale they get evicted so what’s in it for them to deal with tons of strangers traipsing through? Nothing good that’s what.

Bad tenants
Lets say you have bad tenants sometimes they pay rent, but late and maybe they smoke weed and party too much and leave pizza boxes in the garbage room and you get calls from the condo board.

Let’s say you have an entitled rude tenant who doesn’t cooperate with reasonable requests.

Using the above the guideline eviction
You just give them a $600 monthly rent increase, and they either pay or go. So most of these increases are not to get tenants to actually pay $600 per month more, they’re being evicted for some other reason. That’s all.

We’ve created a market where money is not made on rent, it’s made on capital appreciation, but forgot that tenants are going to have move and have unstable housing because the entire market is being subsidized on the back of mom and pop investors.

The answer to that is a clear path and incentives to purpose built rental housing.

The most dangerous thing we could do is put in rent controls because the solution is sustainable stable rental buildings. For that to happen, policy makers need to figure out the path to incentivize rental buildings. From the get go, condos were always stop gap measure designed to promote home ownership of a luxury product for people who didn’t want to shovel snow and wanted to be part of a community. As an investment? Terrible. As a rental? Terrible.


The Rental Fairness Act
In late May 2017, this Act passed third reading and was Proclaimed. Now all renters in Ontario are covered by rent controls.

What does this mean for condos?
I expect that:
It's possible rent-controls will have little effect on the condo rental market. Most tenants who rent condo apartments do so for only one or two years. The landlord can raise the rent every time a tenant vacates their unit.
The building of purpose-built rental buildings may slow. A few that are under construction may be converted into condos.
Some condo investors/landlords will start getting out of the rental business. Their units could be turned into short-term rental properties (Airbnb) or they will sell their units.
The prices of one bedroom condos in the GTA should drop. (This opinion is shared by a couple of readers who are experienced Realtors.)
Condo boards will face pressure from the investor/landlords to keep the maintenance fees low.

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