The Next City
June 21, 1998
Taken to the cleaners
Excerpted from the Summer 1998 issue.
RICHARD MORANTZ, A WINNIPEG PROPERTY MANAGER, recently bought an apartment building whose previous owner had been providing laundry facilities to tenants at no charge. He didn’t mind that so much. But then Morantz realized that many tenants were having friends and relatives over to use the washers and dryers, which also helped explain why the machines and rooms were so run-down. So Morantz made a deal with a laundry-service company to redecorate and put in new equipment. For a year the service would cost 25 cents each per wash and dry; after that, prices would go to $2 a load, the going commercial rate.
It seemed like a good idea at the time: The modest charge would limit unwanted traffic, improve the facilities, and increase revenues down the road. But little did Morantz know that his plan would attract the ire of Manitoba’s rent control police. First, the authorities ordered him to apply in advance for permission to make the change. To add injury to insult, they informed him that the “withdrawal application” would trigger rent reductions in his new building of as much as $20 per month per tenant. Morantz put the withdrawal application, as well as his hopes of being a proud landlord of a respectable property, “on hold,” as had others before him in Canada’s 30-year history of rent control.
You don’t have to be Adam Smith to figure out what rent control does. It kills the construction of moderately priced units, and it leads landlords either to put existing apartments to non-residential uses, or to let them deteriorate, or to abandon them outright as they run out of the resources (and morale) necessary for maintenance. In New York City, where rent control was introduced as a temporary wartime measure and still hangs on, landlords have abandoned whole neighborhoods, with small investors especially bankrupted by aggressive bureaucrats. In Toronto every year, on average, about 60,000 people move in. Yet a mere 20 new rental units were built there in 1996. Before rent control, during the 1960s and early 1970s, an average of 26,000 new units were built in Ontario annually, most of them in Toronto, where a third of the province’s population lives. Since rent control began in 1975, private rental starts in Ontario have declined to about 2,000 a year.
Ontario’s Conservative government passed legislation to tackle the problems almost a year ago. But the new law, which decontrols rents only once an apartment is empty, will do little to dismantle the regulatory apparatus that has stopped the construction of affordable new rental housing. Once the space has been leased, the new price falls back under the jurisdiction of the bureaucrats, whose annual edicts specify upper limits on increases (no more than 2.8 per cent in 1998). They even capped rent increases to pay for improvements at 4 per cent a year for a limit of three years. A tenant survey conducted by the Canada Mortgage and Housing Corporation found that 11 per cent of Toronto’s rental buildings need substantial work, and the Fair Rental Policy Organization, a landlord-backed advocacy group, estimates the current cost of repairing “major structural problems” at $10 billion. Few seriously believe that this nickel-and-dime relief will address the problems.
Unlike previous Conservative administrations, many regard Premier Mike Harris’s government, whose limited-government rhetoric brought it to power in 1995, as market oriented. Why its compromised approach to rent control?
A clue can be had in neighboring Manitoba where Winnipeg dominates its province even more than Toronto does Ontario. Rent control arrived in the autumn of 1970, courtesy of Manitoba’s first New Democratic Party government, at a time when strong demand and Pierre Trudeau’s inflationary monetary policy sent rents skyward. Two elections later, in 1980, the Conservative minister responsible for housing, recognizing rent control’s inherent folly, began dismantling it. The next year, apartment-dwelling voters in Winnipeg constituencies turned the Conservatives out of office.
That minister, Gary Filmon, has been Premier of Manitoba since 1988. But the consequences of his 1980 misadventure so shook him that he has not dared decontrol again — even though apartment demand and rents in Winnipeg are falling of their own accord and likely to stay low for the foreseeable future.
For several reasons — most involving the bloated bureaucracies in Winnipeg’s postamalgamation civic government and school system — Winnipeggers pay among the highest property taxes in North America. This has reduced house prices, further tilting residents away from renting and toward ownership. On top of this, low inflation and interest rates are turning window-shoppers into buyers.
Premier Filmon has ignored a side effect of rent control that could turn homeowners — until now unconcerned with the issue — into active rent control opponents: Rent control has raised their property taxes. Because rent control erodes the worth of apartment buildings, assessments slip, and the city loses revenue. To compensate, the city has shifted the property tax load onto homeowners. By some calculations, this costs the average Winnipeg home-owning family $600 to $700 a year extra.
Overall, rent control has not helped the poor. The unregulated portions of the market — in Manitoba’s case, apartments less than five years old and units priced above the rent control ceiling — charge dramatically higher rents. So a price gap now faces potential renters. Uncontrolled apartments charge prices that only the very well off can afford. Controlled apartments are inexpensive but deteriorating rapidly. Construction of moderately priced, middle-income multiple housing units stopped completely in Winnipeg soon after rent controls began. Except for publicly built or subsidized apartments (most commonly for seniors), not one has been built in 25 years. Only luxury apartments go up, leaving common folk with no choice but to meet government qualifications for public housing or live in a dump. (In some cases, that amounts to the same thing.)
In the early 1970s, Manitoba politicians compensated for the effects of rent control by increasing the stock of public housing, building tacky projects that soon turned into crime-infested ghettos. Many sit empty because renters refuse to risk the safety of their families. To encourage new stock, provincial and civic governments now follow the well-trodden path of public-private cooperation. But after accounting for bureaucratic overhead, tax exemptions, and capital subsidies, the new quasi-private housing units cost two to three times as much as genuinely private ones. Higher taxes pay for this waste, and scarce public resources are diverted from useful activities.
Despite all the drawbacks, once a government heads down the rent control path, it doesn’t turn back. The one exception is the government of Nova Scotia, which terminated its rent control program in 1993 without suffering at the polls. The original legislation, passed in 1975, allowed the cabinet to exempt any properties it designated by special order. Eighteen years later, faced with high vacancy rates and rents below the controlled limits, the cabinet exempted virtually all properties. Rent control legislation is still on the books but only for trailer park tenants, who can appeal increases to a review board.
There’s no peace in the valley
AFTER THE RECESSION OF THE EARLY 1990S and recent overbuilding of its industrial park infrastructure by its government, the region of Hamilton-Wentworth in Ontario is awash in empty, serviced industrial land. The smokestacks are still there, but in the last 20 years Hamilton’s once bustling bayfront has lost half its workforce. Business parks sit idle, waiting for buyers to cover the cost of development charges.
It wasn’t supposed to be this way. In 1984, a study of the region’s economy by Currie, Coopers and Lybrand warned of an impending shortage of industrial growth room. The consulting group’s solution: Build a new, six-lane freeway up the Niagara Escarpment to open Hamilton’s “mountain” to development by 2001. Agreeing, regional traffic planners and the local government chose a six-lane route through the Red Hill Creek Valley. Wrangling with the province over funding delayed the start of its construction until mid-1998.
The passage of time shows the various planners and consultants to have been optimistic. In 1990, with engineers admitting that a need for two extra lanes was “not even on the horizon,” they scaled back the six-lane expressway to four. And based on current rates, rather than facing a shortage, Hamilton and her sister communities have 700 years worth of empty, freeway-accessible industrial lots. Even under a fast economic growth scenario, another road up the mountain would not be needed until 2021, and improvements to a nearby provincial highway would handle any additional escarpment traffic volumes even further into the next century.
The public has passionately debated the expressway since the project’s conception in the 1950s. Building the road would mean paving over much of the Red Hill Creek Valley, the largest remaining natural area in Hamilton’s industrialized east end. Residents, anxious about losing their ravine lots, found allies among environmentalists concerned about the destruction of biologically rich habitat. (Home to over 20 species of mammals, the valley is a major migration route for birds, and metre-long Chinook salmon spawn in the creek.)
In the executive summary of the current regional budget, in which the expressway represents 75 per cent of new capital spending, Hamilton-Wentworth financial staff warns of “debt implications” and suggests “delaying or eliminating some of the projects.” Despite the best advice from its own staff, regional council passed the 1998 budget, expressway included.
Anti-expressway councillors, a minority, predict doom for Hamilton-Wentworth: The region’s debt will double in the next two years, raising borrowing costs; property taxes (already among Ontario’s highest) will increase by 5 per cent this year; and the chronic deterioration of the region’s infrastructure continues (funding for road and sewer maintenance has been below “sustainable levels” since 1990).
Written in stone
ADAM ALEXANDER THOUGHT HE WAS DOING HIS COMMUNITY A SERVICE last year, when he spent months chipping away at the ugly pebble-dash façade of his heritage home in England, to reveal the original stonework underneath.
The listed Victorian country cottage had fallen victim to the pebble-dash craze of the 1960s and was, until Alexander’s hard work, an esthetic outcast in the Gloucestershire village of St. Briavels. With the pebble-dash gone, not only did the cottage blend in with its 11th-century neighbor, a hunting lodge, but it at last matched the porch and garage, Alexander’s addition, which the Forest of Dean district council had required him to build in original stone rather than cladding. Alexander and his wife, Julia, were sure the whole village would approve.
But it seems nothing in the world of planning is that simple. Despite English Heritage ministers having fought against pebble-dash fronts and having given district councils authority to stop people from modernizing period homes, the council swiftly ordered Alexander to replace what he removed or face prosecution.
The reason? Under English law, listed buildings must be kept in the same condition as when they were first listed. Alexander’s home was listed in the 1980s, pebble-dash coating and all.
Alexander, a television documentary producer, called the order “a complete joke,” and more than 200 citizens of St. Briavels signed a petition agreeing with him. “My neighbors who signed the petition think the planning department is run by idiots — and you have to wonder whether they’re right,” he said.
English Heritage, invited to look at the cottage, agreed that the coating looked horrible but then insisted that the stone would look more “authentic” if it were lime-washed even though the village has no other lime-washed buildings.
Richard Stagg, the council’s planning head, said that many owners wanted to restore listed buildings to their original façades, but, for the sake of historical integrity, “owners cannot put them back to how they looked in a previous age. . . . The fact that we asked him to build the extension and porch in bare stone doesn’t matter. The combination of limewash and stone will work.”
Alexander’s planning application to keep the pebble-dash off was considered in February. The Forest of Dean district council inspected the site, as did the planning department. “Nineteen people came out in 10 cars, all of whom would be claiming expenses,” says Julia Alexander.
Next came a full-district council meeting, where, in less than a minute, the council voted to leave the façade as non-limewashed stone.
A victory? Well, not yet. “Just as a rather spiteful action,” continues Julia Alexander, “the council said, ‘yes, you can keep the house in stone, but you must remove the paint from the lintels and sills.’ To take the paint off the sandstone would damage the sandstone, so now we’re in another battle.”