How Much Can You Raise the Rent? Get Ready For the Shocking Answer
Usually on this blog we discuss ways to succeed as a landlord and how to overcome any challenge you may face.
Not so great tenants, mold, pets…even “Tenants from Hell”. These challenges exist and you can overcome them through planning and making intelligent and rational decisions.
One thing that is hard to overcome are bad government policies.
I was reading the Ontario Landlord Association website this afternoon to read their popular landlord and tenant forum.
When I went over I saw the homepage and my jaw dropped.
Here is the headline:
Question: How Much Can you Raise the Rent in 2014?
Yes, that’s right. ZERO POINT EIGHT PERCENT.
Despite rises in taxes, gas, water, fees, and the cost of contractors Ontario landlords can only raise the rent a frigg’in measly ZERO POINT EIGHT PERCENT!
Thanks Ministry of Municipal Affairs and Housing (not).
The government covers their behinds by saying the annual rent increase is unbiased and is simply based on the Consumer Price Index.
Except the increased costs things landlords have to pay for are not always on the Consumer Price Index!
If a landlord can’t even cover their costs of doing business from the rent, how can they stay in business?
Oh, that is if the tenants actually pay their rent.
The Problem With Rent Control In Ontario
The government believes capping down and clamping down on rents helps tenants.
Except it doesn’t.
Whether the government knows this or simply doesn’t care is another question.
So what, exactly, is wrong with rent control?
As any introductory economics textbook will explain, forcing prices to below-market levels causes a wide range of problems. This includes:
1. Fewer new housing units being built
2. Less maintenance on existing ones
3. Landlords picking tenants not for their ability to pay rent, but instead based on anything from race or religion to personal connections to demands for key money.
Jason Childs is an associate professor of economics at the University of Regina. Childs makes clear rent control is not the best way to deal with the availability of affordable rental units.
“The short answer — not really,” said. He explained rent control legislation can be divided into two types — those that set a cap on rent and those that control rent increases gradually.
Regardless of the type, Childs argues rent control legislation doesn’t help the people it is supposed to help. He said in places with rent controls, there is a tendency for tenants to hold onto low-rental units even if their economic situation improves.
Childs uses the example of actress Faye Dunaway as an example of someone who lived in a rent-controlled apartment in New York City for several years before finally vacating.
“If you’re already in an apartment, you’re golden. If you’re trying to find one, you’re out of luck,” he said. “The distribution of the effects of this policy is really, strongly negative for younger folks and new arrivals. So, we’re going to be protecting established residents at (their) expense.”
Childs also argues rent control legislation would negatively affect the quantity of rental units. Developers would be faced with a disincentive through the introduction of uncertainty in terms of demand and the ability to make a profit in the rental market.
This is combined with a quality problem with rent-controlled units.
“Basically, if you control the rate at which I can increase the rent … (and) if I’m not making money at this, I’m going to let maintenance slide,” he explained.
The Ontario Rent Increase Guideline Harms Good Landlords and Good Tenants
The government’s desire to help “the little guy and gal” is a normal one. Many cheer on the working person when he or she is pitted against some of society’s archetypal villains: landlords, property developers and big corporations. But rent control is one of the worst ways to go about it.
A small rent increase guideline such as 0.8% forces a lot of good landlords out of the industry.
It also harms the chances of tenants finding a nice, well-maintained rental property It doesn’t matter if you are a Toronto Landlord, a GTA Landlord, a Hamilton Landlord, an Ottawa Landlord, a Barrie Landlord or anywhere else in Ontario, make your voice heard!