Builders turn to condos, drop rentals

Continued from FP1

Soaring house prices in Toronto have driven consumers out of the housing market into other accommodation, with demand shifting to condominiums and renting apartments. Research firm Urbanation Inc. reported the average rent in a purpose-built apartment jumped 11.6 per cent in 2016 to $2.77 per square foot, a rise that has prompted calls for rent control.

Tal, in a note, said the damage is already being done as some developers are cancelling projects or changing from rental to condominium developments because of a fear the province will change the rules to restrict what apartment owners can charge in rent.

“Even the very mention of rental control as an option is having a chilling effect on developers,” writes Tal. “From recent discussions with developers we know that it’s already impacting decisions.”

The economist says that following decades of a purpose-built supply drought which was triggered by rent control, there are now 5,000 new purpose-built units about to hit the market. By the end of the fourth quarter, another 28,000 units were proposed.

Tal and others who oppose tightening rent control rules are worried about a change to legislation which has allowed landlords of buildings constructed after 1991 an exemption from rent control.

“Affordability will be achieved only by increased supply. Policy-makers should make it clear that not only is rent control no longer on the agenda but that it will not be on the agenda in the future,” he says.

Tal says rent control is simply the wrong medicine for the market, quoting Swedish economist Assar Lindbeck who said: “In many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”

He sees any move toward rent control in Toronto diverting more activity to condo construction.

And while condos too can be subjected to rent control rules, Tal says condo owners have more avenues to get rid of a tenant.

“We are at a historic moment in Toronto real estate. Renting is finally starting to be an option and we are seeing the light (with construction) and we are talking again about rent control,” Tal said. CIBC’s Benjamin Tal is worried about tightening rent control rules as it has a “chilling effect on developers.”