Ford's PCs rolled back rent control to spur new rental construction. Did it work?

Renting in the Greater Toronto Area is becoming increasingly perilous for many tenants.

The average cost of rents in Toronto hit $2,898 in August, while throughout the region prices have generally skyrocketed by over 30 per cent in the last two years alone. 

It's not a mystery why. Demand is far outpacing supply, particularly when it comes to purpose-built rentals. That is, housing built specifically for stable, long-term rental accommodation that is usually professionally managed.

The shortage has been decades in the making. And now a "perfect storm" of factors has made the impact on the rental market and rent prices especially acute, says Shaun Hildebrand, president of real estate consulting and data firm Urbanation.

"There's an intense level of competition among renters. Demand is growing on a number of fronts and there's extremely limited amounts of supply," he said.

In 2018, Ontario's Progressive Conservative government took a controversial step to try to address a dearth of purpose-built rentals. Fresh off his election win, Premier Doug Ford rolled back rent controls on all units built or occupied after Nov. 15 that year, saying the move would provide "market-based incentives for supply growth."

The government wagered that scrapping rent controls on newer units would encourage developers to build more purpose-built rentals, since the absence of rent controls, at least in theory, makes those projects more financially attractive.

Given the current circumstances for renters in the GTA, it may seem obvious the government's rent control revisions did little to create more supply. But the reality is more complicated.

A February report by industry groups and Urbanation found the changes did initially generate more developer interest in purpose-built rental projects. Between late 2018 and the end of 2022, the number of proposed rental units throughout the GTA nearly tripled from about 40,000 to more than 112,000, though less than a third were approved.

In the City of Toronto specifically, applications for purpose-built rentals more than doubled in 2019 from the previous year, according to a staff report.

Meanwhile, GTA rental starts (the number of units included in projects with shovels in the ground) hit a three-decade high of 5,958 in 2020, according to the industry report. That's about triple the average pace of rental construction starts of the preceding two decades, it said.

But then the momentum stalled, and progress has remained largely stagnant since. 

WATCH | What happened in Toronto when Ontario rolled back rent control?: 

The COVID pandemic hit and along with it supply chain constraints. That coincided with an ongoing skilled labour shortage. Then came progressively higher interest rates. Since 2020, average construction costs have increased four times faster than rents, according to Urbanation.