Tenants and landlords alike are familiar with the concept of rent control. Rent control policies dictate the maximum allowable rent increases. In Canada, rent control policies vary by province, and are determined by provincial governments.
The key objective of rent control legislation is to establish clear and transparent guidelines for rent increases, ensuring that both landlords and tenants have a shared understanding of financial expectations and regulatory requirements.
It’s crucial to be well-versed in the specific rent control policies of your province or territory to estimate your rent costs over time accurately. By having a comprehensive knowledge of rent control regulations, landlords can effectively comply with the guidelines, while tenants can precisely budget their finances accordingly.
Rent control varies by province or territory as it is governed by the provincial governments. Rent control policies are determined based on the unique political, social, economic and housing supply conditions in each province. Some provinces may primarily prioritize affordability for tenants, whereas other provinces may have a larger focus on allowing natural market forces to prevail. In Summary:
Not only do rent control policies define the maximum allowed limits on rent price increases, they also outline how and when notice of rent increases must be given.
There are strict guidelines defining how a landlord must deliver notice of the impending rent increase, as well as regulations regarding how often a landlord may increase rent. This is to ensure that there is proper documentation of rent increases, as well as giving renters ample notice to prepare for upcoming rent increases.
Notice requirements outline the acceptable methods of communication, such as written notices delivered in person, through mail, or electronically. By providing these requirements, the policies ensure that tenants receive the necessary information in a clear and documented manner. By ensuring that all rent adjustments are officially communicated and recorded, it helps prevent disputes that may arise in the future and protects the rights of both landlords and tenants.
Although the rent control policies vary per province, they will each outline the allowable rent increase (if applicable), as well as when and how notice must be provided, and how often a rent increase is permissible. Rent control policies however, do not determine rent prices, nor do they apply to every rental property. There are certain types of properties that may not fall or be exempt under the rent control policy.
Rent control is most often implemented in legislation when there is an imbalance of supply and demand and in particular when demand outpaces the ability to develop enough rental housing. There is a legitimate desire to protect tenants from excessive increases as a result of a supply shortage. However, it is mixed with various political objectives, and once implemented, is rarely removed or even eased for fear of political backlash.
Rent increase policies are useful for defining how and when rent prices can be changed. One benefit of rent control legislation is that it ensures tenants are given appropriate notice of impending rent increases. However, while it may appear that rent control creates stability and protects affordability, numerous studies have shown that the opposite is true, and that rent control actually works to reduce affordability in the long term.
Studies have also shown that although rent control may initially appear to assist in preserving diverse communities and preventing gentrification, its effectiveness diminishes over a period of 5 to 7 years.
The downside to rent control is that it limits the increase of rent prices, even in times of economic inflation. The rent control limits may not correlate to the rising cost of living and this may negatively impact property owners as they struggle to keep their rental properties profitable. Rent control can also create supply constraints as the lack of profitability discourages property owners from investing in rental housing or maintaining existing properties. These policies tend to benefit long term tenants, while creating an imbalance for new tenants as new listing prices may be much higher than what current tenants in the area are paying. In effect, new tenants are subsidising rent controlled tenants.
Our rental housing supply article provides a more comprehensive look at the benefits and disadvantages of rent control policies.
While the primary objective of rent control is to protect affordability for tenants, the reality is that it has much further-reaching effects on the rental housing market as a whole. Rent control protects tenants that wish to stay in their current rental unit, but ultimately leads to unaffordability later down the road should their family situation or housing needs change. Tenants cannot afford the much higher rent prices of new rental units, so they end up remaining at their current properties. This diminishes overall rental supply in the market and can increase under-utilisation of existing properties.
Rent control negatively affects landlords’ ability to charge a fair rent price that accurately reflects the current cost of living. This can lead to a decline in the maintenance and repair of their currently owned rental units as they no longer have a profit margin that sufficiently covers their ownership costs. It can also lead to a decline in the quality of available rental units as property owners are increasingly unable to profit from their investment properties. Tension between landlords and tenants can develop when maintenance and upgrades to rental units are no longer able to be viably performed, affecting the living conditions of the current tenants.
Ultimately, the effects of rent control have been shown to negatively impact both tenants and landlords in a variety of ways. While rent control does protect affordability for current tenants, it can also have an adverse effect on their living conditions, as well as their options when it comes time to move. Understanding the effects of rent control as a landlord is extremely important as these are key factors to consider when purchasing and renting out an investment property.
As a property owner, it’s important to stay up to date with your province’s rent control guidelines.
Rent control defines how and when rent increases may occur and staying informed will ensure you are in compliance with all applicable rules and regulations. When managing a portfolio of properties, financial planning is crucial and rent control will have a significant impact on the income generated by your rental properties.
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