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Ontario to impose rent control, speculator tax in bid to cool housing market

Ontario Premier Kathleen Wynne is scheduled to announce her government’s plans, along with Finance Minister Charles Sousa and Housing Minister Chris Ballard, at a media event in Toronto’s Liberty Village neighbourhood.

Fred Lum/The Globe and Mail

The Ontario government will unveil a package of measures Thursday to cool Toronto's hot real estate market, which are expected to include a new tax on foreign property speculators and a sweeping expansion to rent-control measures.

Ontario Premier Kathleen Wynne said Wednesday that Toronto's housing market is starting to have "similarities" to Vancouver's overheated market last year, prior to the B.C. government's introduction of a foreign-buyers tax last August.

"What we're aiming to do is to bring in some initiatives that will help people in that whole continuum of housing, right from rental through to purchasing a home, without having unintended consequences, because that is my fear in a market," she said at an event in Ottawa.

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The most significant change expected is the expansion of limits on annual rent increases to all rental properties, including newly constructed units, The Globe and Mail has learned. Existing rent-control rules apply only to buildings constructed before 1991.

Some tenants have complained about huge rent increases in recent months as real estate prices have soared in the Toronto area.

Ms. Wynne is scheduled to announce her government's plans, along with Finance Minister Charles Sousa and Housing Minister Chris Ballard, at a media event in Toronto's Liberty Village neighbourhood, which has many condominium buildings that have been turned into rental units.

The government was still working on details of the plan Wednesday, but is expected to cap rent increases at a level based on the inflation rate, which is similar to the system currently used in Ontario for older buildings.

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The formula limits increases to 1.5 per cent this year, but landlords can apply to the province for permission to raise rents further if they have made improvements to a building.

To cool the hot housing market in Toronto, the province is also considering a 15-per-cent tax on property purchases by foreign buyers. The tax is aimed at targeting speculators, and is expected to exclude foreigners who buy properties to live in while working or studying in Ontario.

Mr. Sousa said Wednesday that he has kept close watch over the province's housing market for months and prices continue to climb to "extraordinary" levels. He cited speculators as one of the contributing factors to Ontario's affordability crisis. "The degree of speculation in the system is crowding out families who are trying to buy into the market," he said.

The province will also work with municipalities on a vacancy tax for unoccupied homes in the Toronto region to encourage owners to rent out unoccupied homes.

The tax requires co-ordination with municipal governments because it is applied on top of annual property taxes. Vancouver is in the process of implementing a vacant-home tax, with first payments coming in 2018.

The rent-control proposals are already generating controversy, with some in the building industry warning they could deter construction of purpose-built rental units.

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"We think it's going to have that negative impact in terms of new rental construction," said Jim Murphy, president and chief executive officer of the Federation of Rental Housing Providers of Ontario, which acts for landlords, property managers and builders. "So obviously we are very concerned about that."

Daryl Chong, president of the Greater Toronto Apartment Association, said the current rent-control exemptions for newer buildings have spurred many owners to buy and rent out condo units, greatly increasing the supply of rental accommodation.

"What it has created is thousands of new rental units, but they are not in the form of one building, they are not purpose-built rental," he said. "They are units in the basements of people's homes and in individual condo units. So it's hugely, tremendously successful."

He warned that rent controls could hurt small investors with just one or two condo units, who are seeing their costs rise 5 per cent annually but could now face rent increases much lower than that, set at or near the inflation rate. Many, he said, would sell, decreasing the rental supply.

Prominent developer Stephen Diamond also urged the government to slow down and consult with developers. He also said tax breaks or incentives, such as taking the HST off new rental projects, might soften any blow to a key sector of the province's broader economy.

"We are talking about a very delicate balance between encouraging the production of affordable housing and at the same time potentially discouraging investment in affordable or any housing in the province – which could tip us into a potential recession," Mr. Diamond said.

But tenants' advocates want expanded rent controls, and argue very little new purpose-built rental has been created in Toronto anyway, even with exemptions for buildings built after 1991.

Geordie Dent, executive director of the Federation of Metro Tenants' Associations, says just a few thousand purpose-built rental units have been built every year since 1991. Many more units were built in the 1950s and 60s, not because rent control was imposed in 1974, Mr. Dent said, but because of federal and provincial subsidies and incentives to build rental apartments that later dried up in the 1980s and 90s.

"There is no evidence that rent control affects rental-housing development in one way or the other, for the positive or negative," Mr. Dent said, adding that after the 1991 exemption was put in, rental-housing construction actually dropped, as Ottawa pulled out of the housing-subsidy business completely in the Progressive Conservatives' 1992 budget.

"This argument that rent control affects this? The only ones really making it are billionaire landlords who want to make an extra dollar," Mr. Dent said.

Toronto Mayor John Tory said Ontario must accompany expanded rent controls with new tax incentives or other measures to help spur new construction.

"If we want to make sure that in solving one problem, namely to provide a degree of protection or stability for tenants, we don't create another one, namely that cut off the supply of affordable rental housing which we so desperately need, then I hope anything the government of Ontario does will be accompanied by measures that substantially encourage the construction of affordable rental housing," Mr. Tory said.

Also Wednesday, the Ontario government said it will begin collecting more data on home buyers when they complete land-registration documents to develop more data on foreign ownership and speculation by investors in the market.

The new reporting requirements will take effect Monday, and will apply to anyone who buys land that contains up to six single-family residences, or when they purchase agricultural land.

Buyers will have to provide information about where they live, their citizenship and permanent residency status. If property is bought by a corporation, it will have to provide information about who owns or controls the corporation.

The province will also require buyers to reveal whether they or their family members intend to live in a home as their principal residence, and whether the property will be leased out in whole or in part.

Ontario NDP Leader Andrea Horwath told The Globe that Ms. Wynne's government should have acted sooner as homes in the Greater Toronto Area became increasingly unaffordable.

"I get the sense that this government at the provincial level has watched as housing affordability has grown into a crisis situation and they've basically allowed that crisis to continue to grow. That tells me that the Premier has been out of touch," Ms. Horwath said.

With a report from Justin Giovannetti

Video: No new measures for Toronto homebuyers, finance ministers say (The Canadian Press)
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About the Authors
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. He spent six years as the law reporter in The Globe’s Report on Business, covering Bay Street law firms and writing about fraud, insider trading and corporate tax avoidance. More

Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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