Ontario Fair Housing Plan In Effect : Toronto Rental Supply

As speculated last month, the Ontario Fair Housing Plan Legislation has had some unintended effects in Toronto and Ontario more broadly. This plan introduced by Kathleen Wynne’s Liberals this year were meant to cool Toronto’s housing market and create more affordable housing for Ontario rentals.

With the increase in the interest rates, new mortgage regulations and caution from lenders and regulatory boards: the housing market has priced out many new buyers. While, the plan was meant to penalize foreign nationals and non-residents from parking their money in Toronto and the GTA in real estate, they have served to make it more difficult for residents to purchase.

As you know, condo prices in Toronto are at record highs. With already exorbitantly high taxes and stipulations on mortgages, demographics that once were entering the property ladder.

Toronto Rental Supply Is Hurting

When it comes to average earners who cannot now enter the housing market in an ownership capacity, there becomes a strain on the rental market. Now, you have more expensive rentals with more competitors in a market where developments cannot appear quickly enough.

The legislative solution to this? Impose rent control. The the rental fairness act, 2017 targets rent increases. In turn, the very few new rental buildings scheduled in Toronto are already beginning to convert their rentals to condos.

Why is this?

The answer is simple. Let’s take a look at RioCan’s recent announcement that they will convert scheduled rental apartments in Toronto into condos. They cite this new legislation directly in the rationale of the conversion.

The fact is, that builders are running a business. While the government can offer incentives to builders to create rental housing and subsidies, many buildings in progress right now have the opportunity to just make money immediately. When you have building OWNERS, not tenants, they often cover their own maintenance and have a vested interest in upkeeping a building.

So this benefit has many facets.

1. You don’t have to wait for several years of rent to recover your building cost and investment. The builder gets their initial investment back often, right away when they sell a condo, but it could take decades to make that same amount on a rental.
2. Rent caps make the builder absorb the cost of maintenance or expenses that they typically would not in a condo. This slows down the return on investment for the builder two-fold.
3. Condo buyers become partial owners of the building and have a vested interest in the building. When you have, tenants who haven’t covered the building cost, might not cover the maintenance and have no interest in building upkeep, you have no actual benefits for builders.

What Needs To Be Added To The Ontario Fair Housing Plan?

So, what’s the solution here? It seems as though, RioCan made the obvious decision. However, this Ontario fair housing plan actually covers building subsidies. There is nothing yet put in place to compensate or incentivise builders.

They were quick to implement taxes and penalties and regulations on builders but didn’t consider that these private interests wouldn’t act like businesses. The legislation is all with the right intentions, but the point is: why would large companies bother losing money for the public good?

The answer is obviously, they wouldn’t and they haven’t. So, in this case, the Ontario Liberals ought to have actually considered and read case studies of this kind of regulation to know that this would not actually serve it’s purpose.

If they do not form a solution quickly, rental units will become increasingly scarce. As mentioned earlier, the rental market are full of higher earning players that have been priced out of the housing market even more because of other regulations in Ontario.

In one of my earlier blogs, I actually predicted that this outcome was imminent. Anyone who has been working in real estate as long as me probably would have told you the same thing. In terms of government meddling, the Ontario fair housing plan is among some of the most half-baked legislation in the last few years.

It is not ALL bad though. I genuinely believe that Ontario’s Liberal Party wanted to help those who are suffering the most in this province find affordable rentals and housing. BUT they have executed it incorrectly. Some things that need to be focused on, that have been put on the back burner can be summarized quite simply.

Good Intentions Aren’t Enough To Fix The New Housing Rules In Ontario

It is not ALL bad though. I genuinely believe that Ontario’s Liberal Party wanted to help those who are suffering the most in this province find affordable rentals and housing. BUT they have executed it incorrectly. Some things that need to be focused on, that have been put on the back burner can be summarized quite simply.

To begin, they need to start building Ontario housing for affordable rentals within the city. That’s first and foremost. Things such as:

• Public housing buildings
• Buying portions of existing buildings for affordable rentals
• Designating certain development funds towards helping those in need to make deposits

Second, they need to start planning incentives for private builders to develop rentals.

• Tax breaks for builders making affordable rentals
• Compensation for rental caps
• Partial compensation for the building costs

I think, if Ontario stops trying to fight a good chunk of the public and companies that are involved in real estate, they could have a more effective program. By working WITH builders, they might find that people are just fine with helping those in need when they are not actively being hurt directly by legislation. Ontario needs to work on affordable housing.

That said, we will see how this unfolds. Perhaps Ontario’s Liberals will start taking these considerations seriously and address the needs of the private interests being affected. They have to act towards the greater good of those who need us in Ontario. The Ontario fair housing plan was built, I think, with the right intentions and now they need to fix the praxis.