Conversions, Condominiums and Capital Gains: The Transformation of the Ontario Rental Housing Market

This paper challenges the widespread view that there was a rental housing supply crisis in the late 1980s in Ontario and shows that the increase in rental during that period was far greater than the number of new purpose-built rental units. Conversions and investor-owned condominiums made a major contribution. Contrary to conventional wisdom, conversions came from the relatively new stock and tenure switches unassociated with structural change were important. The importance of the conversion phenomenon is underlined by evidence that the conversion sector of the rental market was far looser in 1989 than in 1971. This suggests that the official rental vacancy rate, for large buildings, is misleading as an indicator of overall availability. The paper argues that the rise in the relative importance of conversions and investor-owned condominiums is no fluke, but rather is the consequence of the interaction of the income tax system and the high rates of inflation and capital gains of the 1970s and 1980s, as well as certain details of Ontario rent regulation. It argues that these forces have encouraged conversions of units from ownership to rental, additions of rental units in small buildings rather than in large, and non-corporate ownerships.