Why Isn’t Rent Control Controlling Rents?
Here’s a great video on Rent Control that we wanted to share with you. Check it out here.
Speaker 1: Rent Control. Is it working, is it not working? Well, so far it’s definitely not working. It’s doing exactly what I and many other people in the industry predicted, and that is it’s actually driving up rents even more than they were before.
Here’s an article from BuzzBuzz Home talking about that. The headline is “Rent control was supposed to make renting in Toronto more affordable – so why are prices soaring?” It’s talking specifically about the latest numbers from the Toronto Real Estate Board for the fourth quarter of 2017. Once again, they’re showing that rates are rising dramatically. They’re very quickly 10.9% year over year for average one bedroom condo. Two bedroom condo, 8.8%. Again, this has been going on for about a year and a half now with rental rates going up approximately ten, 11, 12% for about 18 months.
This is a major problem, and that’s exactly what is going to happen. It’s going to continue to happen with rent control, because with rent control it just adds so much friction to the system. People don’t move. Vacancy rate gets lower and lower. There’s no empty apartments because once you’re in them you don’t want to move. Your rental increases are capped at one or two percent. It also discourages builders from building new rental housing because it’s a major risk for them to build a new rental building without knowing with certainty what kind of rents that they can increase by. One, two percent rental increases is not going to cover the costs of inflation if you are a major institution looking at parking some money in a real estate asset. You’re not going to be looking as much at rental buildings. You’re going to be looking more and more towards building condo buildings if you’re getting into that type of property.
Bottom line: rent control does not work, but as condo investors, people who are regularly buying new condos and adding to their portfolio, you’re going to benefit from this, because every time you’re adding a new condo that’s being built, you’re getting that condo. It’s brand new, it’s empty. You’re taking advantage of those new rents. The new rents are climbing dramatically. If you’re the type of investor who just has one property they bought many years ago and it’s just sitting there and you’re not adding to your portfolio, then yes rent control is probably not going to benefit you in the same way because your tenants are going to be more likely to stay longer. There’s going to be lower turnover and you’re going to have less opportunities to increase your rent.
Again, the lesson here is it’s going to benefit those investors who are actively adding to their portfolio on an ongoing basis. Okay, I hope you enjoyed that article. Until next time, see you soon.