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Market Games

As we saw in AGI Playbooks landlords are using some very unsavoury tactics to drive up rents.

But it would be a serious mistake to think that the manipulation of Ontario's rents ends there. There is another, well hidden, layer to the current rent crisis. There are strong indications the overall market is being manipulated to maximize landlord profits.

Supply and Demand

Arguments both for and against rent controls have been around for a long time. Interestingly, both sides of the debate appear to rely upon a rather naive version of the Free Market concepts, which would have us believe that when there is an excess of demand new sources will come along and bolster the supply so that competition will balance the market, keeping prices reasonable and customers happy. Unfortunately what happens in the real world is often something entirely different. Unregulated spaces pose a rather magnetic attraction for abuse.

Landlords, in particular, have long argued that if rent controls were lifted they would be more able to build new buildings to meet the demand and the resulting competition would level prices.

But, to all appearances, the exact opposite is what happened. In 1997 the Harris Government brought in the Tenant Protection Act (TPA) which took rent controls off all buildings first occupied after November 1991 and all units that become vacant. A 2006 report from Toronto's City Planning department bears a graph that shows how new rental properties construction (shown in blue) started to taper off after the 1993 decision to allow REITs to trade on Canada's stock markets, but really hit bottom right after the TPA took effect, and it has not significantly recovered since.

I won't speculate about whether this was intended or not. But, I figure it took most landlords about 3 heartbeats out of their day to figure out they wouldn't actually need to build anything new to increase their portfolio values. Now, they could just raise the rent and carry on.

This was the beginning of the current rental crisis in Ontario. No new construction coupled with population increases meant that a housing shortage was inevitable. Soon there would be more tenants than units.

The Golden Egg

As I write this, there simply aren't enough rental units available to house everyone. For today's investor driven landlords this is the goose that lays golden eggs.

They actually have tenants competing against one and other for a roof over their heads. There have been bidding wars with tenants bidding against tenants, driving up their own rents. Moreover; they don't have to worry if tenants move out or end up homeless; there will always be another tenant to replace the one they lost.

In their newer buildings they can increase their rents and carry on. In their rent controlled buildings, they simply rent to new tenants at much higher prices which, with tenant turnover, soon catches up to their uncontrolled buildings and AGI Playbooks can be used to increase rents beyond rent controls for long term tenants.

Since most landlords in Ontario are now playing these games, tenants have a simple choice: They can either pay the exhorbitant rent or live under a bridge.

Do we really expect landlords to build new buildings, with the huge capital expenditures and red tape, when they can make more money from maintaining a shortage of units and profiteering from their own tenants?

Face it: They're not going to shoot the goose.

Ending The Game

This game of ever increasing profits, using an artificially created shortage of rental units coupled with fast rising rents might be making landlords record profits but, lets be real, it is despicable for what it does to tenants and the effect it has on society and our economy.

I don't have all the answers, but the final fix for this will almost certainly come from taking the profit out of so brazenly manipulating the market. To do this the government needs to intercede, shutting down what can only be seen as one of the biggest scams in Ontario history...

  1. Vacant apartments need to be returned to rent controls.
  2. The current 2018 exemption date on rent controls needs to be abolished, placing all apartments under rent control.
  3. The Residential Tenancies Act needs to be updated, eliminating the loopholes allowing Bogus AGIs.
  4. Landlords filing contrived AGIs should be deemed vexatious litigants and monitored on future applications.

Beyond that there is a very real need to create valid incentives to build. Reverse the situation with more units than tenants and we will have landlords competing with landlords, as it should be, and prices will come down.

These games have to end and fairness needs to be restored.

Last Update: 2022-11-13
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