Rental licensing could be introduced in your city soon enough


Landlords in these communities are, needless to say, concerned about what these new municipal powers mean for their businesses, especially since it's harder than ever to find properties with positive cash flow. So why is 2007 important?

Well, that's when a series of amendments to the Ontario Municipal Act came into effect, which included the removal of a provision prohibiting municipalities from licensing residential rental properties.

Flashback

Initially, municipalities had the power to license lodging houses, which represent a very small percentage of residential rental properties in the province.

That power was greatly expanded on Jan. 30, 1996, so that municipalities could license businesses and residential rental units. But by Feb. 2, 1996, the provincial government, then under Mike Harris, quashed this newly established power, two days after being introduced.

After talking to several legal experts and provincial officials, CRE found there's a great deal of uncertainty surrounding the issue of why this measure was introduced, then revoked two days later.

But what's for certain is that the option to regulate and license residential rental properties is now fully available to any Ontarian city or town.

As goes Toronto, so goes the province

Dalton McGuinty's government reinstated this extensive power on Jan. 1, 2007, to correspond to the City of Toronto Act (2006), according to Ministry of Municipal Affairs and Housing.

Toronto city officials included the ability to license residential rental properties in the Act because they believed it would ensure better property-standards enforcement and compliance, said Jim Hart, executive director of municipal licensing and standards for the City of Toronto.

"This direction stemmed from the perception that we were not addressing the multitude of issues in Toronto's aging apartment infrastructure. Landlord licensing was seen as a mechanism to bring about change," he told CRE in an e-mail. Once other municipal leaders saw Toronto was given this broad new power, many began asking for it to be extended to all municipalities.

In keeping with the province's policy objectives and its view that "municipalities are mature, accountable governments capable of handling broad powers for the benefit of their residents," the McGuinty government "decided that there was little justification for not allowing all other municipalities to exercise the same powers," the ministry told CRE in an e-mail.

Ironically enough, Toronto - though being the reason municipalities were given the authority to license residential rental properties - chose not to introduce a licensing program of its own, Hart said. "As staff, we did not support landlord licensing," he said, "but rather took the approach that we needed to do a much better job enforcing our property-standards bylaws."

Taxation without representation

Joseph Hoffer, a lawyer with Cohen Highley LLP in London, Ont., says to truly understand why McGuinty's government gave this broad power back to the municipalities, one needs to look at the contentious issue of municipal taxation in Ontario.

For quite some time, municipalities were not trusted to levy new taxes, he said, so the Ontario government retained sole authority over taxation (that is, until the McGuinty government granted new taxation powers to the City of Toronto in 2006).

To raise revenue throughout the 1990s, municipalities relied on increasing the multi-residential property tax rate, Hoffer said. That way they didn't have to deal with possible political upheaval among the majority of residents by raising the residential property tax rate.

These higher rates of taxation for apartment buildings, even though the province prohibited municipalities from directly charging renters property taxes, were inevitably passed onto tenants, albeit indirectly, Hoffer said. "And because it was buried in the rent, it was very easy for municipalities to raise taxes annually on the multires sector, not on the res sector. The thinking was, 'What do we care? Tenants won't figure it out,' " he said.

This continued for a number of years, Hoffer said, until it reached a point at which cities like Toronto and London had a multi-unit tax rate two to four-times greater than the residential rate. To put a stop to the widening gap between these two rates, the Harris government introduced legislation through the Ontario Assessment Act in the late 1990s prohibiting any further divergence.

After that, municipalities no longer had the ability to hide tax increases in the multi-unit rate, so they began looking for new sources of revenue, Hoffer said, adding that today licensing seems to be their option of choice.

Uncertain future

MPP Joyce Savoline, the Progressive Conservative’s housing critic, says her party has not formed a policy position on whether or not to revoke municipalities' power to license residential rental properties.

"We're not going to get into the type of detail that you're talking about. That will be work for us when we take government Oct. 7, after the election," she said. "I don't think there will be that type of detail in the platform with the municipalities being able to license, that's detail."

Regardless, Savoline said she remains committed to the cause of Ontario's landlords and will continue to raise their concerns at Queen's Park.

Still, at a time when NDP MPP Cheri DiNovo has a private member's bill calling for provincial residential rental licensing, along with new rent controls and other restrictive measures, many landlords are questioning whether to continue investing in Ontario.

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