The 165 Ontario Story
Last Update: 2023-10-23
As we saw on the Main Page landlords are using some very unsavoury tactics to drive up rents.
- Above Guideline Increases (AGIs) in rent are being abused to jack up rents for existing tenants.
- Landlords count on tenants to move out during renovations which releases their units to market value rents.
- Rental pushes near the end of renovations are used to bring in tenants at market value rents and catch them up in the AGIs that result.
- Market value rents on vacancies are constantly rising as landlords gentrify their units and demand ever more for them.
- Some landlords are using "Renoviction" as a tool to release occupied units to market value rents.
But it would be a serious mistake to think that the manipulation of Ontario's rents ends there. There is yet another layer to the current rent crisis. There are strong indications the overall market is being manipulated to maximize landlord profits; at tenant expense.
Changing the gameIt used to be that landlords played a "long game" of using their rental cash flow to maintain the property and pay the bills. Their profit was in the building not the rent. They could use equity from their building(s) to leverage new purchases or build more to increase their eventual profits even further.
It should be no surprise that working under this premise was very stable for both landlords and tenants. New construction was keeping up with demands and landlords were acquiring equity in their properties. Tenants enjoyed reasonable rents that allowed them a comfortable lifestyle.
But this all changed when, in 1993, the federal government allowed Real Estate Investment Trusts (REITs) to begin trading on Canadian stock markets. Overnight the game changed to a "short game" in which immediate profits had to be taken to satisfy investors and the demand for continual growth. Now the profit was in the rents, not the buildings and the pressure to manipulate the market and bypass rent controls began.
The final piece fell into place when, in 1997, the Harris Government brought in the Tenant Protection Act (TPA), taking rent controls off all buildings first occupied after November 1991 and from all units that become vacant. This allowed landlords to set rent prices wherever they wished. The practice continues to this day in the Residential Tenancies Act with the exemption date moved up to November of 2018.
This opens the door to a fully commodified and investor driven rental market.
Supply and demandArguments both for and against rent controls have been around for a long time. Interestingly, both sides of the debate appear to rely upon a rather naive version of the Free Market concepts. They would have us believe that when there is an excess of demand new sources will magically come along and bolster the supply so that competition will balance the market, in turn keeping prices reasonable and customers happy. Unfortunately what happens in the real world is entirely different. These unregulated spaces pose a rather magnetic attraction for abuse.
Landlords have long argued that if rent controls were lifted they would build new buildings to meet the demand and the resulting competition would level prices. But, to all appearances, the exact opposite is what happened when the Harris government brought in the TPA, exempting many buildings from rent controls.
A 2006 Report from Toronto's City Planning department bears a graph that shows how new rental properties construction (shown in blue) started to taper off after the 1993 decision to allow REITs to trade on Canada's stock markets, but really hit bottom right after the TPA took effect,. It has not significantly recovered since.
I figure that with the growing commodification of the rental market and the relaxing of rent controls, it took most landlords about 3 heartbeats out of their day to figure out they wouldn't actually need to build anything new to increase their portfolio values. Now, they could just raise the rent and carry on.
This was the beginning of the current rental crisis in Ontario. No new construction coupled with population increases meant that a housing shortage was inevitable. Soon there would be more tenants than units.
The golden eggAs I write this, there simply aren't enough rental units available to house everyone. For today's investor driven landlords this is the goose that lays golden eggs.
They actually have tenants competing against one and other for a roof over their heads. There have been bidding wars with tenants bidding against tenants, driving up their own rents. They don't even have to care if tenants move out or end up homeless; there will always be another tenant to replace the one they lost.
In their newer buildings they can increase their rents and carry on. In their rent controlled buildings, they simply rent to new tenants at much higher prices which soon catches up to their uncontrolled buildings and AGI Playbooks can be used to increase rents beyond rent controls for long term tenants.
Since most landlords in Ontario are now playing these games, tenants have a simple choice: They can either pay the exorbitant rent or live under a bridge.
Do we really expect landlords to build new buildings with the huge capital expenditures and red tape involved, when they can make more money from maintaining a shortage of units and profiteering from their own tenants?
Face it: They're not going to shoot the goose. This won't end without government intervention.
Ending the gameThis game of ever increasing profits, using an artificially created shortage of rental units coupled with fast rising rents might be making landlords record profits but, lets be real, it is despicable for what it does to tenants and the effect it has on society and local economies.
The oft touted "Market" that determines fair rents does not actually exist. It is not the government, the market or rising costs deciding these ever-increasing rents. It is the landlords themselves, deregulated and entitled by unchecked greed, raising rents every chance they get.
I don't have all the answers, but the final fix for this will almost certainly come from taking the profit out of so brazenly manipulating the market. To do this the government needs to intercede, shutting down what can only be seen as one of the biggest scams in Ontario history...
- Vacant apartments need to be returned to rent controls.
- The current 2018 exemption date on rent controls needs to be abolished, placing all apartments under rent control.
- The Residential Tenancies Act needs to be updated, eliminating the loopholes allowing Bogus AGIs.
- Landlords filing contrived AGIs should be deemed vexatious litigants and monitored on future applications.
These market games have to end and fairness needs to be restored.