Landlords of rent controlled buildings all across Ontario are able to dole out higher-than-usual rent increases next year thanks to the newly announced 2.5% increase guideline. And it appears that no one is happy about it.

As rental providers lament the Ontario government's decision to cap the increase well below the rate of inflation, those on the tenants' side decry the 2.5% guideline -- more than double the previous year's 1.2% -- as too high at a time when finances are already tight for many Canadians.

The government of Ontario announced the allowable 2023 rent increase last week, which will apply to most residential rental units occupied for the first time before November 15, 2018. In its announcement, the province noted that had the guideline kept pace with inflation, it would have been a much larger 5.3%.

As soaring inflation and continually rising interest rates make operating rentals more expensive for landlords, Tony Irwin, president and CEO of Federation of Rental-Housing Providers Ontario, says that operating budgets are going to become extremely tight.

“We certainly understand the inflationary pressures that people are facing," Irwin said. "It's something that governments are definitely struggling with how to deal with, so we certainly understand that is a significant issue for everyone. I think that said that, those same issues of course impact rental housing and rental housing providers too. We have been seeing over the past few years all of our costs skyrocket, whether it be property taxes, utilities, insurance, billing, maintenance costs -- all of these things have gone up exponentially over the last few years.”

As for what will be affected, Irwin says non-essential spending may become limited when it comes to attending to items like elective building improvements.

“We're still going to do the things that absolutely need to be done, but when it comes to more discretionary things, rental housing providers may have to make decisions based on the fact that they have certain costs that they absolutely have to continue to pay, and those bills of course, have gone up significantly," Irwin said. “This is not meant to be alarmist. We're all going through difficult times, and everyone has to do the right thing and do what they think is right for them in any circumstance.“

More Budget Concerns for Tenants

Although operating costs are indeed higher, Genrys Goodchild, communications and public affairs specialist at the Advocacy Centre for Tenants Ontario, says that for many landlords, there's still enough money coming in to operate as usual.

"Rents are already very high in Ontario, and the majority of landlords have continued to make enormous profits off of rental properties throughout the pandemic," Goodchild said. "There is no reason to think they would not be able to provide the same level of service given how lucrative it has been for most landlords."

Although rent prices across Ontario, and particularly in Toronto, took a large hit during the early stages of the pandemic, recent data how shown they are now nearing, and in some municipalities, surpassing, pre-pandemic levels.

Goodchild noted that not only is next year's 2.5% guideline the highest increase the Ontario government has set in the past decade, but is also the highest annual increase that is allowed under Ontario's Residential Tenancy Act. Low-income renters are going to feel the brunt of the rent increases, particularly those who live on fixed incomes, Goodchild said, adding, "we feel it should have been lower."

"We conducted a poll recently that found 60% of renters in Ontario have already had to cut back on food to afford their rents," she said. "Renters are asking where are they supposed to get the money from to pay their increased rent if they’re already cutting back on basics like food?"

One downside of the cap being so much lower than current inflations rates is concerns over landlords attempting to evict tenants so that they can raise rents beyond the provincial guidelines.

"It is extremely lucrative for some landlords use any strategy they can think of to get rid of long-standing tenants so they can make more money," Goodchild said. "The province could address this swiftly by enacting vacancy control and ensuring an incoming tenant pays what the last tenant paid, because once an affordable rental unit is lost in Ontario, it’s lost for good."

Missing Rent Raises

Mark Kenney, president and CEO of apartment real estate investment trust CAPREIT says that it's important to remember that landlords went quite some time with no rent price increases. During the pandemic, the Ontario government passed legislation to freeze 2021 rent prices at 2020 rates. And in 2020, many rental providers, CAPREIT included, voluntarily chose to stop rent increases.

Although Kenney isn't worried about tenants' abilities to pay increased rent prices next year, hopeful that wages will also continue to grow, what he is worried about is his ability to give inflationary wage increases to employees.

"Our employees need more than a 2.5% rent increase to pay for wage increases to keep up with the challenges of inflation themselves," Kenney said. "It seems hardly fair to put the burden on the hardworking frontline workers that were there during COVID and restrict their ability to get an inflationary wage increase."

Irwin similarly notes that 2.5% is likely going to be manageable for most tenants, and says that for those who it's not, "we work with them and figure out a plan to go forward as best as possible."

What does have him concerned, however, is the potential loss of rental supply as more and more landlords are faced with an inability to operate due to rising costs.

“I do know, certainly from conversations I've had, that some smaller operators have had to sell their properties, and I have no doubt that going forward there'll be some people who will have to make that decision," Irwin said. “We need rental housing. We need more stock, not less, so that's not necessarily a great outcome."

A Different Model

For Kenney, not only is the 2.5% cap too low, but he believes there shouldn't be a cap at all -- for certain renters, anyway.

"I don't think it's fair to cap increases because I don't believe it's fair to reward the financially advantaged," Kenney said. "We'll use the example of Joe and Bill. Joe makes $200,000 a year and Bill makes $35,000 a year. Why did they both get a 2.5% rent increase? That hardly seems fair to me."

Instead, Kenney says, rental assistance needs to be targeted in a meaningful way to help those with lower incomes who genuinely need it.

"It's the Dutch model," Kenney said. "It's the model of more progressive countries and we're very much in favor of that approach and find it offensive that the wealthy should benefit by rent caps.... I think it's disgusting of government to characterize renters as all being poor. I think it's a very sad characterization to treat an entire category of people, 30% of the population, as requiring assistance when there's no evidence of that at all."