As part of the Ontario’s Fair Housing Plan introduced in April 2017, which included rent control and the 15% foreign buyer’s tax, we got an extension of the plan via the “Rental Fairness Act”. This is effective immediately.
When rent control was passed, although it was intended to help those who cannot afford a home and will have to rent for a long period of time, I suspected it would have a negative impact on the city. It definitely contributed to the rising rental prices we saw in the last month. Now with the “Rental Fairness Act”, I suspect that similar to the Ontario Fair Housing Plan, it has great intentions but it may also be a double-edged sword for the future of affordable housing.
So what is this new legislation? In short, landlords have to pay the tenants one month’s rent as compensation for evicting the tenants or alternatively find them a comparable rental unit. There are also some other minor things I’ll discuss further below.
Let’s break this down. If landlords force their tenants to move out, they will lose one month of rental income. The most popular method of “evicting” a tenant was to use a form called N12, which basically told the tenant that the landlord or a family member of the landlord’s is moving in. Of course, this is only allowed if the lease is over or for a rental unit that is on month-to-month rent. When rent control was passed, this was the loophole that many landlords utilized to push tenants, who were paying under the market rent, out of the unit and then getting a new tenant for market rent. Without the option to increase rent to market prices with rent control laws in place, that loophole was the landlord’s sole option.
The new “Rental Fairness Act” seems like the answer to this loophole. Furthermore, in order to evict a tenant under these conditions, the landlord or their family member has to reside in the property for at least 1 year. Otherwise, this legislation will penalize landlords further by fining them up to $25,000 if the landlord re-lists the property upon eviction.
This new legislation may sound great at first glance, especially if you are a tenant. However, as always with many government interventions, there could be some long-term drawbacks. Here are a few implications these new rules could have.
Top 5 Implications:
1) Landlords may stop maintaining the property to “make” the tenant leave on their own terms.
2) Landlords may just opt to sell their property, thereby possibly decreasing the rental supply even more!
3) Rental rates will increase as the supply decreases with the massive population growth. This is bad news for tenants!
4) Landlords will immediately increase their price upon tenants moving out.
5) Finally, the biggest pitfall of them all – Landlords have been constantly losing their incentives this year to support Toronto’s housing shortage. When the government continually makes it more difficult to own investment property, who else are they expecting to fund the shortage of housing? Rent Control already made all of the institutional corporations leave the rental market. The City of Toronto hasn’t built a city-owned apartment in a decade. So then, the question becomes: well, who else is left to support the housing shortage if the small landlords are forced to call in all of their properties?
The Wrap: If you’re a landlord reading this article or an investor sitting on the sidelines, please make sure you reach out to me to get proper guidance when you are leasing out your property. I provide my professional care to all of my property investment clients – servicing them from buying the property, and all the way through to making sure their property is leased out in the best way possible. You 100% want to make sure you price your property accordingly and find the correct tenant. Any investor will tell you that the worst thing is a bad tenant!
Until next time, Happy Real Estate-ing!
Zhen
