Ontario Moves To Cap Rent Increases!!!

[qdsouza]

December 6, 2011 1:00 PM

McGuinty Government Proposes To Stabilize Rent Increase Guideline To Protect Tenants


Legislation to be introduced today would, if passed, ensure that the annual Rent Increase
Guideline is capped at 2.5 per cent to protect
tenants and families.





The
proposed changes would also ensure that the annual Rent Increase Guideline
never falls below one per cent.


Tenants would
benefit from greater certainty that would ensure affordable and stable rents so
they have safe and affordable housing. For landlords, this would ensure a fair
return so they can properly maintain rental properties.


The guideline would continue to be based on the Ontario
Consumer Price Index. If passed, the new guideline formula would take effect starting
in 2013.


Ontario continues to build new affordable
housing and repair existing units for families with housing needs. The
province's investments in affordable housing have created thousands of jobs and
resulted in the construction and repair of 270,000 housing units and the
provision of 35,000 rent supplements for Ontario
families on fixed incomes.








QUICK FACTS

• The Rent Increase Guideline is the maximum amount that most
  landlords can increase a tenant's rent during the year without making an
  application to the Landlord and Tenant Board.
• One million tenant households in Ontario are covered by the annual Rent Increase Guideline.
• The average annual Rent Increase Guideline from 2004 to 2011 was
  1.89 per cent. The average annual Rent Increase Guideline from 1993 to
  2003 was 3.17 per cent.
• Ontario's annual Rent Increase Guideline is based on the Ontario
  Consumer Price Index (CPI), which is a measure of inflation compiled
  monthly by Statistics Canada.
  
  
  
  
  
  LEARN MORE
  
  
  
  
  
  • 
    Read more about the Rent Increase Guideline
    Find out about Ontario's Long-Term Affordable Housing Strategy
  
  
  
  
  CONTACTS

• 
  
  Kelly Baker
  
  Minister's Office
  
  416-585-6842
  Sonya Rolfe
  
  Housing Policy Branch
  
  416-585-7398

Ministry of Municipal Affairs and Housing

ontario.ca/municipal

 

[flyingsquirrel]

So the landlord can increase the rent by 2.5 % regardless?

How about the condo that built after 1994? Is it covered by the guideline?

 

[invst4profit]

No. The annual rent increase will still be based on the annual cost of living increase but will have a cap at 2.5. In other words if the cost of living should climb above that level landlords will be punished by restricting there ability operate as a normal business. This further restricts there right to maintain a reasonable profit margin. Properties built after 94 are not effected.



One more reason not to invest in Ontario.

 

[Thomas Beyer]

Contrary to this socialist propaganda of the government providing stable rents and creating jobs, the opposite is actually true. Private landlords, by the ten's of thousands opt to not invest in upgrades of existing facilities in a rent controlled province like BC or ON. Rent control suppresses supply of renovated yet affordable housing provided by the private sector. In addition, single older folks ( after a divorce or death of a spouse) often occupy a unit that is far too big because it is rent controlled and as such this unit is now not available at market rents for families. A 2.5% increase is well below inflation and a disincentive to invest in ON. A few more years like that, and Ontario's finances look like Greece.

 

[flyingsquirrel]

It is not just the rent control, but also everything else that is against landlord in ON. For example, basement apartment, difficult to evict, all the protection of the tenants against landlord.

It really sucks to be a landlord in ON.

This almost feels like how the union stop the society from progressing.

 

[Thomas Beyer]

Indeed, unions and rent control are helping those INSIDE, ie the current renters and the current unionized employees .. BUT: at the expense of those on the outside, namely people looking to rent or people looking to get a job.



Example: an incompetent unionized teacher can't be fired or even demoted and is collecting high wages and benefits, and young recently graduated teachers are unemployed. Ditto with rent control: the low supply of decently renovated older apartments keeps rents higher for apartment dwelling seekers. Instead of a win-win with more investment unions and rent control create a win-lose situation, where one side wins at the expense of another.




Thus, if you buy an apartment building in Ontario or BC, it will take a long time to raise rents, usually only on turnover, and as such it is critical to look at "as is" rents and pay accordingly. Also, as stated, it is very hard to evict people who are skipping rents or frequently paying late. Thus, vacancies/non-collections are higher and eviction process more expensive than they are in other more landlord friendly provinces like AB or SK. Therefore, CAP rates tend to be higher in ON than in AB or SK where rent imbalances can be corrected fairly fast.

 

[richardkp]

I own properties in Hamilton and also here in Halifax, NS. With all the restrictions on ON we are looking more at Nova Scotia as we not only have the ship building contract to bring people here for jobs but we also have no rent controls!!

We have a free market for increases in that if you increase too much you get no tenants!!



Correct zoning and by-law's are still in force but at least it is an easier process to apply for variation and get that basement suite.

 

[Nir]

Hi long term investors in ON et al, what % of your tenants are long term 10 years or more? my estimate is 10% max on average. Plus the purchase price you pay is adjusted to reflect that 1 or 2 long term tenants because Plexes/apt bldg are valued based on the rent so you pay less! In other words within like 5 years you are able to adjust rents to market rents for 95% of your units. So if you're into the long term hold what's the big issue here you ARE able to adjust rents to market upon move outs like in Alberta just less frequently! I see numerous discussions on this but simple math teaches it is not a big issue at all for long term investors. To summarize, people die, move, get divorced etc. Regarding the small portion of 'strong' tenants that survive 10 years with us, just remember you paid less for their unit. Also, they are/were probably pretty good tenants and a bit less headaches in our business doesn't harm either. Never saw this as a big issue. Sincerely, Nir

 

[flyingsquirrel]

I am targeting families as tenant. They usually stay 4-5 years, which is good because they tend to be more responsible and have stable income for rent. I would also like to keep them because I do not worry about finding tenants all the time. However, if I can only increase the rent for 0.79% a year. A $1500 rent will become $1511.85 max. So what does that give me? If I want $1600 for rent for instant, I need to either wait 10 years to increase $12 a year or I kick out my good tenant and risk my income and find another tenant.



Also think about this. I am using Rogers for my wireless now.

I only have 150 minutes air time before they are going to charge me extra.

My friend is using wind and he has unlimited airtime.

We are paying around the same amount of money every month. The quality of wind is slightly inferior to that of Rogers. However, I need to keep checking in my account everyday to make sure I do not over use my airtime. Does that mean somthing to you?

 

[invst4profit]

[quote user=Nir]Hi long term investors in ON et al, what % of your tenants are long term 10 years or more? my estimate is 10% max on average. Plus the purchase price you pay is adjusted to reflect that 1 or 2 long term tenants because Plexes/apt bldg are valued based on the rent so you pay less! In other words within like 5 years you are able to adjust rents to market rents for 95% of your units. So if you're into the long term hold what's the big issue here you ARE able to adjust rents to market upon move outs like in Alberta just less frequently! I see numerous discussions on this but simple math teaches it is not a big issue at all for long term investors. To summarize, people die, move, get divorced etc. for the small portion of 'strong' tenants that survive 10 years with us, just remember you paid less for their unit. Also, they are/were probably pretty good tenants and a bit less headaches in our business doesn't harm. Never saw this as a big issue. Sincerely, Nir


Nir your thinking too small.

My understanding is we are in business to make money. Capturing every dollar possible should be our goal.



In my particular business I have presently 78% of my tenants paying below market rent. They are below market anywhere from 5.5% to 45% . That represents a 30% loss in my income as a result of long term tenants. Admittedly I am in a specialty market however that should not be relevant. Below market is still costing a investor money whether they have 1 tenant or 1000 tenants. Any tenant that is not generating maximum return is a liability to some degree. In addition that loss is compounded annually. There is no rational way to justify such a lose if the cause is long term tenants combined with rent controls. The longer you hold the greater the potential loss. Not a big issue for the mom and pop investor but the larger the investors the greater the loss. In my business I do not justify lost income with the rational that "well they are good tenants". Good, bad or indifferent I measure the value of my tenants by their monthly contribution to my bank account.



Also keep in mind that in Ontario you could conceivably be talking about a long term bad tenant. Turn over could bring better tenants. Turn over should not be viewed as a negative if it increases income. After all isn't the reason we are in business to make money. We do not operate on the principal that someday, when we sell, we will make a profit.

I know and like all my long term tenants but frankly would be very happy to see them all move out tomorrow in exchange for more money.



Also keep in mind the topic is a rent control cap. This means that even when tenants do roll over the likelihood is that the overall market rates will be suppressed by having a 2.5% cap.

 

[Nir]

[quote user=invst4profit]They are below market anywhere from 5.5% to 45% . That represents a 30% loss in my income as a result of long term tenants.



Wrong. That's not a loss, you paid 30% less than you would for the same property in Alberta charging 'market rents' (or ON/anywhere assuming other factors are the same for simplicity).

Decide - pay more without rent control or less with rent control. Rent control doesn't matter and doesn't affect profit the way you think. It has other influences which are beyond the scope of our discussion. For example rent control might actually increase CAP compared to the same area/bldg in another province without rent control. Is higher CAP and slower rent increases worse? not necessarily it depends on the investor.



Regards,

Nir

 

[Nir]

[quote user=flyingsquirrel]Does that mean something to you?



It means a lot to me. switch to wind

but seriously I don't see the connection. your friend would have to pay more for it to be a good example.

because rent control reduces the price we have to pay for the property. remove it and you'll see price goes up. just economics supply and demand. note I'm not saying rent control is good or bad it just does not affect RE the way described here and in numerous other discussions and presentations I have seen. Think about it you add a government rule in a pretty free market, you increase CAP.

Regards,

Nir

 

[invst4profit]

I already own the property, I have bills to pay, hydro is going to go up 40% in the next 5 years, every thing costs more which means if the cost of living rises more than 2.5% I lose more money every year.

Cap rates, equity, appreciation none of these things mean anything on the first of each month.



You are think/talking like a investor, I am a landlord like 95% of the real landlords whose primary concern is paying the bills. I don't operate my business in REIN world I am talking REAL world where the majority of landlords live..

Rent controls and caps hurt the industry.

 

[Thomas Beyer]

[quote user=invst4profit]Rent controls and caps hurt the industry. Indeed .. but they deliver reliable NDP or Liberal votes !

 

[Thomas Beyer]

[quote user=Nir]within like 5 years you are able to adjust rents to market rents for 95% of your units.


not quite .. we own one asset in Sudbury, ON which we bought in 2008 in the low 40's/door. Today it is worth in the mid 50's/door. So an OK investment .. but not wow. Probably around 60% cash-on-cash ROI in about 5 years, after counting all input costs like cash upfront and upgrades along the way. The rent roll is up indeed, about 30%, BUT: still around 30-35% of tenants are well below market because they are long term tenants who pay every month (and thus cannot be evicted) and won't go anywhere: seniors, low income folks, unemployed or employed and enjoying a free ride due to McGuintyCare. Why move from a $500 2BR if the market is $750 to $800 ?



Thus, budget 33% in 5 years of folks that will forever stay at the low rent you bought the asset at plus prescribed rent increases over 5 years.



So, rent control depresses the economy in that we do not upgrade the units as fast as we would in faster growth markets like AB or SK (and thus do not employ painters, plumbers, cleaners, HomeDepot folks, ..) and it also depresses capital values. Overall: a loss for the economy (thus: higher unemployment and lower taxes, thus higher debt) but great for folks who have a cheap apartment.

 

[Aneta]

I am so glad I invest in Alberta. There are less political shenanigans there, less risk to my business model IMHO ) The landlord licensing that went down in Ontario cities is unacceptable and unfair.

 

[housingrental]

Hi Greg,



Please clarify.



You do not really believe because someone is a member of REIN they are disconnected from consensual reality - do you?



[quote user=invst4profit]I already own the property, I have bills to pay, hydro is going to go up 40% in the next 5 years, every thing costs more which means if the cost of living rises more than 2.5% I lose more money every year.

Cap rates, equity, appreciation none of these things mean anything on the first of each month.



You are think/talking like a investor, I am a landlord like 95% of the real landlords whose primary concern is paying the bills. I don't operate my business in REIN world I am talking REAL world where the majority of landlords live..

Rent controls and caps hurt the industry.

 

[Hutchym]

All,









I think I am understanding here that rent control is advantageous, as well as a burden in different scenario's.









The rent control helps investors working to expand their investments and purchase as it keeps rental prices controlled. Therefore making the investment only worth what it can Cash flow. The rent control weakens the established investor landlord attempting to maximize his/her profit.









I think it defenatly depends on your financial/ investment strategy at the current time. Anyone agree with this?









Mike

 

[flyingsquirrel]

To be honest with you, I do not think rent control will benefit anyone at all.

For investors, rent control put them at greater risk and vulnerable to the market.

For renters, landlord will have to kick their butt out in order to get a decent rent increase. It will be less stable for them even if they want to.

 

[TangoWhiskey]

Although I personally think rent control is another unfortunate triumph of politics over reality, someone at the last multi-family course in Toronto was talking about a hidden positive in rent control (they were a fairly large Alberta owner). He said it does smooth income without the big fluctuations you might see in an Albertan town or city. Several very experienced Albertan investors have talked about people who overpaid for buildings in 2008 and are now stuck. Since rent control (perhaps) forces a higher cap rate and lower building values, it might reduce the risk of big fluctuations in building valuation and therefore reduce the ultimate risk of foreclosure and bankruptcy.



Having said that I still would avoid investing in a rent control province and empathize with Ontario landlords.





Tris