In 2019, should you invest in pre-construction or resale condos?
Should real estate investors be excited about the new Ontario Rent Control Announcement?
On November 15, 2018, an announcement was made by the Progressive Conservative government scrapping rent control. So for anything billed after November 15th, there is no more rent control.
Let’s talk about some history. In the past, we had rent control on units that are built prior to 1991. Then there was no rent control on anything else built after 1991. In 2017, the Liberal government came in and said that with the Fair Housing Plan, there will be rent control across the board. So it doesn’t really matter. After ‘91 or before ‘91, rent control is across the board and that was, you know, the end of the day.
Now this new government came in and they said "Okay, no more rent control on anything that’s built after November 15, 2018.”
This is why I think this is bad.
Number One. It’s not going to encourage more supply.
Number Two. They are throwing a bone to the big pension funds, you know, the REITs, to the big developers and quite frankly, if I was a developer or if I was a REIT or a pension fund, I I look at this, I just think this is sustainable, and here’s why.
The last government came in and they said rent control across the board, you know, capped at 2.5%, which I don’t think worked. This government came in and said no rent control, so it’s too extreme. There has to be, I believe, there needs to be a middle solution where it’s sustainable for real estate investors, whether they are small investors or whether they are big, you know, pension funds, and it has to be workable for the tenants.
So having no rent control where a landlord can come in and say, “I’m going to bump your rent by $500.” I don’t think that’s fair.
On the flip side, having rent control capped at 2.5%, it just doesn’t work either because the reality is property taxes go up. You know, heat, hydro, insurance, mortgage rates, way above 2.5%, and it’s not fair for landlords to eat that cost.
There has to be a middle solution where it’s sustainable.
The other thing to consider is when this government is voted out, and we do change governments from left to right and back and forth in the province. In the future, when this government gets voted out and a more left-leaning government comes in, will they come back in and say, “You know what, no. We’re going to have rent control across the board and forget about whatever this current government announced.”
So it’s uncertainty for developers, for pension funds, or companies that are looking to do purpose-built rentals. At the end of the day, I don’t think it’s a big deal. I think it sounds exciting, but it’s not really sustainable, and it’s really a half solution to the problem.