Rounding it up
More than a quarter of Canadians are already landlords and are generally looking for rent to cover costs and provide some income.
There are limits to how much a landlord can increase your rent but only in certain provinces.
Make sure you understand how rent control, vacancy control, and frequency control work so you can have a firm idea of what you may have to pay.
It’s a fact of life that rent goes up. Between the current market conditions, inflation, and housing demand, it really has no place to go but up. If you’re a new renter your rent could be more than you might have planned for. Did you know, however, that Canada and the provinces regulate the amount of rent increases your landlord can charge you? The goal is to keep rent affordable for as many tenants as possible. There are pros and cons to rent control, or the new theory: vacancy control. We’ll take a look at a few of them, then we’ll talk about what you need to watch out for, a few additional ways you can save on your housing, and some broader tips on tenant-landlord relations.
Our impression of landlords is usually that of an evil, Ebenezer Scrooge-type figure counting pennies and doing his (or her) best to work over the folks that live in their buildings. The archaic name “landlord” doesn’t allay this impression. However, many of the rentals in Canada are owned and rented out by small landlords–that is, landlords who own less than two rental properties. In fact, 26% of Canadian homeowners are also already landlords. This means quite a bit of the country is living in spots that other fairly normal Canadians own. Certainly, there are Scrooge McDuck-type landlords out there, but even most of the large management companies want to keep their rentals full with happy, paying renters.
Remember, landlords have to keep up with the same market that you do. Things are more expensive, it’s pricier to renovate buildings, and it costs quite a bit more to employ maintenance people. It can be difficult to remember these things when you get that rent increase letter, but as with all things, remember the person.
Three types of rent control
There are three ways the government–whether federal or provincial–controls rents for residents. Each process works in a slightly different way but has the effect of keeping rent low for current residents.
Frequency limits refer to…well…just that. Your landlord can only raise your rent based on a prescribed schedule. The increase is usually annual but doesn’t necessarily have to be. It is dictated by the province and often goes along with amount limits.
This refers to the percent increase a landlord can charge you. It often goes along with frequency limits and generally hovers somewhere near 2% depending on the province.
Vacancy control is another way that provinces control the price of rentals. With a vacancy control system, landlords are not permitted to raise rent outside of the prescribed limits for current renters. Vacancy control has been the subject of much debate over the last several years (more on that below).
Why are rents up in the first place?
There are a few key reasons why rent has been on an upward swing over the last several years, and you can probably guess the most impactful one.
You guessed correctly. COVID threw every market for a loop and made it difficult to predict everything from the shipment of tomatoes to the price of utilities. The big reason rent was impacted was because Canadians simply changed how they lived. Many began working from home and decided that commuting simply wasn’t something they wanted to do anymore when things returned to normal. Folks needed more space for at-home offices and a spot for their kids to play that wasn’t in the background of their Zoom calls.
The pandemic placed upward pressure on rentals as people moved around and…
Supply and demand
…tilted the scales of supply and demand firmly in the direction of demand. As the economy began to slow, the building of new apartments slowed as well, thereby raising the prices of apartments that already existed. Additionally, the cost of running a building became more expensive, meaning landlords had to charge more to keep up the place for their tenants.
Old tax and regulatory regimes
This gets in the weeds quickly but suffice to say the tax and regulatory system that is in place across Canada benefits builders to construct condominiums instead of rental apartments. They’re able to invest in construction and return a profit far quicker than they would if they were building for rental.
This is a hot-button issue across Canada at the moment, so we’ll quickly lay out both sides of the argument. Housing advocates argue that vacancy control–while helpful to current residents because it keeps the price down with rent control measures–drives the price of housing up when a tenant moves out. There is no control over the price of the rent if the unit isn’t occupied, meaning the new occupant could be paying hundreds of dollars more. This scheme means that, in a way, landlords are incentivised to evict tenants in favor of new ones. Housing advocates argue that strong rent control programs that benefit both existing and new residents are crucial to helping alleviate some of the housing shortage across the country.
On the flip side, landlords and other industry advocates argue that the system keeps current residents’ homes affordable and allows them to recoup some of that cost when new tenants arrive. In short, rent needs to cover the cost of ownership, and while vacancy control helps, it certainly doesn’t make up the difference. Advocates here argue that a free market would be better situated to decide what rent should be charged where.
We spoke about developers benefiting more from building condos than apartments; vacancy control is part of the problem, advocates for repealing the system argue. Because there isn’t a robust and consistent scheme surrounding rent control or vacancy control in Canada, it’s never quite certain what rent amount you may be able to charge in the future. This makes it difficult to predict earnings for new construction, pushing developers to create condos.
So how much can landlords increase rent?
Rent control is levied at the province level, and there are just four provinces that actually have some kind of rent control scheme.
BC announced a 2% rate cap increase for 2023, which has proven to both infuriate both sides–renters think it is too much, while landlords insist that it is far too little. Landlords must give residents three months’ notice of a rent increase and can only do so once a year. Landlords are coming off two years that saw just a 1.5% allowable rent increase with zero in 2020. Inflation has placed pressure on both renters and landlords.
Announced earlier this year, the government in Manitoba said that they would not permit a rent increase for 2022 or 2023, setting it at zero. There are some exceptions to this, but most units cannot have a rent increase at all. When there is an increase, residents must receive three months’ notice.
Ontario uses a combination of rent and vacancy control and has capped the 2023 increase at 2.5%. Landlords can apply for a waiver from the Landlord and Tenant Board in the province; however, there are very few instances where a waiver would be approved.
Prince Edward Island
PEI will allow up to a 10.8% increase in 2023, which will apply to any rental units that are heated with furnace oil and have heat included in the rent. For units that don’t include heating, the rate is 5.2%. In both cases, the rates are the highest in Canada and one of the highest in the history of the system.
How can you save?
With the pandemic easing, rent increases are coming back and it behooves you to be ready for the wallet shock. There are a few things you can do to plan ahead and ensure you’re ready.
Look at your personal situation. Do you need more space? Ready to start a family? Want to get some land to start that organic honey farm you’ve always dreamed of? It might be a good time to buy. Yes, the market is high, but a home can be a great vehicle for savings and provide your family with the space it needs. Take a close look at your income and expenses as well as existing debt obligations you have. Get a copy of your credit report and score and examine what's listed. Finally, shop around for a few mortgage rates to see if buying is in the cards for you.
Take a look around
Make sure you understand other rent amounts around you. Your landlord may be completely off base, or you might be getting a steal. Understanding this difference can help you when dealing with your landlord–or future landlord–when renewing your rental agreement.
You may have to alter your budget to include more money for rent. This could cause some other areas you like to spend money in to suffer, like going out or purchasing items you enjoy. The fact of the matter is, you won’t be able to enjoy anything if you’re constantly worried about keeping a roof over your head.
Final thoughts on how much a landlord can increase rent
In many provinces, landlords are limited in the amount they can increase your rent. Be sure you understand what that percentage is in your area and what you might need to do to help your budget comfortably accommodate an increase.
Dan is a runner and writer living in the Washington, D.C. area, where he currently works for a financial services trade association as the Communications Director.