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Is Mike Harris Responsible for the Toronto Condo Boom?

9 December 2012

Mike Harris was known as a lot of things during his time as Premier of Ontario. Many considered him to be the province’s saviour who pulled us out of our huge deficit and actually saw us running a surplus for a few years in the 90s. Others, especially at the time, saw him as the ruin of Ontario who was hurting Ontario’s families by making excessive cuts to just about all of Ontario’s social programs.

But one of Harris’ reforms when he took office was policy on rent controls – something nearly everyone, landlords especially, hailed him for. Now those same rent controls might be the biggest driving force behind all those condos continuing to go up in Toronto.

Before 1997, landlords faced serious provincial restrictions when it came to buying investment property, and more specifically, how much they could charge in rent on those units. The restrictions were so tight that landlords could very rarely increase rents; and when they could, it was by only a bare minimum. Landlords found it tough to make a profit on their units, and even tougher to perform basic maintenance and upkeep on those units – especially while still trying to pull in that profit.

Enter Mike Harris, who in 1997, revoked all of those reforms and essentially opened up the market to landlords and investors once again. Harris removed essentially all rent controls, telling landlords that once a unit stood empty, they could place whatever rent they wanted on it in order to keep up with the market. Once tenants moved in, landlords could still raise rents, but only once a year and by an amount dictated by the provincial government.

While it’s not entirely true that everyone loved the new rent controls at the time (those who were enjoying the benefits of tight rent controls, such as tenants associations) opposed them at the time; but still agreed they were a better solution than allowing tenants to reside in the crumbling and decaying buildings that were the only affordable rent solutions in the city.

But did the looser rent controls go too far? And is that one of the reasons Toronto is having so many problems with an excess in condos today? Mr. Harris recently spoke out on that exact thing just recently.

“The exemption from rent controls of vacant units was a compromise solution between total control or total de-control,” Mr. Harris said. “It has been very successful at achieving its first goal of allowing landlords to repair existing units and moving them to market rents. This kept a lot of units in the rental market that otherwise would have disappeared. Secondly it has spurred a building boom of condo units that substantially increases the supply as well.”

He also says that while the policy worked, and saw the huge development boom in Toronto it was intended to, he also says that with new policies such as the low interest rate, that development may have gone farther than what was first intended.

“Our policy advisors felt very strongly that this new policy would maintain and enhance existing supply and lead to some new construction, while protecting existing tenants,” Mike Harris said. “We also felt that over time we would end up with enough supply to have competitive market rents. Clearly the policy, along with low interest rates and intensification policies, has exceeded even our expectations for new construction. Given a fair opportunity, market forces do work.”

And that they may. Urbanation reports that since 2003, approximatley 115,000 condominium apartments have gone up in the city. And if you consider that even just 20 per cent of those units end up in the hands of investors (some industry insiders say that the number can even go as high as 50 per cent,) that’s a very large number of rental units on the market. Units that you could argue, probably wouldn’t be there without Mr. Harris’ reforms.

Toronto developer giant, Brad Lamb, agrees that the changes were necessary, even if an excess of condos is one of the results. “There has been no rental stock really built for 40 years, it’s all condos,” he says. “There is an absolute shortage of supply. We’d be in trouble without condos. There would be people on the street breaking windows because they had no place to live. It allows for semi-affordable units.”

But “semi-affordable” is just the issue – and the reason why tenant and tenant associations pushed back against the new controls when they were first instated. Some say that placing looser restrictions on landlords has opened the door for them to charge whatever rent they want, and let it go as high as they want; and that may be partially true.

While a landlord can place any rent they want on a unit that’s currently sitting empty, once a tenant moves in that rent can go only go up once a year – and even that amount is determined by the provincial government. Still, many critics of the reforms say that this shuts low-income renters out of the market because affordable units simply aren’t there.

Mike Harris addressed this concern at the time he instated the new controls, saying that a trickle-down effect would help those with lower incomes find affordable rent in the city.

This effect would take place when those currently in lower-end rental units moved up to the new and improved rental conditions they had actually been looking for all along. And that in turn, would free up those lower-end, cheaper apartment units for the lower-income households that were looking for them. A much better solution than simply having Torontonians on the street with nowhere to live.

What do you think about the new rent controls (or rather, lack of them) instated by Mike Harris? Do you think they’ve actually helped the economy of Toronto, or that they’re just one more bad policy brought on by a bad premier?

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