S AT U RDAY , J AN U ARY 18, 2020 | T HE GLOB E AND MAIL G R EPORT ON BUSINESS | B5

Ontario regulator says Toronto rental crisis forcing

internal review found
no issues with oversight more tenants to stay put
of PACE Credit Union Turnover rate for
apartments in the area
JAMES BRADSHAW BANKING REPORTER last year was 9.5%,
which experts say is
An Ontario financial regulator’s internal probe into claims a consequence of tight
that its staff failed to act on early warnings about alleged fraud market conditions
at a credit union has not found evidence of improper conduct.
The Financial Services Regulatory Authority of Ontario
(FSRA) launched an internal review in November in connec- MATT LUNDY
tion with a legal action it is pursuing against former senior ex- ECONOMICS REPORTER
ecutives of PACE Savings and Credit Union. The action alleges
they engaged in fraud and self-dealing.
FSRA inherited the case against PACE from a predecessor Toronto tenants are increasingly
regulator, Deposit Insurance Corp. of Ontario (DICO), which hunkering down in their
was taken over by FSRA last summer. DICO began investigat- apartments as the city copes with
ing PACE in 2017, and ultimately seized control of the credit a rental housing crisis that’s seen
union in the fall of 2018 to protect depositors. But late last the price of new listings
year, after the scope of the trouble at PACE became apparent, skyrocket.
FSRA said it received separate and apparently “credible alle- The turnover rate for apart-
gations” that some of its employees may not have acted on ments in the Toronto area was 9.5 High-rise apartments are seen in Toronto. Over the past few decades,
information received before 2017, which could have brought per cent last year, down from 15.9 Toronto has built an insufficient number of apartments for a rapidly
issues at PACE to light sooner. per cent in 2016, according to new growing population. TIJANA MARTIN/THE GLOBE AND MAIL
In response, FSRA hired Stockwoods LLP, a boutique To- figures from Canada Mortgage
ronto-based law firm that specializes in civil and commercial and Housing Corp. Toronto had As such, CMHC noted the de- The distress is widespread.
litigation, to investigate. Stockwoods reviewed more than the lowest turnover rate among 35 clining turnover rate is “likely in- Nearly 47 per cent of tenant
2,500 e-mails and interviewed those who made the allega- census metropolitan areas in Can- fluenced” by asking rates for va- households in Toronto spent
tions, as well as current and former staff. But the law firm did ada, well below Vancouver’s 13.6 cant units that, on average, are 25 more than 30 per cent of pretax
not find “documentary evidence” to support the claims, ac- per cent, Montreal’s 15.7 per cent per cent higher than for occupied income on shelter, or beyond
cording to a statement from FSRA, and concluded that “the and Calgary’s 33.3 per cent. units. what CMHC considers affordable,
alleged improper conduct by DICO management was not A declining turnover rate, ex- In turn, vacated and new units according to the most recent cen-
demonstrated.” perts say, is a consequence of tight are driving up overall rent infla- sus. (For Canada as a whole, it was
While the review was continuing, some staff at FSRA were market conditions in the city. tion. For the average apartment in 40 per cent.)
placed on paid leave “to preserve the integrity of the review Over decades, Toronto has built a the Toronto area, rent climbed by In many cases, families are
process,” and to avoid any perception that they could “im- scant number of apartments for a 6.5 per cent last year, the fastest crowding into small spaces to
pede or influence the review,” FSRA spokeswoman Melissa rapidly growing population, re- pace since 2000. make ends meet. More than
Hogg said in a statement. But those measures were lifted on sulting in soaring rental rates as No wonder many tenant 133,000 renter households in the
Jan. 15, “as an appropriate and thorough review was conduct- tenants compete for a limited households have little choice but Toronto area, or 20 per cent of all
ed and the allegations were not borne out.” pool of available units. to stay put. tenant households not in social or
The regulator is now “returning to business as usual,” Mr. Further, all but the newest Meryl Howsam has lived in the affordable housing, did not have
Hogg said. buildings are covered by provin- same one-bedroom north of enough bedrooms for everyone in
Paul Le Vay, a partner at Stockwoods who led the investiga- cial rent-control rules that tie an- Bloor Street for close to a decade, 2018, a recent Statistics Canada
tion, declined to comment. nual rent hikes for occupied paying less than $1,200 a month. survey found.
Both FSRA and DICO have faced questions about why regu- apartments to the rate of infla- She’s seen rental inflation up If anything, demand pressures
lators didn’t raise red flags about PACE earlier, given that the tion. (In 2019, that was 1.8 per close: Smaller bachelor units in have never been greater. Toronto
scope of the alleged wrongdoing at the credit union traces cent.) But when a unit is vacated, her building are now going for home prices are once again on the
back more than two decades. landlords can set the price where $1,725. So when work would take rise, putting ownership out of re-
During a routine on-site visit in June, 2017, DICO flagged they wish – and that’s led to a her out of the city for months at a ach for many, while population
certain loans as problematic. But it wasn’t until a whistle- stark divide between what exist- time, Ms. Howsam held on to her growth remains strong.
blower came forward with detailed allegations that the regu- ing and new tenants pay, given place, “because it just wasn’t Given those conditions, devel-
lator opened a more robust investigation into PACE’s man- supply constraints. worth” losing. opers have ramped up purpose-
agement. Another year passed before DICO took control of “There’s a really strong incen- Lindy Small has lived in her built construction. At the end of
PACE using a rare administration order in September, 2018. tive for you not to move,” said one-bedroom apartment near the 2019, there were close to 70,000
Six weeks after that, DICO fired PACE president Larry Smith Shaun Hildebrand, president at Don Valley Parkway for 25 years. apartment units under construc-
and chief executive Phillip Smith. research firm Urbanation. Her rent is about $855 a month, al- tion or proposed for development
Through their lawyers, Mr. Smith and Mr. Smith deny the Over all, the cost of an average though Ms. Small’s income is lim- in the Greater Toronto Area, ac-
allegations against them, which have not been proven in two-bedroom apartment in the ited, and she relies upon the Onta- cording to Urbanation numbers
court. FSRA is working to hand control of PACE back to its Toronto area rose last year to rio Disability Support Program for released Friday. That is 4.5 times
members, and has scheduled a meeting on Jan. 27 to begin a $1,562 a month, CMHC found, financial assistance. About a year higher than the total number of
process to elect a new board of directors. And the regulator is while the average two-bedroom ago, her landlord passed away, rentals built in the GTA since 2005.
“learning from our supervision of PACE as part of continuous condo rented for $2,476. leaving her worried about the However, what’s in the pipe-
improvement,” Ms. Hogg said. But for new listings, rates can new owner’s intentions for the line is not nearly enough, Mr. Hil-
Now that FSRA’s internal probe is over, CEO Mark White be exceptionally steep. Last building. debrand said. To meet demand, it
said he is pleased the regulator’s team overseeing credit month, the average two-bedroom “If somebody said to me, ‘You should be three times higher.
unions can do its work “without the potential distraction of listing in Toronto on Rentals.ca have a year to move out,’ you can’t “We’re seeing some good pro-
these allegations.” was priced at just less than $3,000 even imagine the anxiety that gress being made, but it’s still not
“We took decisive action to treat the allegations seriously,” a month, with one-bedroom units would cause me,” Ms. Small said. at a level that’s going to solve the
he said in a statement. at about $2,300. “It’s overwhelming.” problem,” he said.

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