The real reason Ontario’s rental market is broken? Lack of effective rent control.
Ontario’s rental market is broken. Vacancy rates have reached historic lows in 2022 for many Ontario cities, according to CMHC’s recently published annual Rental Market Report. A majority of cities saw vacancy rates drop dramatically to 1.9% or lower; the lowest rates have been since 2001. Average rents in major Ontario cities have risen anywhere from 5 to 12% compared to last year. That figure soars higher for condiminiums. To put it simply: we don’t have anywhere near enough rental housing supply and what is available is eye-wateringly expensive.
For the first time ever, the CMHC report shows the impact vacancy decontrol has on the rental market. Vacancy decontrol is a policy that allows landlords to charge any rent they want for a unit that is unoccupied, regardless of what the previous tenant paid. The report noted that the average rent across Canada for a two bedroom unit that turned over saw an 18.2% increase. When compared to units with existing tenants, however, the increase was only 2.8%.
How does rent control currently operate in Ontario?
Existing tenants in Ontario are protected by rent control; meaning the landlord can only increase their rent each year up to the limit set out by the province. It used to be that rent control applied to all units, even ones that were turning over. However, in the mid-1990s, the policy of vacancy decontrol was introduced. Rental prices have soared ever since. The CMHC report found that in 2022, vacancy decontrol sharply increased rents for two bedroom apartments that had turned over by 26% in Hamilton, 17% in Ottawa, and 29% in Toronto – compared to 1.2% for existing tenants.
Rent control also doesn’t apply to rental units that were first occupied on or after November 15th, 2018. For those unfortunate tenants, they have no protections at all. Their landlords can raise the rent by however much they want. And raise it they do – we’ve had tenants coming to us in crisis because their landlords have demanded increases of 20% or higher and they can’t afford to pay it.
Policy-makers justified vacancy decontrol and the 2018 loophole because they claimed it would increase supply. These changes also came at a time when governments largely stopped investing in co-ops and other forms of affordable housing. Thirty or so years later, we still don’t have enough supply. Ontario needs to build at least 10,000 new rental units each year to meet the demand of a growing population. However, we’ve seen an average of only 5,500 rental completions annually over the period from 1990 to 2020. That’s approximately half of what we need. After decades of these policies, there is no evidence to suggest vacancy decontrol increases supply at all.
The real cost of vacancy decontrol
What is clear, however, is that vacancy decontrol and the 2018 loophole are a total disaster for housing affordability. It has become so dire that even a major Canadian bank is calling for Canada to double its supply of subsidized housing, sharing that Canada has one of the lowest rates of subsidized affordable housing of all the OECD countries – a paltry 3.5% of housing stock.
What does this tell us, in practical terms? Instead of creating more supply, these policies have incentivized landlords to evict tenants from their homes so they can make more money off a new tenant. It also means even if we do build more supply, anything new entering the rental market is going to be unaffordable, because it’s exempt from having any rent control at all. Renters will be forced to cut back on other basic necessities (like food) just to stay housed. Evictions (both formal and informal) will continue unchecked. It means more renters will be at risk of homelessness.
It doesn’t have to be this way. The right policies can correct the mistakes of the past. Eliminate vacancy decontrol and close the 2018 exemption to new units. It’s time to bring back true affordability for Ontarians. It’s time for real rent control.
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