“Rent control vs. housing supply” is the debate landlords and developers want us to have

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“Rent control vs. housing supply” is the debate landlords and developers want us to have

The key fact of today’s rental market is that the majority of renters cannot afford new-construction apartments.

 

Photo by Greg’s Southern Ontario/Torontoist Flickr pool.

Gentrification, taxation, the sheer horror of a small luxury-condo building displacing a few trees down the street from the tony manse you and your partner share as a CanLit power couple: housing in Toronto is a complex, divisive issue. If there’s one argument that everyone with any skin or interest in the debate can agree on, it’s that the city needs more housing, and especially more rental housing. We need to do something to get more rental units built in this city.

Even though the rental housing that does exist costs an exorbitant amount, measures to keep down costs for tenants don’t create the same broad consensus. Instead, rent control tends to make landlords and developers lose their collective heads and start wailing to every reporter and politician who will listen about the danger it poses not to their profit margins, but to the very fabric of society. The provincial government’s decision earlier this year to enact rent control on purpose-built rental buildings built after 1991, bringing them under the same regulation as older buildings, has resulted in the same predictable response.

Last week, the Globe and Mail and the Sun breathlessly reported on a study that claims since the government’s April announcement of rent control expansion, developers have changed their minds about building more than 1,000 rental units, instead deciding to build them as more profitable condos. The study, coincidentally, was commissioned by the Federation of Rental-Housing Providers of Ontario, which bills itself as “the voice of Ontario’s rental housing industry.”

In fact, the Sun’s headline goes further than the study appears to, claiming that 1,000 rental units will be “eliminated”—as opposed to not being built in the first place.

The suggestion is that rent control has destroyed the city’s rental market and must be abolished at once in order to preserve and expand the amount of rental housing available. Jonathan Gitlin, a senior vice-president at RioCan Real Estate Investment Trust, says the company decided to build 133 condos instead of apartments on King Street because of the change to rent control.

“The impact of the [rent-control] legislation will be to mute growth through limiting rental growth,” he wrote to the Globe.

The problem with this argument is that it is totally inaccurate, says David Hulchanski, University of Toronto professor and principal investigator with the Neighbourhood Change Research Partnership. The frustrating, condescending thing about it is that it’s been made for at least 30 years, even though it’s been wrong that whole time.

Hulchanski says the FRPO report is “a dishonest representation of the facts,” and points to a glaring absence in the report: what stage of construction the rental units were supposed to be at before they were apparently changed.

Essentially, Hulchanski says, “it’s just somebody saying something,” merely claiming there were rental units on the way that have now ceased to be so. The report cites “preliminary information” about four development projects in its claim that the city will see 1,000 fewer rental units.

The larger problem with the report and surrounding coverage, though, is that they feed into two narratives that long predate the current imbroglio over a tweak in rent control. The first is that rent control does cut down on rental construction, and the second is the near-total absence of affordability for renters from discussions of the housing market and how best (if at all, the implication goes) to regulate it. The two are not unrelated, as Hulchanski notes.

Speaking again of the report, Hulchanski says: “They omit the key fact [of today’s rental market], which is that the majority of renters cannot afford new-construction” apartments.

The problem is not rent control but market failure, he says: building housing in Toronto is quite expensive, whereas the people who currently need rental housing in the city can’t afford to pay much. It’s not profitable to build housing and provide it at a price those people can pay.

Meanwhile, the upscale rental market is a niche, but there are still plenty of people who fit into that niche; it’s a big city, after all. So developers build housing targeting the better-off segment of the population, who are either stuck in the rental market because of how expensive real estate is, or who have plenty of money but prefer to rent anyway. Thus the city’s stock of condos continues to increase, providing both ownership opportunities on the lower end of the market and rental housing on the higher end of that spectrum. And the masses of Toronto renters who are being squeezed out of their buildings, neighbourhoods, and cities by rising rents have little respite.

“The incomes of the majority of renters are just way too low for a supply and demand marketplace in purpose-built rental to function,” Hulchanski says. A “free market” approach to housing will not yield the creation of rental housing that most renters can afford. Without government intervention—in the form of subsidies to developers, or government itself building affordable housing, or a mix of both—there’s no way for it to be built.

Which is to say, yes, there is a shortage of rental housing construction. No, it is not because the government enacted rent control (which will have the effect of holding rents at the current astronomical prices, with allowed increases each year plus more if landlords apply for them). And no, there is no deregulatory fix that will suddenly entice developers to start building apartments, because the problem is not regulation: it’s that the demand exists for lower-priced housing, not housing at the current market rate. If nixing rent control had that effect then we wouldn’t be in the current rental housing crunch, because the Rae and Harris governments implemented the post-1991 loophole precisely in an effort to boost rental construction. The results shocked everyone: rental construction continued more or less as it had before, but rents skyrocketed. Developers kept building whatever they thought would make them the most money, and landlords raked cash in hand over fist in the form of both rental income and heightened property values.

And that is what is being challenged by bringing all purpose-built rental housing under the same rent-control rules: landlords’ ability to increase rent as much as they want.

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