Rent control’s wreckage

Lawrence Solomon
National Post
May 8, 2003

Rent control has helped a great many homeowners. Because it all but ended the building of new apartment buildings in Toronto, Winnipeg, and other rent-controlled cities, potential renters, with nowhere to go, have been streamed into condos and houses, pushing up residential real estate values.

Rent control has helped upwardly mobile tenants, those who planned to abandon their apartments as soon as they scraped together enough money for a down payment on their starter home. These ambitious transients had the security of knowing their apartment rents wouldn’t rise much, and their apartment buildings wouldn’t degrade much, in the short time they made their rental their home. After they bought their home, continuing rent control would help it appreciate further.

Rent control has even helped landlords, especially those good at gaming the system after picking up distressed, rent-controlled buildings at a discount. With rent control guaranteeing them automatic rent increases year after year, whether they deserved them or not, and without new buildings able to steal disgruntled tenants away, these landlords could prey on their captive tenants, freed from the expense of keeping their buildings in good repair.

Before rent control condemned rental accommodation to an ever-diminishing market share, this industry provided limitless rental accommodation of all descriptions, from the most luxurious of suites to the humblest of abodes. Today, the rental construction industry has all but disappeared in major Canadian markets. In Toronto, one of Canada’s most hostile environments for tenants, virtually no new apartment buildings have been built in a decade. In Winnipeg, which rivals Toronto for its maltreatment of tenants, rent control led to the mass conversion of well-maintained, respectable rental districts into decayed, often boarded up or crime-ridden buildings.

Rent control wasn’t entirely responsible for the collapse of an exemplary industry providing shelter to Canadians – punitive taxes on apartment buildings and other anti-tenant legislation also played a part. But nothing more chills apartment building investors – typically small businessmen with the bulk of their life savings entrusted to one or two low-rise buildings of perhaps 10 to 20 units – than the prospect that rent control could appropriate much of their life’s work. Says the Canadian Housing and Renewal Association of the simple wants of private proprietors, who own 85% of Canada’s rental units: “Half the private rental stock is owned by small investors who are in the business for the long term. In terms of maintaining and upgrading the existing rental stock, the main suggestion put forth by these investors was to remove any artificial barriers to rent increases, thereby improving the potential returns to investors for maintaining the condition of the stock.” Small investors want to maintain their properties and indeed, says Statscan, they spent an estimated $3.8-billion on repairs and renovations in 1995. “Nevertheless, says the housing report, “the perception of investors involved in the study was that the rental stock was not being maintained to the same degree as ownership housing.”

While rent control helps some homeowners and some landlords, it overwhelmingly hurt tenants, including many among the middle-and upper-class. Though well-off tenants can afford their own homes, many prefer to put their capital elsewhere. Entrepreneurs building a business often want to maximize their investments in their business, to grow them faster; those in or approaching retirement often want to maximize their dividend or interest income, without needing to resort to gimmicks such as reverse mortgages; people of all ages often want the simplicity of renting – no mortgages to renew, no roofs to repair, no neighbourhood associations or condominium committees to contend with or join.

But the biggest victims of all become the poor, those without the option of buying a home. Before rent control, the poor had consumer clout: Apartments were generally in abundant supply and landlords courted them with moderate prices and extra services. After rent control, rental markets tightened in markets such as Toronto, wresting renters of their consumer sovereignty in favour of their landlords, who could now pick and choose among the most credit-worthy applicants and leave the rest for public housing or the street.

Rent control is based on the illusion that it protects renters. It does, but only on the short term. In truth, although circumstances vary greatly with locales, cities and their residents almost all become long-term losers. Without the choice of suitable apartments, many tenants reluctantly leave the city to seek inexpensive homes in working class suburbs. They then commute to city jobs, using city facilitates without paying for them through city taxes. Meanwhile, as apartment buildings become dilapidated and devalued on city tax rolls, city treasuries see shortfalls, which they make up by raising taxes elsewhere. A 1996 report published by the Professional Property Managers Association found that Winnipeg homeowners paid, on average, $673 extra in taxes that year, and $13,000 over the previous 25 years, because their politicians’ housing policies had led to the ruin of the city’s apartment stock.

In the end, rent control serves no one well, save slumlords.

Related articles:
Homeless by decree
Homeless in paradise
Parasites in the walls

Lawrence Solomon is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe Research Foundation. www.Urban.probeinternational.org, E-mail: LarrySolomon@nextcity.com; Part of a series.

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