New rental rules have put at least 20,000 units in jeopardy, according to the Federation of Rental-Housing Providers of Ontario (FRPO).

In a survey of 20 of its members, builders and developers said they are being forced to review future purpose-built rental projects as a result of the new policies.

Those policies, outlined in the province's Rental Fairness Act, include:

  • Expanding rent control to all units, including those built after 1991.
  • Annual rent increases for existing tenants can be no higher than the rate of inflation.
  • Rent increases will be capped at 2.5 per cent, even if the rate of inflation is higher.
  • Change becomes effective as of April 20, regardless of when legislation is passed.
  • Tenants will be adequately compensated if asked to vacate for "landlord use."

Financial impact in the billions

The financial impact of cancelling 20,000 units would be a big loss for the province, said Jim Murphy, FRPO CEO. He estimates the housing stock investment is equal to $6.5 billion.

"Many projects will go ahead and will proceed, but many others will be moved from rentals to condominiums," he said.

He cites one example in Ancaster, where Effort Trust, one of the area's largest purpose-built rental providers, has already decided to re-purpose a rental building into condominiums.

The property in question is built by Starward Homes Corporation of Hamilton and is located at 153 Wilson Street. The company says it has all the necessary approvals and was finalizing permit applications when the rental rule changes forced them to reconsider the new market conditions.

"The elimination of the 1991 exemption and limits to legal above-guideline increases will force us to consider completing new developments not as rental, but as condominiums," said David Horwood, vice-president of operations at Effort Trust.

"A market in which our development and financing costs aren't fixed, but our revenues are fixed, makes purpose-built rental high risk for tenants in our communities."

Small landlords also affected

The biggest concern for builders is the removal of the 1991 loophole because they're still "businesses at the end of the day," Murphy said.

The FRPO had proposed a rental increase cap for new purpose-built developments to be equal to the Consumer Price Index, plus 10 per cent. After he heard the April 20 announcement, Murphy called the Rental Fairness Act a "strongly political" move by the Liberal government to win votes.

Murphy also believes the new rules will impact smaller landlords who helped fill the rental stock gap in places like Toronto.

"If water fees are going up significantly, it's just a question of fairness," he said about the provision to remove above-guideline rent increases for increasing utility costs. 

The FRPO has more than 3,300 members, which includes builders, developers and suppliers.

How have the new rental rules affected you or your business? Email us.