Inflation could bring added budgeting woes for Ontario’s rental housing landlords beginning in 2013, when the annual allowable rent increase will be capped at 2.5 per cent.
This arises from a new amendment to the Residential Tenancies Act that the recently re-elected provincial government introduced in December 2011, much to the surprise of rental housing industry advocates.
“No one called for this (during the election campaign) and there was no call from the public,” says Mike Chopowick, director of government policy with the Federation of Rental-Housing Providers of Ontario (FRPO). “What’s disappointing is the government did this without any consultation or discussion with our industry.”
Currently, the annual allowable rent increase in Ontario is pegged to the Consumer Price Index (CPI) for the 12 months ending May 31 of the previous year. This means the maximum rent increase can be no greater than the average retail price increase of approximately 600 goods and services that Statistics Canada monitors and weights according to their prominence in consumers’ overall spending.
Critics have argued this formula is too broadly based since much of the CPI’s basket of goods has little direct bearing in rental housing operation, and badly timed since more than 18 months can elapse before landlords can account for some major inflationary hits. Notably, the 3.1 per cent allowable rent increase that went into effect for January 2012, reflects the impact of additional harmonized sales tax (HST) that landlords have already been paying since July 1, 2010.
The proposed new amendment sets upper and lower limits for allowable rent increases that disregard the CPI once it rises above 2.5 per cent or falls below one per cent.
“Capping rent increases would provide greater certainty and reduce year-to-year volatility in housing costs so that Ontario families continue to have access to affordable housing,” stated the Minister of Municipal Affairs and Housing, Kathleen Wynne, when the legislation was introduced.
“Ontario tenants already have some of the strongest rent control laws in Canada,” counters Allan Weinbaum, a principal with WJ Properties who is currently serving as FRPO’s chair. “In 2011, rents were limited to a 0.7 per cent increase – far less than what is needed for landlords to cover rising maintenance costs.”
In comparison, the annual allowable rent increase in British Columbia is the CPI plus two per cent, which translated into 2.3 per cent for 2011.
FRPO has called for a similar approach in Ontario to better address maintenance needs in what’s predominantly older housing stock.
A 2.5 per cent cap will provide little budgeting room for that kind of discretionary spending, particularly when operating costs increase at a higher rate. Nor is there much consolation in the lower end guarantee that the allowable increase will not drop below one per cent.
In future, the upper and lower caps could be adjusted since the amendment calls for a review at four-year intervals.
Across Ontario’s major urban centres, Canada Mortgage and Housing Corp.’s most recent market survey recorded an availability rate of 3.8 per cent in October 2011. The average rent for a two-bedroom apartment was $1,002, up from $980 in October 2010.
This is lower than the average rents for two-bedroom units in Alberta ($1,044) and British Columbia ($1,050). Meanwhile, Saskatchewan experienced the greatest percentage gain of any province, at 4.6 per cent, as the average rent for a two-bedroom unit rose from $872 to $913.
Barbara Carss is editor-in-chief of Canadian Property Management magazine.
