If the deal closes as expected on Nov. 16, there will likely be a celebration in the boardroom of Cadillac Fairview Corporation. Executives of the large Toronto-based development company have made no secret of their enthusiasm for the deal by which the company will hand over 68 of its apartment buildings—about 80 per cent of its apartment holdings—to Greymac Credit Corporation, in exchange for $270 million. In September Gerald Sheff, president of Cadillac’s land and housing unit, proudly pointed out that the properties were being sold for substantially more than their book value. The sale is causing less enthusiasm, however, among the estimated 25,000 people who live in those buildings, because, ultimately, it is they who will likely end up paying most of the price of Cadillac’s sweet deal.
Since the sale was announced three months ago, tenants have lived in fear
that Greymac will raise rents sharply. Greymac, an obscure holding company whose investors remain anonymous, refuses to discuss the deal or its implications. But A.E. LePage broker Stan Russocki points out that “tenants cannot benefit. Rents can only go one way.” What is particularly galling to many of Cadillac’s tenants is the spectacle of the rent review board—or the Residential Tenancy Commission, as it is now called—acquiescing in the process.
The massive Cadillac-Greymac deal is focusing attention sharply on the limitations of the review program in controlling rents. While debate over the controversial program continues—with tenants in favor and landlords fiercely opposed—the rent review system is becoming almost irrelevant to many tenants. Clearly, it has done little to shield some of them from massive rent hikes. That is mainly because the rent review legislation contains key exemptions that allow developers to get around the six-per-cent ceiling when they refinance or sell a building, by passing
their increased costs along to tenants in the form of higher rents.
The Cadillac sale has attracted considerable attention because it involves so many apartment units—nearly 11,000 suites. Yet the fact remains that more and more landlords are applying to the Residential Tenancy Commission for increases above the six-per-cent limit. The number of applications that the commission received last year more than doubled those of 1980 and they are arriving at an even faster pace this year. In the past six months the commission received applications affecting
More and more landlords are sidestepping the six-per-cent ceiling when theg refinance or sell their apartments
more than 106,000 apartment units across the province. Landlords are having considerable success at the board, too. Last year the average increase granted was almost 15 per cent, and that figure masks the dramatic increases some tenants faced when their buildings were sold at very high prices. Commission spokesman Gary Wrathall confirms that such increases can sometimes be as high as 60 and 70 per cent for three consecutive years—almost 200 per cent altogether—making the sixper-cent ceiling little more than a bad joke for tenants. Susan Strickland, an office clerk, says the rent on her threebedroom North York apartment just increased by $85 a month to $463, and she complains that the commission is not protecting tenants. “The thing that burns me is that I didn’t get a raise this year because of the economy,” she
says. “And yet the government lets them raise my rent like this.”
Ontario introduced rent review in 1975 after leapfrogging real estate prices and declining vacancy rates sent rents spiralling upward. Under the control system, which applies only to buildings constructed before Jan. 1, 1976, a landlord is limited to six-per-cent annual raises unless he can satisfy the commission that his costs are higher. If so, he can pass any additional costs on to tenants. But, while increased operating costs—for heating, lighting, water—are passed along to tenants without much problem, tenants balk when they are faced with massive increases due to refinancing. Dale Martin, an economist and chairman of the Federation of Metro Toronto Tenants’ Association, questions why landlords should be able to pass most of the costs of high interest rates on to the tenants when other businesses are forced to bear the brunt of high interest ràtes. What really scares tenants is that since the owners do not have to pay the increased costs of higher interest rates themselves, they have little incentive to negotiate a good deal.
But the real problems begin when the building is actually sold. Under the existing rent review policy as much as 85 per cent of the costs incurred by the purchaser in acquiring the building can be passed on to the tenants in the form of higher rents. “Tenants are asked to subsidize speculation,” says Nelson Wiseman, a political scientist at the University of Toronto who has acted as a housing consultant to the Manitoba government. These transactions take place between developers totally outside the rent review process, and the tenant often finds out only when he is asked to pay more rent.
Much of the problem seems to lie with the limited scope of the Residential Tenancy Commission’s investigations. In assessing the rent increase to be allowed the commission only looks at a landlord’s rental income, not his considerable tax advantages. As a result, while a building’s rents may balance its costs, the developer may, at the same time, be reaping generous tax deductions for the building that are not taken into review by the commission.
For their part, developers tend to view the situation entirely differently. Eric LeBourdais, a spokesman for the Urban Development Institute—an organization representing developers— sees the profits landlords collect through sales as their due reward. He argues that, in fact, developers have been subsidizing tenants by being denied the right to raise their rents to whatever the market will bear, and he argues that controls have turned land-
lords into an abused minority. “The government singled out just one class of people [landlords] for discriminatory legislation,” he says. “It was shockingly similar to what happened in Nazi Germany.” LeBourdais argues that “tenants are getting one of the great bargains of all time”—that most people in Toronto can afford to pay more of their incomes in rent and that those who cannot should receive special government subsidies.
He says that today’s problems all stem from rent controls, which, he feels, have discouraged developers from building more apartments. But Martin counters that other factors, such as rising land prices, have been more crucial in discouraging construction. In fact, developers had already greatly reduced the number of apartment units constructed before rent controls were imposed in 1975. The number of apartment starts dropped from almost 24,000 at the height of the boom in 1968 to slightly more than 12,000 in 1974, the year before rent controls were introduced. Martin argues that the true picture is exactly the opposite of the one developers paint: rent controls were brought in, he says, because developers had stopped building apartments, and the scarcity of apartments had given them increasing power to set whatever rents they wanted.
The debate, in many ways, boils down to a fundamental difference in the way the two groups view rental accommodation. To tenants, it is a necessity that must be protected from corporate speculation. To landlords, it is a commodity that they have a right to handle in the most profitable way without government meddling. If the government does interfere, landlords may well pack up and take their profits elsewhere, which is exactly what Cadillac Fairview is doing.
The Cadillac deal is part of the company’s move out of the residential market—where it made its original fortune—to concentrate more on shopping centres and office complexes, where profits are now greater. Much of the $270 million from the Greymac sale may find its way to the United States, where, according to Cadillac spokesman Bert Petlock, the bulk of Cadillac’s new development programs are now concentrated.
But, in Toronto, the 25,000 tenants are left waiting to hear how big a rent increase they face. Many are living in a state of permanent insecurity. Says musician Moira Jubinville, who, with her teacher-husband, rents a modest twobedroom Cadillac townhouse in North York for $472 a month: “It’s frightening to think what it might be.”
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