Investors could pull out of the Toronto rental market as proposed rent controls restrict their return on investment.

A study by Urbanation says the policy could be the new Ontario Fair Housing Plan’s "single biggest and potentially most harmful change" with some investors already struggling to break even.

The consulting firm says that an average pre-sale investor with a 20 per cent downpayment on a condo which is completed this year, will only cover their costs with rental income. Investors in older stock will see better returns.

The report warns that if investors do pull out of the rental market, there will eventually be a slowdown in construction in this sector, leading to tightening supply of rental units.

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