Rent control won’t solve Toronto’s rental affordability problem
Amid media reports of steep rent increases in Toronto, Premier Kathleen Wynne has put rent control—government regulation that controls the amounts charged for rental housing—back on the table.
It’s an odd move by the government considering the mountain of evidence going back decades showing that rent control hurts more renters than it helps. Instead, Queen’s Park and local governments should tackle the root of the problem—the supply of new housing units in the Greater Toronto Area (GTA) is not keeping up with demand, especially in Toronto proper. Solving this problem is central to any credible plan to boost affordability in Canada’s biggest urban region.
A lot of people are moving or planning to move to the GTA. The region’s outward expansion is limited by natural and man-made barriers such as Lake Ontario and the Greenbelt, while its upward expansion is slowed by local regulations and opposition. There appears to be a mistaken belief that city hall can halt sprawl while perfectly preserving the character of urban neighbourhoods and keeping housing affordable. It’s simply not possible to do all these things at once, barring a significant downturn in the local economy.
Toronto is an economic success story, drawing people from the rest of Canada, and indeed from all around the world. The solution to housing issues, therefore, isn’t to freeze the economy in time, but to embrace growth. That also means embracing change. Cities are inherently dynamic. Undermining that dynamism leads to stagnation.
Increasing the rate of new housing units by streamlining the regulatory process and reducing the time and cost of homebuilding will allow more density in the urban core, which is crucial to ensuring that the housing supply keeps up with demand.
Restoring balance to the housing market in Toronto would have knock-on effects for rental housing. Not just because a percentage of new condo owners would rent their properties, but because easing the shortage of housing units for sale would take pressure off of the rental market as some tenants decide to buy.
Some advocates protest that building “luxury” condos won’t do anything to help residents with more modest means. This betrays a misunderstanding of how housing markets work. A tight housing supply affects everyone. As units become scarcer, people who can afford to will pay more for existing units, pushing rents up, and pushing lower-income tenants out.
Which brings us back to rent control. Even if streamlining the regulatory process enabled more housing, the number of purpose-built rental units (traditional apartment buildings) won’t increase if there’s little profit to be made. After all, apartment and condo units are similar structures, so if selling condos is more lucrative, that’s what property developers will do.
Some might also claim Toronto is already in a building boom, yet prices remain high. In reality, Toronto’s housing stock hasn’t grown as much as it could have. In a recent study, we estimated how much each census tract (the rough equivalent of a neighbourhood) in the GTA would have grown between 2006 and 2011, based on economic and demographic characteristics, if regulations in all census tracts were roughly as stringent as the regional average (Vaughan, incidentally). We found that many parts of Toronto would have grown more rapidly had the city been as housing-friendly as this average.
Of course, there’s no reason why Toronto should aspire to be only as receptive to development as the regional average. There are plenty of best practices for zoning reform from around the world that could allow Toronto to facilitate even more housing construction. Indeed, the city’s chief planner favours “as-of-right” (pre-approved) zoning, which would automatically allow mid-rise developments along Toronto’s major avenues. That’s a good start, and could be accompanied by housing-friendly practices used by cities such as Houston and Buffalo.
Simply put, rather than repeating failed policies of the past, the Wynne government and Toronto city hall should grasp the underlying drivers of declining affordability, including a lagging housing supply. Anecdotes about unusually steep rental increases may tug at the heartstrings, but they are no reason to implement self-defeating policies such as rent control.