Time for rent controls?

You would be hard pressed to find many people who would disagree with the proposition that the Greater Toronto Area (GTA) has a housing affordability problem.  Single family detached homes in the region now change hands for well north of C$1 million on average.  Prices are rising at a 25 percent annual rate, driven to some extent by speculative buying, some of it from outside Canada. Meanwhile, despite the fact that a significant proportion of the fast-growing condo supply gets put on the rental market, the availability of long-term rentals may actually be shrinking as owners turn to short-term rentals, using services like Airbnb.

Meantime Ontario Premier Kathleen Wynne is in big trouble with the voters -- her approval rating stands at 12 percent -- and seems to be considering yanking her Liberal Party sharply to the left ahead of next year's Provincial election.  Among the things that may be on the table: expansion of rent controls.  The Province's existing control regime has been in place since 1991, and basically leads to controlled rents for properties that existed prior to that year, and no control on anything more recent.  Given the explosive growth in the GTA's population over the past quarter-century, this means that the proportion of the rental property stock that is subject to controls has shrunk drastically.  

Enter stage right Benjamin Tal, economist with CIBC, arguing that tighter rent controls are the exact opposite of what the GTA needs right now.  He certainly has some good points to make.  As in other cities (New York is an obvious example), rent controls reduce tenant mobility.  They also tend to lead to inadequate maintenance of older properties, which can sink into disrepair as landlords lack the incentive to keep the homes in good shape: they can't afford it because the rents are too low, and the tenants aren't going to move out anyway.

All true enough, but keeping the current controls untouched doesn't seem to be working, and there would be zero appetite among politicians for doing away with controls altogether.  The problem in the rental market seems to be one of supply as much as anything. None of the apartment towers springing up in all corners of the GTA is aimed primarily at the rental market: they're all condominiums. Builders favour those because the payback period is so much shorter than for a rental building.

There's another issue on the supply side that gets less attention: community housing.  The Toronto Community Housing Association (TCHA), which runs the city's social housing stock, is a mess.  It has a multi-million dollar backlog of maintenance that it never manages to catch up of because of lack of funding.  Horror stories about cockroaches or fire hazards or smashed-up elevators that crop up regularly on local news bulletins are almost always about TCHA buildings rather than privately-owned ones.  And needless to say, with no money even for maintenance of its existing stock, TCHA is not doing anything about acquiring new buildings, despite the rapid growth in segments of the population that traditionally rely on social housing, including immigrants.

Ontario budget day is set for April 27, and that's when any announcement about changes to rent control is likely to come.  Benjamin Tal is probably correct to say that tighter rent controls may do more harm than good, but unless a way is found to increase the rental stock -- including the social segment run by TCHA -- Toronto's rental affordability crisis is set to persist well into the future.