Ontario caps rent increases below the rate of inflation

On June 29, the Government of Ontario announced it would cap rent increases for 2023 at 2.5%.

Each year, Ontario releases a rent increase guideline that landlords can then use to raise the cost of tenants’ rent by a specific percentage to align with the cost of living. The province typically uses Ontario’s Consumer Price Index as a baseline for inflation. However, the recent high rate means that by this standard, landlords would have been able to raise rents by 5.3% for the year, which is not sustainable for most tenants.

A recent report by Rentals.ca shows that among the top 25 cities with the highest rent in Canada, 11 of them are in Ontario. The average rent for a one-bedroom apartment in Ontario is currently $2,219 CAD a month. A 5.3% increase would mean an additional $117 per month or $1,411 per year.

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The Ontario government says the cap will help protect tenants from significant rent increases and applies to approximately 1.4 million rental units covered by the Residential Tenancies Act. However, it does not apply to rental units occupied for the first time after November 15, 2018, vacant residential units, community housing, long-term care homes or commercial properties.

How to rent an apartment in Ontario

Renting an apartment in Ontario is reasonably straightforward in terms of the process. Apartment hunters can either enlist the services of a broker or arrange to view apartments on their own through rentals sites such as apartments.com, rentals.ca, condos.ca, kijiji.ca and others.

After viewing an apartment, if interested, you will need to fill out some forms and include other documents with your application. The rental market in Ontario can be extremely competitive and having all your documents with you when you attend a viewing can give you a huge advantage. These typically include:

• Credit report;
• Proof of employment (A dated letter from the human resources department at your employer stating how long you have been employed and your annual salary);
• Photocopies of identification

A big time-saver is to download and fill out OREA form 410. This is a form from the Ontario Real Estate Association that contains all the information your potential landlord might need such as your last few addresses, references and employment history. Bring a pen to any showings to fill in any blanks in the form.

If you do not have a strong credit history in Canada or proof of employment, it may help to include a bank statement showing your savings to prove you have enough money to sustain yourself as well as pay rent on time for several months.

If a landlord decides to rent you an apartment, you will be asked to sign a lease. This is more or less a contract that outlines the terms of what you can expect from your landlord and vice versa.

You should be prepared to pay the first and last month’s rent upfront. Some may also ask for a key or fob deposit that will be returned to you after you give notice.

It is especially important to read the lease before you sign it. Once you sign a lease, you are legally obligated to fulfill the terms of the agreement, such as staying in the apartment for a full year, keeping the unit in good condition and anything else your landlord might include regarding pets, subleasing, other occupants, cleanliness, maintenance, or smoking.

It is also important to note that landlords in Ontario are not legally allowed to request more than two months' rent in advance, no matter what your financial or employment situation is. However, you may offer more money in advance if you feel it will give you an advantage.

Most rent increases will come after 12 months of tenancy. Landlords in Ontario are not obligated to raise a tenant’s rent at all but if they choose to do so, they must provide 90 days written notice, using a specific form from the Landlord and Tenant Board. They cannot issue it before one year has passed since the beginning of the tenancy (the day the lease became valid) or one year since the previous rent increase.

Canada’s high rate of inflation

Canada, like the rest of the world, is dealing with a high rate of inflation that the Bank of Canada says was caused by increased spending in a post-pandemic economy.

The increased spending caused more demand for goods and services and therefore raised prices rapidly, peaking at 8.1% in June 2022. Canada’s rate of inflation currently stands at 3.4%, which is still above the 2% target.

Despite the decrease, the Bank of Canada raised interest rates again on July 12 by 25 basis points from 4.75%  to an overnight interest rate of 5%. It says that the reduction in inflation is due to lower energy costs rather than an ease in spending and that businesses are continuing to raise their prices more frequently than normal.

Consumer Price Index inflation is forecast to hover around 3% for the next year before gradually declining to 2% in the middle of 2025. There is no indication that Ontario will maintain the 2.5% rent cap if inflation drops to the targeted rate.

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