If you’re a landlord or tenant in Ontario, you may be a bit confused about the concept of rent control and whether it applies to your property.
The current laws around rent control in Ontario is actually pretty straightforward, but there is a long and confusing history of changes in the past 25 years. It tended to change based on which political party was in control, so that meant that we saw a fair bit of flip flopping on the application of rent control.
We wrote about the current set of rules around rent control before and you’re welcome to check out that article if you want a more detailed description of how it works.
In this article, we wanted to do a dive into the actual impact of rent control and point out some key points that may not be obvious at first glance. Here we go!
Yes, rent control exists in Ontario.
Despite headlines that may make you think otherwise, rent control exists in Ontario for some rental units.
If it does apply to a rental unit, then the maximum increase a landlord can apply is 2.5%. They are allowed to do this once every 12 months and need to give at least three months notice.
While the maximum increase is 2.5%, it can be less, and often is less, than this amount. Each year a rent increase guidelines is published that is calculated using the Ontario Consumer Price Index, a Statistics Canada tool that measures inflation and economic conditions over a year. Data from June to May is used to determine the guideline for the following year, so you’ll know before the start of a new calendar year what rate is permitted.
But it doesn’t apply to all rental units.
The confusion around rent control is due to the fact that some rental units have it and others don’t, so let’s do a quick recap of the rules.
Rent control (in the form of that maximum 2.5% increase in rental rate) applies to most private residential rental units covered by the Residential Tenancies Act, 2006. This applies to most tenants, such as those living in:
- rented houses, apartments, basement apartments and condos
- care homes
- mobile homes
- land lease communities
However, rent control does not apply to:
- new buildings, additions to existing buildings and most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018
- rental units upon turnover of a tenancy (the landlord and new tenant agree on the rent amount)
- community housing units
- long-term care homes
- commercial properties
When you talk about which rental units don’t have rent control, most people are pretty clear that a new rental is set at market rates and the landlord and tenant agree to an amount. It’s the first point above that really confuses the matter.
November 15th, 2018 is a very important date.
If you own or live in a rental unit that was built or occupied for the first time after November 15th, 2018, then there is no rent control.
Let’s say that again.
If it was built or occupied for residential use for the first time after November 15th, 2018, rent can be raised by any amount the landlord wants to charge.
This was put into effect by Premier of Ontario Doug Ford’s Conservative Government when they enacted legislation in 2018 making it the case. The rules prior to that were different, but since late 2018, this is how rent control in Ontario works.
If you are a tenant, it’s very important that you find out when the rental unit you’re considering was built or occupied for the first time. A condo building that is brand new has no rent control and if that worries you, finding one that is five to ten years old might be a better solution.
If you’re a landlord, then new construction has more appeal than existing units (assuming they were built before November 15th, 2018) for the same reason. Any buildings that were occupied after this crucial date have no rent control and once every 12 months, you can give notice that you’re raising the rent to whatever rate you want.
Just because they can, doesn’t mean they will.
If you are looking at the above from the perspective of a landlord who owns a newer property, you’re likely pretty pleased. If you are looking at from the perspective of a tenant, you might be a little alarmed.
In the absence of rent controls, it is true that landlords can raise the rent to whatever price they want. It is also true that tenants who feel the rent increase is unreasonable can choose to move out. Losing a great tenant can be expensive both in terms of vacancy while you search for a replacement tenant as well as in fees from a Realtor or other services to find the new tenant.
Where this information becomes very valuable is in situations where landlords have faced increased costs, such as property taxes, maintenance fees or utilities that have risen substantially. While there is some provision in the act to allow landlords to apply to the LTB for an increase above the guideline, it isn’t a simple process and many landlords don’t know how to do so.
By knowing that a rental unit is exempt from the rent control guidelines, landlords can instead simply choose an increased rent amount that is reflective of their current costs and the current market rates. In our experience with clients on both sides of this equation, tenants understand a reasonable rent increase if the landlord’s costs have gone up. They may not be happy about it, but if it is in keeping with what the current rental rates are in the local market, it is rare to lose a good tenant due to the increase.
Rules can change, particularly when governments change.
An important caveat when making a decision on where to live or what to buy based on rent control rules is that these rules can, and have, change over time. We have seen numerous changes over the years, most commonly when the governing party changed in the province.
Here’s a quick summary of some changes we’ve seen in Ontario around rent control.
- In 1985, the Liberal government tightened rent controls with the Residential Rent Regulation Act.
- In 1992 the New Democratic Party government passed the Rent Control Act 1992, which changed a few things.
- In 1998, the Progressive Conservative government enacted The Tenant Protection Act, which repealed the Rent Control Act.
- In 2006, the Liberal government repealed The Tenant Protection Act was repealed and replaced by the Residential Tenancies Act.
- In 2017, the Liberal government announced the Fair Housing Plan, which extended rent control to all private rental units, including ones built or first occupied on or after November 1, 1991.
- In 2018, the Conservative Government enacted legislation such that rent control only applies to rental units created and occupied prior to November 15, 2018. It does not apply to new buildings, additions to existing buildings and most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018.
History tells us that a change in government can result in a change in rules around rent control, so be cautious when basing a decision on the current rules if a change in governing party seems like it is coming soon.
What’s the dollar impact of rent control?
When we think about no rent control, we think about landlords raising the rent by huge amounts, doubling or tripling the price the tenant was paying. While there in theory could be situations like this, as we’ve discussed above, most of the time landlords use the ability to charge whatever they want to simply charge market rents.
In essence, landlords can raise the rent to whatever the market would bear rather than have a property generating less rental income and making the landlord wish the current tenant left. If they go too much above current market rent, they risk the tenant leaving and having to pay realtor commissions or have a period of vacancy, both of which cost the landlord money.
We went through an exercise to see how much of a dollar different rent control actually would have had in one specific example. We looked at a large condo building at 16 Yonge Street in Toronto, built before 2018, where rent control has been in place since the last rule change in 2018.
Back in August, 2018, the average rental rate for a one bedroom, one washroom unit was for $2,300. Five years later, in August, 2023, the average rental rate for a one bedroom, one washroom unit had risen to $2,575, which is $275 more per month.
We did the math on how much a landlord could have raised rent over the five year period above with rent control in place. The allowable increases ranged from 0.0% (in 2021 due to COVID) to 2.5% in 2023. If a landlord had raised the rent by the allowable amount every 12 months, the current rent would be $2,482 per month.
That’s less than $100 difference than the current market rent for the same type of unit. If the building had been built in late 2018, a landlord with the freedom to charge whatever rent the market would bear, would have just charged $93 more per month.
This is just one example, but we feel it shows how rent control is, in of itself, not necessarily a huge negative impact on landlords.
We work regularly with investors and landlords and it is through analysis such as we did for this article that we recommend focusing on the fundamentals. Find a good property, at a good price, that commands good rent and provides a good ROI. A focus on avoiding rent controlled units means missing opportunities.
If you’re considering buying an income property, get in touch with us so that we can make sure you make the best decision.
