If the province made more sense of its rent rules, we’d see more rental housing built
By Mike Chopowick, October 28, 2015
At over 350 pages, Ontario’s Residential Tenancies Act and its regulations is the most complicated landlord-tenant law in North America. Within this law are an excessively complicated set of rules on price regulation that would have made the Byzantine Empire proud.
Apart from a vague notion that we have rent control, few would come close to guessing how price regulation works in Ontario’s rental housing market. For most goods and services in Ontario, vendors sell or rent items based on the price people are willing to pay. It’s called a “free market”. For the rest of this article, you can forget those two words.
The Basics of Ontario Rent Control
Since 1975, Ontario has had various forms of rent control. That’s easy enough to understand: Landlords can only increase the rent by a certain amount each year. The amount of the allowable increase changes each year. It depends on the inflation rate, so landlords have to carefully watch the prices of food, footwear, books, and cars to get an idea of what next year’s rent control limit will be (FRPO helps by providing some predictions, some of them accurate).
Just what do you mean by “Inflation”?
And, oh, by inflation, the government doesn’t just mean any old inflation number. You might think that inflation means the annual increase in the Consumer Price Index. Not quite.
Ontario’s rent guideline is set using the annual increase in inflation for each month from June to May. Then each of those increases is added to together and divided by 12. In 2014 the rent guideline was +0.8%. In 2015 it’s +1.6%. For 2016 it should sit nicely between 0% and +2.5%. But it all depends on what oil prices in Alberta do. So we’ll see.
There’s also a limit on the limit
And, the rent guideline limit can’t be any higher than 2.5%, regardless of what inflation says. This was done to ensure that when landlords face rising taxes, repair costs, maintenance, wages, and utilities that go up 4% or 5%, the rent increase will still be limited to 2.5%. The result of this will be that landlords will have to pay higher for fixed costs, but can always cut things like property management, suite upgrades and customer & leasing services. This probably is not a good thing for tenants. Maybe someday the government will change its mind about the 2.5% cap on rent increases.
What about “Above Guideline Increases”?
But wait, you say, “I know a thing or two about Ontario’s Residential Tenancies Act, and landlords can apply to increase the rent above the guideline limit!”. True enough, so let’s see how above guideline increases (AGI’s) work.
If a landlord invests in repairing a building, say to replace old balconies, roofs or elevators, they can apply to a tribunal to get a slightly bigger increase to help pay for some of these costs. Currently it’s hard to pay $10 million for new concrete balconies when the price of rent only goes up by 1.6%.
The Disappearing Rent Increase
There are a few catches to be aware of. The limit for an above guideline increase is only 3% per year. Not a lot. And these can only be applied for up to 3 years. And investments in anything considered “cosmetic” don’t count, so above guideline increases can’t really be used for things like a nice new lobby, green landscaping or a new coat of paint.
And I almost forgot to mention: Those 3% above guideline increases have to be reduced after a certain number of years. So, after 10, 12, or 15 years (it all depends on the type of repair the landlord did) the tenants will see their rents go back down by 3%, or whatever the tribunal allowed.
Wait, there’s more…
So far, Ontario’s rent control rules seem pretty cut and dry to you, I’m sure. We didn’t get into some other rules:
- Rent increases can only be once per year, with 90 days notice, on an approved form.
- Rents can be increased more if a new service is provided, if the tenants agree.
- Rents must be decreased if a service is withdrawn (no landlord agreement required here!).
- Rents go down automatically if property taxes go down. But only if it’s more than 1.49%.
- Landlords can apply for extra rent increases if hydro or water bills go up. But only if they go up more than 50% higher than the guideline.
- Landlords can offer discounts on the rent. To make sure landlords can’t give too much of a break, the government also has some rules about discounts, for example, limiting them to up to only 3 months free rent, or only up to 2% for paying rent on time. And landlords can’t just offer rent discounts willy-nilly. For example, a landlord can only offer 1 month free rent over 1st 8 months, or 2 months rent over first 7 and last 5 months. Why? The Residential Tenancies Act says so.
Some rental homes are exempt from rent control. But only those that were not occupied for any purpose before June 17, 1998. Or had no part of which was previously rented before July 29, 1975. Or if no part of the building was occupied for residential purposes before November 1, 1991. Needless to say, very few apartments in Ontario fit this exemption criteria.
Since rent control was introduced in 1975, Ontario has seen fewer rental apartments built. Over that time, the law around rent control has become more complicated and provides less incentive to invest in rental housing. Maybe if we want to see more affordable rental housing built, it might make sense for the province to make more sense of its rent rules.