Apartment developers fear ‘disaster’ in Ontario’s review of rent controls

Theglobeandmail.com
March 30, 2017
By Janet McFarland

Major Toronto apartment developers are warning that Ontario’s proposals to expand rent controls would be a “disaster” that would push house prices even higher as the supply of new rental properties dries up.

The Ontario government announced earlier this month that it is reviewing rent control regulations in the province and considering “substantive” changes. Current rules allow owners to increase rents by up to 1.5 per cent annually without having to apply for provincial approval for a larger rent increase, but only for buildings constructed before 1991. Newer buildings are not covered by rent control rules, and some tenants have complained about being hit with double-digit rent increases.

But developers say tight new rent controls - especially if there is uncertainty about future costs - would be a disincentive to build new apartment units in Toronto, where vacancy rates are already low. Many developers would not move ahead with projects, while others could opt instead for the relative simplicity of developing and selling condominium units.

Alan Menkes, president of high-rise residential construction at Menkes Developments Ltd., said new rent control rules in Ontario “would be a disaster” for builders, who will slow the pace of new construction.

There are 5,000 new apartment units under construction in the Toronto area, and the province should wait for them to come into the market because they will help satisfy some of the rental demand that is pushing prices higher today, he said during a panel discussion Thursday at a Canadian Imperial Bank of Commerce real estate conference.

“It’s really the government just grasping at straws to try to find some way to address the affordability issue,” he said. “It’s a political year and politicians always looking for some platform to be able to get them re-elected. ... So the development industry is always an easy target because we don’t vote. Renters vote, so they’re clearly pandering to that market.”

Daniel Drimmer, chief executive officer of Starlight Investments Ltd., which develops multifamily buildings, said new rent control rules would “certainly change” his company’s strategy toward building new apartment units.

“I think it would be detrimental. I think it would shut down most of the purpose-built rental,” he said. “We would certainly stop our forward-sale, purpose-built rental program, and we’d have to look long and hard and look at the economics of our infill development, where we have the land for free, and even those are very tight for us to build with a form of rent control on that newer stock. That would probably shut that down.”

Ugo Bizzarri, senior managing director at Timbercreek Asset Management Inc., which invests in rental apartment buildings, said he would not worry too much if rent controls were extended to newer buildings, such as those built between 1991 and 2001, but said it would be “a disaster” if it was extended to cover all apartment units including new units.

“You need more supply. And the government is going to do the exact opposite of what they’re supposed to be doing. They’re supposed to be encouraging supply and, by talking about rent control again, they’re going to discourage supply. Demand’s not going to taper off, and it’s going to put more pressure on it. I think they’re doing the exact opposite of what they should be doing.”

But others say the impact of expanding rent controls may not be too severe, depending on what the province opts to do. The Ontario government has not revealed details of its plans, with Ontario Housing Minister Chris Ballard saying in mid-March it is “unacceptable” that many renters are seeing dramatic price increases, and that his staff are developing a plan “to address unfair rises in rental costs by delivering substantive rent control reform.”

Donald Clow, chief executive officer of Crombie Real Estate Investment Trust, said it is primarily important that developers know what is coming so they can assess how to proceed with planned projects.

“Having developed in areas where there is rent control, in fairness it hasn’t slowed it down too much as long as its predictable. ... If it’s predictable, people can manage it and make it work” he said.