Above Guideline Rent Increases in the Age of Financialization

This research report looks at above guideline rent increases (AGIs) in Toronto since 2012, examining the impact AGIs have on tenants, how landlords view AGIs, which landlords apply for AGIs, and the rationales lawmakers have given for transferring certain costs to tenants through AGIs.

Authors: Philip Zigman and Martine August

Released: February 2021

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Report Summary

Toronto is in the midst of a housing crisis, and around half of the city’s renters are paying unaffordable rents. For tenants living in rent-controlled buildings, annual rent increases are limited to the provincial rent increase guideline. However, landlords can apply for an above guideline increase (AGI) if they incurred costs related to eligible capital expenditures or security services, or if they experienced an extraordinary increase in property taxes. AGIs allow landlords to transfer these costs on to tenants, increasing rents up to an additional 3% for three successive years. This report examines the increase of AGIs in Toronto over the past several years, the impacts of AGIs on tenants, the role of financialized and corporate landlords in pursuing AGIs, and the rationales lawmakers have offered for the policy.

The number of AGI applications has increased over the past several years. There were 296 AGI applications in Ontario in fiscal year 2012-13 and 758 applications in 2019-20. In Toronto, there were 117 AGI applications in fiscal year 2012-13 and 294 AGI applications in 2019-20. In each case, the number of applications in 2019-20 was two and a half times that seen in 2012-13.

An AGI can result in a tenant paying tens of thousands of dollars more in rent over the course of their tenancy. AGIs create financial strain for tenants and often follow disruptive repairs and a daunting administrative process, contributing to displacement and the loss of affordable rental housing in Toronto. Landlords frequently conduct renovations to justify AGIs while simultaneously failing to maintain buildings and being slow to respond to tenants’ maintenance requests. Despite rules restricting the expenses that may be included in AGI applications, whether a cost is eventually transferred on to tenants has more to do with whether tenants challenge it than its eligibility. Tenants can organize to fight AGIs outside of the Landlord and Tenant Board (LTB) process, and tenants in Toronto have had success fighting AGIs in this way.

Since the 1990s, large corporate and financialized landlords have been consolidating ownership of apartments. Financialized landlords view AGIs as a revenue-generating tool to help increase profits. For financialized and corporate landlords, AGIs may be part of an investment strategy and the decision to apply for one can be a political calculation. Financialized and corporate landlords accounted for 64% of all AGI applications in Toronto from 2012-2019. When considered as a percentage of units impacted by AGIs, these landlords were responsible for an estimated 84% of AGIs during this period. These landlords are also incredibly profitable, delivering large annual returns for investors and making millions in profits each year, based on publicly available information.

The stated rationales for AGIs do not justify transferring these costs on to tenants. According to lawmakers, the rationale for AGIs is to incentivize landlords to maintain their buildings—either because they will not be bothered to (the “lazy landlord”) or cannot afford to (the “cash-strapped landlord”). Against the lazy landlord rationale, we argue that there are ways to incentivize proper maintenance that do not harm tenants. Against the cash-strapped landlord rationale, we reiterate our evidence that landlords can afford to pay for these repairs themselves. Under current regulations, landlords are able to transfer major costs on to tenants without demonstrating a financial need to do so.

AGIs continue to exacerbate the affordability crisis. By allowing landlords to transfer these costs to tenants, we are prioritizing a landlord’s ability to maximize their profits over the affordability of housing. Tenants are asked to pay for repairs they were not consulted about and often do no want, and which their landlord can afford to pay for. The move to written hearings during the COVID-19 pandemic means that tenants’ ability to challenge AGIs through the LTB process is further restricted, which could encourage more tenants to apply pressure directly on their landlords when fighting an AGI.

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