Keeping prices in-line with inflation is ok if we actually match inflation. But the average inflation rate in Canada in 2022 was around 6%, but the rent control approved inflation rate was only 2.5%.
Now, this gets into the murkiness of statistics, damned statistics and lies. LOL
(not an accusation, but a set-up for an explanation)
First, we need to know that the stated intent of the 'inflationary' increase is to reflect the actual increase in a landlord's costs year over year.
While the reference is Ontario CPI; the cap was meant to reflect that an existing building's costs are function of (typically) fixed rate mortgage, utilities, property tax, staff.
These rarely shift at the speed of CPI, or at rates reflective of swings in volatile costs like food.
In a related vein, CPI as currently composed is a poor reference for increases in minimum wage, because it substantially under-weights housing costs (I'd have to look it up, but historically about 25%) vs the actual portion of a typical household
budget which is closer to 50% for many Torontonians.
And developers would still be very weary of unforeseen costs that aren't quickly captured by inflation (IE. spikes in Natural gas prices, or future carbon taxes)
Developers are often not the owner/operator of rental housing stock, but assuming they were:
Volatiles prices often swing down as well as up; you should only be allowed to capture the increase in rental rates, if you also pass on the decrease. For the record, that type of increase IS permitted in Ontario with exactly those rules.
A landlord can apply to cover the cost of an extraordinary increase in Utility bills, but when those costs go down they are obliged to lower the rent again. (this is also true, by the way of AGIs, though few tenants know they are entitled to those levies being rolled back at a future date)
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Also, the initial market-rent should capture room for volatile pricing.
. I know everybody here seems to altruistically think that developers will build rental housing for minimal profits, but we don't have any evidence in Canada to suggest this will happen. And if it doesn't, then the housing crisis will only get worse.
I don't think anybody makes that assumption, and I'm not sure why you derive that idea.
I think those who invest in a given sector have an expected rate of return in that sector; and they will make their decisions based relative to a given norm. For the last couple of decades the ROI on real estate has been much higher than its historic norm. This is true of many formerly regulated sectors like Telcos as well.
If the normal ROI in a given sector is 7% there will be investors at that level; its only when the norm is 20% that you get people turning off the taps temporarily when the ROI falls to 7.
Before I hear.....but they could just put there money in stocks.............
There is a very robust bond market in Canada with yields (ROI) generally in the 3-5% range.
It turns out lots of investors like the security of gov't backed bonds, and/or blue-chip company bonds, and will happily trade a higher ROI potential in favour of predictable, safe, annual income.
Real Estate can be, and for a long time was , structured similarly as a market. You accepted an ROI of 6-8% quite happily, in exchange for a steady income and long-term security (land will always have a value) .
The market was altered over the last three decades to a more financialized model and one I don't think has served us well.
I would argue, among other things, for eliminating REITs entirely......but I digress.
I think we're really getting a bit far off from the Mayoralty here......
A more apt discussion might be does Toronto even have the legal authority to eliminate vacancy de-control?
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