The cost of housing, whether in the form of rent or payments on a mortgage, tends to be the largest monthly expense for most of us. As such, substantial changes in the cost of housing are of great concern to most Canadians.
Is anything being done to combat the problem?
Due to increased demand (and a supply that apparently cannot keep up), average home costs in the greater Toronto area skyrocketed during the pandemic. But with higher interest rates causing chaos in the financial markets, property prices have since declined sharply and the bubble has burst. People just simply can’t afford the increase in mortgage and rent prices.
The Ontario government, concerned with these rising interest rates, the unaffordability of housing and the unsustainability of current market trends, announced the introduction of new regulations in 2018 to try and deal with these issues.
Proposals relating to rental units and rent controls
Although rental increases are to be expected, people don’t expect to see the huge increases that Canada has been experiencing recently. To try and combat unreasonable rent hikes, the government brought in rent-control guidelines stating that landlords are only permitted to increase rent by 2.5% in 2023. Over 1.4 million rental households alone in Ontario come under this restriction.
However, there’s a catch. New rental units occupied after November 2018 are exempt from this guideline, meaning that landlords of these properties can increase their rents as much as want with complete impunity. This is, understandably, highly worrying for the tenants of these properties, especially given that the cost of day-to-day living is also on the rise.
What does this mean for renters?
Although the government’s proposed regulations and policies are meant to help the average renter in Toronto or other major urban centres in Ontario, things haven’t quite worked out that way.
Controlling rent prices are having a detrimental effect on the number of houses being built, and more than 3 million new homes need to be built in the next decade to keep up with an expanding population. Put bluntly, if no one can afford to live in newbuild houses, then construction companies will stop building them, and the price of existing properties that are available to rent will increase dramatically.
Rental controls could be rendered useless if your landlord ends the tenancy for a legally allowable reason. Although legislation is in place to stop you from being pushed out of your current home for being unable to afford a large rent increase, rent controls do nothing to prevent a landlord from setting rent at whatever amount they wish for a new lease agreement – a legal loophole that many landlords are choosing to exploit to maximize their profits.
Other proposals relating to the purchase and sale of property
A 15% tax on buyers who are not citizens or permanent residents of Canada, or who are not Canadian corporations, has been proposed to curb speculative investment that does not contribute to the Canadian economy. In a similar vein, an additional tax on properties that remain vacant has been proposed to help address the low rental supply and curb speculative investment.
How to budget in the face of a changing housing market and related regulations
High rent can make budgeting for other life expenses next to impossible. In places like Toronto, where a one-bedroom apartment can easily cost $1,500- $2,000 per month, even rent increases subject to rent controls can be difficult to adjust to.
Given the uncertainty of the rental supply in Toronto and the efficacy of the proposed changes, it would be wise to think carefully before entering into a new lease agreement. Once you have figured out how much you can budget for housing, aim to find a place that is less than the maximum you are able to spend, just in case your rent does increase.
Units in less central neighborhoods and older buildings may offer comparable square footage to a newer or more central apartment/condo unit for substantially less – sometimes up to $200 or $300 less per month. Ask yourself whether you can make do with a somewhat smaller space, or without a balcony.
While it can be hard to part with certain luxuries, being faced with rent increases may make budgeting for the future difficult and stressful. You do not want to be stuck in a lease agreement that you later realize you cannot afford, especially when rental supply is so uncertain.
Harris & Partners Inc: for debt solutions in Toronto
If high Ontario rents or unmanageable mortgage payments have put you in a financial position that you are unable to manage, contact us. Our Licensed Insolvency Trustees in Toronto can provide sound advice. We can help you eliminate debts that could otherwise lead to bankruptcy. Call 1-800-268-8093 today for more details.