Why the Latest Change to Rental Controls May Have the Opposite Effect

The Wynne government recently introduced legislation called the Ontario Fair Housing Act to try to control house price increases and rental price increases in the Greater Golden Horseshoe area.

Part of the act is to cap rental increases to 2.5% per year. So a landlord will be able to raise the rent of an existing tenant by no more than 2.5% per year.

Ontario had rent controls before this but they only applied to properties built before 1991. So technically, a landlord could raise the rent by whatever he wanted to in properties built after 1991. In reality this did not happen very often if at all. For the most part’ landlords who I work with would use the rent control guidelines for rent increases even if their property was built after 1991. In fact, to encourage tenants to stay, many landlords would not increase the rent at all. This was especially the case with good tenants, those who took care of the home and always paid their rent on time. Experienced landlords will tell you a good tenant is like gold – they take care of your house and pay your mortgage – what more could you ask for!

Unfortunately, a few unscrupulous, greedy landlords increased rents by exorbitant amounts and the media got wind of it. Once the media published the stories the failing Liberal government of Kathleen Wynne, with a dismal approval rating of just 12%, decided this would be a way to garner some voter support. So the rental price cap is now part of legislation.

So, why do I think the new legislation will actually increase rental rates then decrease? As mentioned above, most reasonable landlords would use the rent controls guidelines for rent increases if they increased rent at all. For the past 4 years the guideline was 1.5%, 2.0%, 1.6% and 0.8% (an average of 1.48%). Now, with the allowable cap of 2.5% and all the media attention it has received, I would bet that many landlords will use this is their new benchmark. So instead of no increase or an increase averaging just 1.48% over the past 4 years, tenants will see an increase of 2.5%!

Yet another example of government intervention which will probably have unintended results.