Summary

A recent report claims that Ontario’s rental vacancy rates will decline unless the government enacts policies that will encourage developers to build an average of at least 6,250 additional new apartment units annually. This lesson plan will examine the report and assess the impact rent control policies can have on rent supply and vacancy rates.

Getting Started

Appropriate Subject Area(s):

Economics, urban planning.

Key Questions to Explore:

  • How will Ontario’s new rent control policies impact large property owners and management companies?
  • What impact will Ontario’s new rent control polices have on renters, all things being equal?
  • What factors have led to a low vacancy rate in Ontario?
  • Why are low vacancy rates in a city or province dangerous?

New Terminology:

Vacancy rate, rent control.

  • The vacancy rate is the percentage of all available rental units in that are vacant at a particular time.
  • Rent controls limit the amount a property owner can charge for renting out a home, apartment or other real estate. Rent control acts as a price ceiling by preventing rents either from being charged above a certain level or from increasing at a rate higher than a predetermined percentage. In Ontario, the government has limited the amount of annual rental increases. However, there is no cap on the initial rent for first-time tenants.

Materials Needed:

Learning Activity

Introduction to lesson and task:

In April, Kathleen Wynne, the premier of Ontario, announced that all rental units in Ontario will be subject to rent control. Her administration capped rent hikes in Ontario at 2.5% per year in an attempt to ensure the affordability of rental units.

An unintended consequence of this policy, according to a report issued by Urbanation, will be a reduction in rental supply and vacancy rates. According to the report, more than 1,000 planned purpose-built rental units in the GTA have already been converted to condominiums since the announcement of the rent control expansion.

The vacancy rate is currently 1.3% in Toronto, which is considered low, and 2.1% in Ontario. High real estate prices, tighter mortgage policies, rising interest rates and increased demand have all lead to lower vacancy rates.

As a proposed solution, FRPO recommends that Ontario enact policies that will incentivize landlords to build more rental units to the tune of 6,250 units annually in order to increase vacancy rates to somewhere between 2.5% and 3% in the province.

Action (lesson plan and task)

  • Ask your students to state the factors that have led to an increase demand in rental units in Ontario.
    • Hint: Answers could range from any of the following: rising demand, driven by robust economic and population growth and job creation; a decline in home ownership affordability
  • Ask your students to explain how rent control affects renters in Ontario
    • Hint: Given the rising demand for rental units stated above, landlords have the power to raise the price of rent for existing tenants. Rent control protects Ontario residents from excessive rent increases and maintains affordability of housing.
  • Ask your students to explain how rent control could potentially affect landlords.
    • Hint: Landlords, like most entrepreneurs, are always in search of profit maximizing opportunities. Rent control limits the amount of revenue they can generate. As a result, they will have less incentive to take on rental projects and opt for other real estate projects that could generate higher profits. This may lead to a shortfall in supply and a decrease in vacancy rates.
  • Ask your students to state the purpose of rent control; to think critically about the government’s reason for imposing rent control; and ask them to identify the key groups that benefit from the rent control policy initiated by the government.
  • Ask your students to state some of the unintended consequences of rent control.
  • Ask your students to state the factors that have led to an increase in rents.
  • Ask your students to state the negative consequences rental control could have on the amount of rental supply available.

Consolidation of Learning:

  • Ask your students to explain why it is dangerous to have low vacancy rates in a given city or province.
Success

Success Criteria:

  • After completing this lesson plan, students should have a better understanding of the pros and cons of rent control and setting price ceilings in general.

Confirming Activity:

  • Ask your students to explain how home ownership affordability affects rental demand.

Hint: High housing prices and tighter mortgage policies reduce home ownership affordability. Renting or leasing serves as a viable alternative to home ownership. As a result, broadly speaking, a reduction in home ownership affordability should lead to an increase in rental demand.