New Policies on the Housing Market and How Rent Controls May Affect Budgeting & Debt
Everyone should be aware by now of the huge increase in demand in Ontario’s (and particularly, Toronto’s) housing market over the years, and particularly in the past year.
Due to increased demand and a supply that apparently cannot keep up, average home costs in the Greater Toronto Area have jumped 33 percent in a year, along with average rent prices. The steadily rising market has led to perhaps a significant amount of speculative investment, foreign investment, and fears of a bursting bubble.
The cost of housing, whether in the form of rent or payments on a mortgage, tends to be the largest monthly expense for most of us. As such, substantial changes in the cost of housing are of great concerns to most Canadians. The Ontario government, concerned about the unaffordability of housing and unsustainability of current market trends, recently announced the introduction of new regulations to deal with these issues.
Proposals Relating to Rental Units and Rent Controls
Some of the proposed regulations surround rent control and incentives for the development of new rental units.
One of the proposed changes is to enact rent controls on rental units in buildings built after 1991. Currently, it is only leases in buildings constructed in 1991 or prior that are subject to rent controls, which cap yearly increases on monthly rent at a prescribed percentage. In 2017, that percentage is 1.5 percent. However, rental units in buildings constructed after 1991 are subject to no rent controls whatsoever.
The Ontario government is also seeking to make changes to the Residential Tenancies Act to enhance security for renters by creating more stringent provisions governing the reasons a landlord can validly evict a tenant.
In addition, the government is planning to introduce a 5-year rebate program to incentivize developers to go forth with new rental property developments. This proposal was likely made with a view that expanded rent controls will dissuade developers from proceeding with developments comprised of rental properties.
Lastly, the government has proposed to form committees to study and investigate existing barriers to the development of rental properties, and to regularly assess the state of the housing market.
Proposals Relating to Purchase and Sale of Property
While many of the proposed measures relate to rental units, many relate to the sale and purchase of property, and changes relating to property tax. Some of these measures indirectly affect renters and the supply of rental units as well.
For example, a 15-percent tax on buyers who are not citizens or permanent residents of Canada, or who are not Canadian corporation, has been proposed to curb speculative investment that does not contribute to the Canadian economy. In similar vein, an additional tax on properties that remain vacant has been proposed to help address low rental supply and curb speculative investment.
What Does This Mean for Renters?
Although the government’s proposed regulations and policies seem they are meant to help the average renter in Toronto or other major urban centres in Ontario, things are not as clear cut as they seem.
It is difficult to say whether the proposed 5-year rebate project will be sufficient to encourage adequate the development of an adequate supply of new rental buildings and units. If rent controls do in fact have a chilling effect on such developments, the rental supply may become even less.
Rental controls could make things worse for you if you are pushed out of your current home for whatever reason, whether because you move, or because your landlord ends the tenancy for a legally allowable reason. Although rent controls may prevent you from being pushed out of your current home for being unable to afford a rent increase, rent controls do nothing to prevent a landlord from setting rent at whatever amount they wish for a new lease agreement. If the supply of rental units reduces, monthly rents could soar higher in new tenancy agreements.
How to Budget in the Face of a Changing Housing Market and Related Regulations
Rent in Ontario, and especially in places like Toronto, is very high, particularly proportionate to wages. It is commonly suggested that no more than 1/3 of income should go to housing costs and many people spend substantially more than this.
High rent can make budgeting for other life expenses next to impossible. In places like Toronto, where a one-bedroom apartment can easily cost $1,500- $2,000 per month, even rent increases subject to rent controls can be difficult to adjust to, on a tight budget.
Given the uncertainty of the rental supply in Toronto and the efficacy of the proposed changes, it would be wise to think carefully before entering into a new lease agreement. Once you have figured out how much you can budget for housing, aim to find a place that is somewhat less than the maximum you are able to spend.
Think about what compromises you are willing to make to find a place with slightly lower monthly rents. Units in less central neighbourhoods and older buildings may offer comparable square footage to a newer or more central apartment/condo unit for substantially less - sometimes up to $200 or $300 less per month. Ask yourself whether you can make do with a somewhat smaller space, or without a balcony.
While it can be hard to part with certain luxuries, being faced with rent increases may make budgeting for the future difficult and stressful. You do not want to be stuck in a lease agreement that you later realize you cannot afford, especially when rental supply is so uncertain. You may find yourself forced to move into an even less desirable unit to get back to a rental rate you can afford, given that the new regulations do not limit rent rates for new leases.
Speak to a Licensed Insolvency Trustee at Harris & Partners Inc. for Debt Solutions in Toronto and other parts of Ontario
If high Ontario rents or unmanageable mortgages have put you in a difficult financial position where you have accumulated debt you are unable to manage, contact us. A Licensed Insolvency Trustee (formerly known as a Bankruptcy Trustee or Trustee in Bankruptcy) in Toronto can provide sound advice. We can help you eliminate debts that could lead to bankruptcy. Call 1-800-268-8093 today.