Major confrontation looms over rent controls removal
By Thom Corbett and Ulli Diemer
Seven News, Volume 9, Number 2 - June 3, 1978
With rising unemployment and continuing inflation, many people look upon “the good old days” with increasing fondness.
But if the Davis government carries out what seems to be its intentions, tenants at least may soon be looking back to 1976, 1977 and 1978 as “the good old days”.
The reason? It appears that the government has every intention of removing the rent controls that have partially kept the lid on potentially massive rent increases over the past three years. Prior to the controls, rents had been skyrocketing, and it seems very likely that they would do so again if controls are removed.
Support for an end to rent controls is growing among government officials who say that apartments aren’t being built because developers no longer find it profitable enough.
Critics of this line of thinking agree that apartment construction isn’t keeping up with demand, but argue that rent controls are not the cause. They point to similar apartment shortages in cities without rent controls, and note that the construction slowdown began before the controls were introduced.
Needs or profits?
The reasons, according to supporters of controls, have to do with the whole system of supplying housing, which is governed by developers’ decisions about where they can make the most profit, rather than by peoples’ needs for accommodations.
In much of the post-war period, it was most profitable to build private homes, so this was where most of the building effort went. Then, in the 1960s, developers became very busy constructing office towers and shopping centres, largely because these kinds of developments delivered higher profits, higher rents, and tenants who were less demanding than apartment dwellers.
Consequently, the beginning of this decade saw fewer and fewer apartment buildings being constructed although the demand for rental accommodations rose rapidly. Because the average working person could no longer afford to own a private home – prices having soared out of reach – apartments became the only alternative in cities such as Toronto.
This undersupply drove up rents as more and more people were competing for the available apartments, and were thus forced to take whatever they could get. In the early 1970s, rent increases of 20 per cent and 30 per cent became commonplace.
Pressure brings controls
When the Conservative Davis government lost its majority in the 1975 provincial election, it had no choice but to give in to public pressure and the demands of the opposition parties, and introduce rent controls.
Under controls, landlords were allowed to increase rents eight per cent annually, but could charge more than that only if they appeared before rent review hearings to prove that their expenses were above the limit. In the first year of its operation, over 9,000 hearings were held across Ontario.
When the allowable rent increase was dropped to 6 per cent in 1977 – the Davis government called an election rather than accept an opposition amendment setting the 6 per cent limit, but then had to accept it anyway when it failed to pick up a majority in the election – landlords and government officials warned that the number of requests for increases above the new limit would be even greater than before. Figures now available, however, show that in fact the number of rent review hearings decreased by over 40 per cent as many landlords realized they were unable to justify large rent hikes.
Nevertheless, in 1977, rent increases in Toronto averaged 8.6 per cent, with increases of 20 per cent of more not unusual.
Despite this, landlords and developers are strongly pressuring the government to drop rent controls. If they are obtaining average increases that are well above the supposed limit with controls, one can only speculate what will happen to rents after controls.
Prepare for removal
To prepare for the removal of controls, the Davis government released a “green paper” in February of this year, entitled “Policy Options for Continuing Landlord Protection and Profits.”
However, because an end to controls will cause massive tenant displeasure, the “green paper” says controls may be extended in some form or another while the government will also encourage developers to build more apartments by giving them large amounts of public funds as subsidies.
Taxes subsidize profits
While this will not help the small landlords, some of whom have had some legitimate complaints about the operation of rent controls, it will be a boon to large private developers, who will have their profits bolstered from the taxes of tenants and other taxpayers. Naturally they will retain complete ownership of these buildings despite the fact that large amounts of public money will have gone into their construction. And when controls are finally dropped tenants will be forced to pay high market rents in buildings they helped finance through their taxes.
But as the “green paper” points out, subsidization of private developers is not a recent phenomenon. In 1977, the paper states, “almost 85 per cent of rental production was publicly assisted.” This includes housing for low-income tenants who have their rents subsidized by the government, resulting in a double – and continuing – subsidy for the builder who constructs the building and then collects the rents.
Faced with tremendous opposition to rising rents, government seems inclined to take the politically easier route of providing developers with profit subsidies directly through tax money.
Tenant groups opposed
However, tenant organizations disagree with the government’s plans and have formulated ideas of their own. They oppose paying for construction with public money while allowing developers to retain ownership of the units thus built. Instead, they are pushing the idea that funds go to non-profit housing corporations which would concentrate on affordable housing rather than on higher-priced, higher-profit units. They also want funds to be given to tenant controlled co-ops that supply housing whose rents are geared to cover construction and maintenance costs only while eliminating the additional expense of profit.
Although government funding is provided to co-op and non-profit housing at the present time, the amount is very small compared to that given private developers, which include some of the largest and most profitable corporations in Canada.
According to the tenant organizations, another problem with privately-owned apartment buildings is that tenants pay for the construction costs of the structures several times over during its lifetime. In the case of co-ops and other tenant-controlled housing projects, the construction cost is paid for once and then rents are much lower.
At this point, the government has shown little interest in the suggestions of tenant groups – the green paper doesn’t even consider them. However, tenant organizations feel that Toronto’s one million tenants have a good chance of influencing future housing policies in the province because of the pressure they can potentially exert on the minority Conservative government. A million people committed to the proposition that good affordable housing is a right, not a privilege that depends on someone making a high enough profit from it, could be a potential political force.
This article was published in Seven News, Volume 9, Number 2, June 3, 1978