VANCOUVER—As developers threaten to cancel rental projects in Metro Vancouver in response to the B.C. government’s move to lower the annual allowable rent increase, a tenant advocate in Toronto says the response is familiar, but likely won’t come to pass.

“This is kind of the development industry playbook,” said Geordie Dent, executive director of the Federation of Metro Tenants’ Associations. “It’s usually zoning and incentives that affect rental housing development.”

In 2017, Ontario’s provincial government expanded rent control to cover buildings constructed after 1991, which had previously been exempt.

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While some Toronto-area projects were initially cancelled in the wake of the policy change, over a year later developers have ramped up rental construction in response to strong demand and rising rents, said Shaun Hildebrand, president of Urbanation. The real estate data firm tracks Toronto’s condo and rental market.

Strong demand for rental, a lack of supply, and surging rent rates when units turn over are all bolstering new rental construction, Hildebrand said.

On Wednesday, the B.C. government announced rent increases will now track the rate of inflation, rather than the previous calculation of inflation plus two per cent. That means that for 2019, rents will rise by 2.5 per cent rather than up to 4.5 per cent.

David Hutniak, CEO of LandlordBC, said the B.C. government decision to lower the annual rent increase would make it more difficult for B.C. developers to get financing from institutional lenders like pension funds. He warned against comparing Vancouver’s rental market with Toronto’s much larger market.

The two markets both have low vacancy rates — Toronto at 1.1 per cent and Vancouver at 0.9 per cent, according to Canada Mortgage and Housing Corporation. Both cities have seen rents rise rapidly over the past two years.

When it comes to financing, there are now more options for developers who want to build rental: Both the federal government and B.C. government are trying to spur the construction of more rental housing by offering low-interest financing programs to for-profit and non-profit developers of rental housing.

Robyn Adamache, a CMHC spokesperson, said there has been keen interest in the financing program from both conventional real estate developers and non-profits.

Hutniak said he knows of one developer who applied to CMHC’s financing program, which requires applicants to include a portion of units a below-market rent rates. But with the news that they’ll lose half of the expected rent increase, “their immediate reaction is, this project is toast.”

Tsur Somerville, an economist with UBC’s Sauder School of business, said capping the annual rent increase is good for current renters, but bad in the long run because, he said, it would limit future rental supply.

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Other ways governments could incentivize rental construction are by allowing high-density buildings or giving developers tax breaks — and some Metro Vancouver municipalities are already doing that.

But Somerville believes a more efficient policy would be no rent control, combined with government-provided rent subsidies to people with fixed or lower incomes.

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