RENT CONTROL = HIGHER RENTS
Ontario has done yet another somersault on rent control regulations. Premier Doug Ford’s government recently reversed the stringent rent control regulations that were enforced last year by the Liberals. Under the revised regulations, new or previously unoccupied rental units will no longer be subject to rent control.
Existing tenants in purpose-built or private rentals will continue to be protected. The change in regulation applies to newly built or previously unrented units in existing buildings types.
"Regulation will restrict supply hence rents will move up."
Since the Liberal government instituted stringent regulations in April, 2017, which included price controls, rental vacancy rates have barely budged from levels of less than 2 per cent and rents have continued to rise. Evidence has mounted that such demand-side measures were ineffective.
Supply-side solutions, i.e., building more purpose-built rental units to ease the pressure, require incentives and rent control does not qualify as one.
The debate about rent control is far from over. Geordie Dent of the Federation of Metro Tenant’s Association and Andrea Horwath, leader of the provincial NDP, say that removing rent control in 1997 did not encourage new purpose-built rental construction in Ontario.
But the data suggest otherwise. Rental starts in Ontario were in free-fall from a high of more than 5,000 units in the third quarter of 1991, to fewer than a hundred units in the first quarter of 1997.
Rental starts in Ontario started to rise in 1999 and grew steadily until 2004, averaging around 1,000 starts each quarter. For the next ten years, that number was relatively constant, while construction of condominium buildings accelerated in urban Ontario.
Many new condominiums were made available to the rental market, thus growing the overall supply of rental units in purpose-built and private buildings.
Purpose-built rental starts in Ontario started to increase again, beginning in 2014, and reaching a high of 2,582 units in the first quarter of 2018. The question to ask is would the rental starts have reached these numbers, modest as they may be, had rent control regulations remained in place since the late nineties.
Voters in California have struggled with similar questions. For decades, housing prices and rents in urban areas have risen at rates that far outpaced the appreciation in average incomes. The desirability of the place for its natural endowments and as the hub of innovation in the United States has meant that the demand for all types of housing outpaced the supply.
Kenneth Rosen, a renowned urban economics professor with UC Berkeley, argued that rent controls shrink the supply of new rental units, expedite structural deterioration of rent-controlled units, and encourage landlords to switch rental buildings to other residential or commercial uses.
An overwhelming majority of economists agree with Rosen, that rental housing affordability will improve with an increase in the supply of rental units and not necessarily because of rent controls.
The debate about rent control efficacy in Canada can certainly use some hard empirical evidence. Some important questions demand answers. Is it indeed true that eliminating rent controls does not increase the supply of rental units? Do rents grow slower in rent-controlled markets in Canada?
The available evidence can be stretched to support the arguments for and against rent control. Data-driven evidence for tight rental markets in urban Canada could help devise public policy and encourage private investment to improve the supply and affordability of rental housing.
According to a Nanos survey for The Globe and Mail, more than half of Canadians think the economy will worsen or somewhat worsen over the next year.
Pollster Nik Nanos said the state of the economy will influence the tone of the political debate heading into the fall 2019 federal election.
“This should be a cautionary signal in terms of a lack of confidence for the future strength of the economy and politicians should take note, because usually economic issues are a key driver of voter behaviour,” he said.
In a recent year-end speech, Bank of Canada Governor Stephen Poloz said the Canadian economy has been operating near its capacity for more than a year, unemployment is at its lowest in decades and inflation is on target. Yet there is growing concern that the global economy is poised for a slowdown, which would affect Canada.or significantly more than older rental apartments."
Mr. Poloz told a Toronto business audience on Dec. 6 that the bank’s forecasts call for a “moderation” of economic growth in the fiscal year that starts April 1. But this would only bring us to a sustainable growth track and would not be cause for concern,” he said.
The Nanos poll suggests Canadians largely agree with that assessment. When asked whether they expect the Canadian economy will improve, somewhat improve, somewhat worsen or worsen, only 17 per cent selected the most pessimistic option. Another 38 per cent said they expect the economy to somewhat worsen, while 30 per cent said it will somewhat improve and 5 per cent said it will improve. Ten per cent said they were unsure.
However, the update also accounted for billions in spending announced since the February budget, as well as $9.5-billion for “non-announced” measures that will be revealed later.
As a result, the deficit is projected to be $19.6-billion in 2019-20 with no timeline for returning to balance. In the days following the update, Conservative Leader Andrew Scheer repeatedly asked Prime Minister Justin Trudeau in the House of Commons to set a date for erasing the deficit, but Mr. Trudeau did not. The Liberal Party promised in the 2015 election to run short-term deficits and balance the books by 2019. A government website currently describes the status of that promise as: “Actions taken, progress made, facing challenges.” A Dec. 11 report by the Parliamentary Budget Officer took issue with that claim.
“This is a mischaracterization given the remote possibility of achieving balance in that year,” the PBO report stated.
The Nanos survey also asked respondents to choose whether they would prefer that any new revenues in the 2019 budget be used to pay down the deficit or lower corporate taxes. Paying down the deficit was chosen by 85 per cent of respondents, while 10 per cent chose lower corporate taxes.
“I think for many Canadians, although they generally support periodic deficits, it’s not necessarily a carte blanche to have deficits over and over and over again,” Mr. Nanos said.
Bank of Canada
The Bank of Canada on January 9, 2019 maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent. The global economic expansion continues to moderate, with growth forecast to slow to 3.4 per cent in 2019 from 3.7 per cent in 2018. In particular, growth in the United States remains solid but is expected to slow to a more sustainable pace through 2019. However, there are increasing signs that the US-China trade conflict is weighing on global demand and commodity prices.
Core inflation measures remain clustered close to 2 per cent. As expected, CPI inflation eased to 1.7% in November, due to lower gasoline prices. CPI inflation is projected to edge further down and be below 2 per cent through much of 2019, owing mainly to lower gasoline prices. On the other hand, the lower level of the Canadian dollar will exert some upward pressure on inflation. As these transitory effects unwind and excess capacity is absorbed, inflation will return to around the 2 per cent target by late 2019.
RECENT SALES GTA
11 Anglesey Boulevard – Toronto – SOLD $9,438,000 / $239,690 per suite / 2.75% Cap Rate
This property is located in high demand Kingsway and was listed for sale on MLS. The building dated from the 1950’s and had a total of 39 suites with very lows rents. The seller had owned the property for more than 30 years. The building sat on ½ an acre of land and had multiple offers. The buyer was a private investor.
227 Vaughan Road – York – SOLD $6,175,000 / $257,300 per suite / 2.19% Cap Rate
This property comprised of 24 smaller one bedroom suites near St. Clair and Bathurst. The seller had owned this building for over 40 years and had been trying to sell this for years. It was listed on MLS at a very high price and took over 18 months to sell. This was a wood frame building with low rents, poor management and lots of upside. It was purchased by Akelius Canada Ltd.
262 Jarvis Street – Toronto – SOLD $16,000,000 / $225,350 per suite / 3.25% Cap Rate
This is a 6 storey 71 suite rental apartment building in downtown being all small bachelor suites. The building dated from the 1920’s and is surrounded by much higher residential properties. The ¼ of a acre site had on parking, one elevator and was heat via a gas fired hot water radiant system. The property was purchased by Plazacorp for a hold and future development.
1-9 Glen Road / 24 Howard Street – Toronto – SOLD $8,016,000 / $286,2185 per suite / NA Cap Rate
These three properties adjoin each other and were purchased together (28 suites) for a total of 0.47 acres in the downtown core of Toronto. The seller was a developer Lanterra Developments and the purchaser was an apartment owner and developer Nathan Bleema with Medallion Corporation.
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