Ontario is about to experience more real estate pressures in the form of higher rents. The Government of Ontario released its annual rent guideline for 2023. This guideline covers the maximum increase most tenants can experience in the year. With inflation at a 40-year high, it’s hardly surprising to see the guideline at a decade high. However, rent is also a component of inflation, and the hikes will help entrench the high growth. This will make it even more difficult to bring inflation back to the target range.
Ontario Landlords Allowed To Hike Rents The Most In A Decade
Ontario’s rental guideline is making up for lost time, doubling last year’s maximum. Landlords can hike rents by 2.5% in 2023, following the 1.2% increase in 2022. It’s the highest the guideline has allowed since 2013, a full decade prior.
It might not sound like much, but a person paying $2,000/month would need to shell out an extra $600/year. Not massive, but not exactly a nickel for a paper bag either.
New Supply Is Largely Exempt From Any Rent Controls
The guideline applies to a large share of private dwellings, possibly the majority. This includes rented homes, apartments, basement apartments, and condos. Exclusions exist, including new buildings occupied for the first time after November 2018. These units have no controls, and ditto with the rent a new tenant pays when occupying a new rental. The guideline only applies to existing tenants remaining in place.
Homes excluded from the guideline can see prices increase to infinity. Some units vacated are currently going for double the rent previous tenants paid. Is it finally clear why so many institutions want a part of Canada’s rental game?
A Maximum That’s More Like A Minimum
Understanding the guideline’s maximum impact on costs isn’t as straightforward as many think. Many people assume if those renters see a guideline of 1.2%, that’s how much rent will grow for the market. Statistics Canada’s consumer price index (CPI) shows Ontario’s annual rent growth was 5.6% in May. That’s more than 4x the 2022 guideline, largely due to exemptions.
Landlords are most likely experiencing higher costs, especially for property taxes. However, the above target rate entrenches high inflation further and makes it stickier. This is the exact scenario every bank warned the central bank about, for over a year now.
Stagflation fears are getting real.