Will scrapping rent control actually create more supply?

Newinhomes.com doesn’t really focus on rental developments, but I believe rental, resale, and new home markets influence and impact one another, so I feel it necessary to take some time to share my thoughts on the scrapping of rent control. 

The Liberal government introduced rent control, which applied to any rental units built after 1991, to ensure annual rent increases were no higher than the rate of inflation. This gave tenants a sense of security because they knew their rent wasn’t going to skyrocket at the end of their lease. It also meant owners couldn’t increase rent appropriately if costs surged unexpectedly.

In both the rental and new home market, the story is the same; supply can’t keep up with demand. The Progressive Conservative government announced they were getting rid of rent control during the fall economic statement in an effort to increase supply. 

The idea is, more builders will be interested in developing purpose-built rental if they have the freedom to increase rent as they see fit. So, if supply increases, affordability should improve. But, if rent increases are not regulated, then who’s to say affordability issues won’t persist? 

All current tenants are still protected by rent control; the change only applies to newly-built and newly-converted rental units. 

Some people don’t believe that getting rid of rent control will actually increase supply because it’s not necessarily proven that it dissuaded builders in the first place. According to a summer rental report from Urbanation, “New purpose-built rental construction surged in Q2, with 2,635 starts recorded during the quarter, raising the total inventory under construction to 11,073 units — the highest in at least 30 years.” That leads one to believe that rent control didn’t have an impact on supply. 

BUT, rent control was introduced in April 2017, so there’s a good chance the majority of these units were already approved for development or under construction before rent control came into effect. 

BUT (yes, there’s another but), Urbanation also said that the number of proposed purpose-built rental units in the GTA hit a record high of 39,750 across 128 projects in the third quarter of 2018. If builders feared rent control would have a negative influence on their profits, would there be a record number of proposed rental units? 

While a leading research and data firm is reporting record high construction and proposed rental units, the province of Ontario is scrapping rent control as a way to increase supply. It sounds fishy to me, but at the same time, there’s a chance that looking further down the line, as high ownership costs continues to push more potential buyers to the rental market, we will in fact need even more purpose-built rental communities across the province. 

And, Urbanation is reporting just on the GTA. Ontario is a big place, and there are likely places where rent control was preventing builders from developing purpose-built rental communities. It’s important to remember that while the GTA is the most dense area of the province with a population of 6.4 million, there are another 8+ million people living across the province who may need or not need rent control.

Which makes me think that something like rent control should maybe be controlled at a municipal level, but that’s another blog post.