Rent Control, Affordable Housing and Rental Supply in Toronto

Rent Control, Affordable Housing and Rental Supply in Toronto

Introduction

 Rent control, affordable housing and rental supply are closely related areas that are all topical since “average house prices in the Toronto region reached $916,567 in March 2017, up 33.2 percent from a year earlier” (Ministry of Municipal Affairs and Housing, 2017). In this paper, I will explore the legislative history and the policy as it stands now, problems that are restricting housing supply, how to increase housing supply and my recommendation on how Ontario can ease the stress on the market by looking at other housing alternatives.

Legislative History

 The concept of affordable housing has been around in one form or another in Ontario since the mid-twentieth century. In its earliest form, it was included in the National Housing Act (NHA) in 1944. The purpose of this act was to build on the Dominion Housing Act of 1935. The previous Act had pushed for government cooperation with lenders to facilitate mortgages to developers and home buyers. The NHA of 1944 expanded the scope of the previous bill by including a section that explained the need for more affordable housing options after the Economic Council of Canada had brought the issue forward in a long-term study of the housing supply, demand and quality of stock in the province. However, at the time affordable housing was viewed as a symbolic gesture as it would replace premium value housing stock at the expense of the developer so it would be limited to a few units to satisfy the government. NHA of 1944 was quickly repealed by pressure from large corporations.

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The Residential Tenancies Act of 1979 looked to “redress what was perceived to be an imbalance, in favour of landlords, in the landlord and tenant relationship” (Laskin, 1981). Subsequent legislation begun tightening rent controls even further in the Rent Control Act of 1992 which was repealed by the Tenant Protection Act (TPA) of 1997. This Act was significant as it created a new governing body called the Ontario Rental Housing Tribunal which would automatically approve tenant evictions unless they filed a dispute within five days of the application.

  The Residential Tenancies Act of 2006 repealed the TPA of 1997 and is the current governing law in Ontario. This act brought forward two significant changes, of which the first was the introduction of the Landlord and Tenant Board to replace the Ontario Rental Housing Tribunal. The second was an amendment in 2017 to include private residential housing built on or after November 1, 1991 to also be subject to rent control.

Problems

 The inherent problem is that the concept of high quality, affordable housing in an accessible and desirable location in itself is a paradox. The free market economy dictates housing prices based on a variety of factors including proximity to public transport, construction quality, size and distance to major CBDs among many others. Since these factors determine pricing of homes in a free market economy, housing that is close to public transport, is built well, is of a decent size, and is in a neighbourhood close to a CBD would be valued the highest, making it highly desirable and driving up the premium on such housing stock. According to Hyde (2018), cities like Toronto face “land value capture” which “encompasses a range of policies and planning practices such as inclusionary zoning, discretionary zoning, upzoning, density bonusing and density-for-benefit agreements” and what this means is that the state relaxes zoning regulation in exchange for a percentage of the developer’s increased profits which goes toward funding social benefits such as affordable housing. While this seems like a good solution, it is a very “tokenist” attitude to appease government and the profit maximization of projects. Realistically, the demographics of affordable housing would not coexist with those of a premium condominium tower on the same project without there being a significant impact on the value of the condominium units.

 On the other hand, there is a lot of low-grade housing stock which has also increased in market value and is now demanding higher rents because of the increased housing demand and low vacancy rates. While current tenants are only subject to a 1.8% annual rent increase based on Ontario Consumer Price Index (Rent Increase Guideline, 2018), landlords are permitted to further increase rents if they renovate or have a significant capital expense on the apartment. This would encourage owners to make renovations annually in a market where the rents keep increasing to take advantage of higher market rents.

Increasing Supply

 The province of Ontario has “made a commitment to reduce red tape and make it easier to live and do business” (Ministry of Municipal Affairs and Housing, 2017) by introducing a Housing Supply Action Plan. It describes the five areas that this plan focuses on Speed, Mix, Cost, Rent and Innovation. Each of these five barriers are critical to overcome the acute housing supply shortage in Ontario.

Speed refers to the long lead time between the planning of a housing project and when it enters the market. Developers often have to wait years to obtain the right permits to satisfy municipalities, provincial ministries, agencies, zoning permits and density approvals. Sometimes the lead time comes from the government side since authorities have to consider public interests, safety and the environment. Due diligence is extremely time consuming in some projects as the size and scope can be quite large.
 Mix refers to the regulatory restrictions that are prohibitive to get the right mix of real estate in areas of high demand. Building the wrong type of housing in areas that would benefit from high density near major transit lines and in close proximity to CBD’s. The housing also needs to be the appropriate size as families and seniors and in close proximity to schools and amenities. In order to do this, developers would have to build more “middle housing” which consists of mid-rise, stacked townhouses, townhouses and semi-detach units which can be for either sale or rent. (Appendix 1)

Costs are increasingly becoming a prohibitive factor for affordable housing projects as land values are increasing due to the scarcity of serviced land which is ready for development. Government imposed costs for infrastructure development to support the added density are also a major expense to developers. To reduce land costs, developers and the government would have to look at options outside core metropolitan areas in the GTA and look to extend light rail transportation to suburban areas with a focus on creating and servicing a large stock of “middle housing”.

The rental dynamic between tenants and landlords has also shifted since the Residential Tenancies Act of 2006. Landlords are facing tightly regulated rent increase policy and tenants are demanding stronger protection from “unlawful evictions and poorly maintained rental housing” (Ministry of Municipal Affairs and Housing, 2017). The Landlord Tenant Board is seeing a high volume of cases and is suffering from a highly increased wait time. The government should invest in hiring more judges and try automating some business processes to improve the efficiency of the LTB. Secondary units are difficult to bring to the rental market due to the building code and local bylaws. Easing up restrictions on secondary housing such as basements, by giving a tax benefit to homeowners on the property could be a plausible solution to encourage more people to upgrade their potential secondary units and add them to the rental market.

Lastly, the residential real estate industry in general is lacking any major innovations as citizens face the bleak trade-off between renting and buying, as both keep getting increasingly more unaffordable. New forms of homeownership such as laneway housing, housing cooperatives and rent-to-own model could be a potential option if regulated correctly. Laneway housing can be built in backyards of homes in areas where single family dwellings are situated on land that could handle more density (City of Toronto, 2018). Housing co-operatives should be funded by developers in exchange for approving high density proposals.

Conclusion

 Personally, I would recommend a two-pronged approach to the affordable housing shortage: legislative reform and funding alternative housing. Legislative reform that reduces the barrier to housing supply shortage by, firstly, easing restrictions on developers for affordable housing in prime real estate areas as they are already unwilling to cut profit margins. Rather, the province can work with them to effectively fund middle housing in suburban areas with the government carrying the burden to improve transit to these areas. Secondly, give tax rebates to homeowners who can add a secondary unit to the rental market to increase supply.

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 Furthermore, the government should explore and expand alternative housing options such as laneway housing by easing legislation to build such homes in backyards. A large number of homes have backyards that simply go unused while laneway housing could bring a secondary unit to market and will generate an income for existing home owners. Housing cooperatives should also receive a portion of funding received from “density-for-benefit” agreements between developers and the government.
 Demand for housing will be ever increasing as the government just announced that it plans to allow 1 million new immigrants into Canada over the next three years. Increases in housing supply would ease the burden of this new demand if all the five areas in the Ontario Fair Housing Plan are addressed appropriately. 

Bibliography

• City of Toronto. (2018, August 10). Changing Lanes: Overview. Retrieved from https://www.toronto.ca/city-government/planning-development/planning-studies-initiatives/changing-lanes-the-city-of-torontos-review-of-laneway-suites/overview/

On June 28, 2018, City Council adopted the Official Plan and Zoning By-law amendments permitting laneway suites in R zones under Zoning By-law 569-2013 in the Toronto and East York District.

• Hyde, Z. (2018). Giving back to get ahead: Altruism as a developer strategy of accumulation through affordable housing policy in Toronto and Vancouver. Geoforum. doi:10.1016/j.geoforum.2018.07.005

Abstract In recent years local governments in many North American cities have engaged in “land value capture,” which involves state actors exchanging greater density for condominium developers through rezoning as a way to build social housing and affordable rental units. This paper focuses on how these policies are framed and implemented by developers, planners and politicians in two large Canadian cities, Toronto and Vancouver, to address a long-standing but under-theorized question: what is the relationship between altruism and profitability for private development companies? Drawing on concepts from economic and cultural sociology, including Beckert’s fictional expectations, Goffman’s frame analysis, and Bourdieu’s forms of capital, I challenge existing accounts of developers as either following the logic of profit maximization, or “giving back” through charitable acts. Instead, I argue that land value capture policies involve the process of “giving back to get ahead;” through acts of gift-giving developers enhance their symbolic capital, or reputational prestige, leading to new opportunities for profit-making. Thus I show how meaning and symbolism accompany the pursuit of monetary gains and mystify “giving back” as a strategy of accumulation for the private sector. This research holds implications for understanding “condo-ization” as a form of urbanism, as well as the increasing privatization of affordable housing in North America.

• Increasing Housing Supply In Ontario. (2018, November 16). Retrieved from http://www.mah.gov.on.ca/Page20903.aspx

The Housing Supply Action Plan will support the government’s commitment to reduce red tape and make it easier to live and do business in Ontario. This source is from the Ministry of Municipal Affairs and Housing

• Laskin, B. (1981). Residential Tenancies Act, 1979. S.C.R. 714. Retrieved from https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/2515/index.do.
• Making Housing More Affordable. (2017, April 20). Retrieved from https://news.ontario.ca/opo/en/2017/04/making-housing-more-affordable.html

Ontario is taking action to make housing more affordable for homebuyers and renters by introducing the Fair Housing Plan. This set of 16 comprehensive measures would help more people find an affordable place to call home, while bringing stability to the real estate market and protecting the investment of homeowners.

• National Housing Act 1944. (1947). NH12-281. Retrieved from http://publications.gc.ca/collections/collection_2016/schl-cmhc/nh12-281/NH12-281-1947-1.pdf
• Rent Increase Guideline. (2018, December 6). Retrieved from https://www.ontario.ca/page/rent-increase-guideline

The guideline is the maximum a landlord can increase most tenants’ rent during a year without the approval of the Landlord and Tenant Board.

• Residential Tenancies Act, 2006. (2006). C. 17. Retrieved from https://www.ontario.ca/laws/statute/06r17

Appendix

Appendix 1

Source: Ontario Ministry of Municipal Affairs and Housing