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Rent Control on Everyone's Mind at New Apartment Construction and Mixed-Use Symposium

Ontario Voters Go to Polls Thursday, and Multifamily Owners Wonder if a Change Could Be Coming to Market
June 7, 2018
Pictured: Greg Romundt, left, CEO, Centurian Apartment REIT, and Derek Lobo, right, CEO, SVN Rock Advisors Inc.

You couldn't have a conference on new apartment construction without addressing potential changes to rent control rules in Canada's largest province.

With the New Democratic Party and Conservatives vying to replace the governing and sinking Liberals in an Ontario election Thursday, the potential change in the investment climate surfaced.

"Yeah there is some uncertainty, but so much damage has been done to this Ontario market by rent control that quite frankly we have learned to live with it," said Derek Lobo, chief executive and broker of record of SVN Rock Advisors Inc., at the 7th Annual North American New Apartment Construction and Mixed-Use Symposium held today at the Metro Toronto Convention Centre.

The multifamily market has been jolted by an NDP platform that includes a call for a rent registry across the province, so tenants can know what has been previously charged for a unit. That position, and a previous NDP private members' bill calling for expanded rent control, has the industry watching the election closely.

The governing Liberals expanded rent control in 2017 across the province to include buildings constructed after 1991 after a previous exemption. Rules now in place limit annual increases to the rate of inflation and are capped at 2.5 percent.

One element of the market left unchanged by the Liberals is what is called vacancy decontrol, which allows landlords to reset the rent to any level once a tenant has moved out. Fears in the industry are the NDP will remove what the party has called a "loophole" in the rules.

"Bring it on baby," said Lobo, in a Q & A discussion with Greg Romundt, president and chief executive of Centurian Apartment REIT.

"Don’t say that," said Romundt, who in an interview after the session said he’s concerned about the changes that could come with a change to the NDP. "Derek might get pretty busy selling buildings. Hundreds of apartments [could be sold] in power of sale."

Romundt thinks investors will "panic" and head for the exits if the NDP is elected and goes ahead with its plans.

"They talk about real rent control in the platform," he said, adding the market is going to be very wary of any rent registry.

The chief executive said the Conservatives are harder to read on rent control because they have said they don't plan to repeal the Liberal legislation. There is hope the Conservatives might remove the 2.5 percent annual limit.

"The 2.5 percent increase is ridiculous. What if we have inflation of 5 percent because inflation starts to take off," said Romundt. "No tenant will ever move and how will apartment owners finance operations if expenses start to run away?"

Lobo seems to think the Ontario market and Toronto can withstand anything the government can throw at it.

"I just think the demand is so strong and the city is so great, and the province is doing so well, if it chases a few people from the market all the better for you guys because that demand is not going away," said Lobo, who joked he could sell units with "six foot ceilings" in the current Toronto multifamily climate.

Garry Marr, Toronto Market Reporter  CoStar Group   
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