Rent control is counterproductive

Re New tax, rent controls part of Wynne’s plan

to protect tenants and homebuyers, April 20 It is disheartening to learn that Kathleen Wynne’s government will be expanding rent control as part of its multi-pronged approach to Ontario’s housing crisis. Limiting the ability of landlords to raise rents may sound like a good idea at first, but it is precisely the wrong policy and will only exacerbate the housing shortage for renters.

The central problem is a supply/demand mismatch.

More people want to live in the GTA than there are available properties, resulting in high rental prices and high purchase prices.

Rent control is counterproductive for a number of reasons.

Most importantly, rent control reduces the incentive of developers to increase the supply of rental properties since their profits will be limited.

Moreover, in the face of limits on rental rates and a long queue of potential renters, landlords will have few incentives to maintain or improve their existing properties.

Further, artificially low prices encourage people to stay in their rental apartments in prime locations for longer than they otherwise would, and not make room for others who would move in.

Economists are an argumentative lot and rarely agree on anything, but rent control is the exception. It is not a political question.

Economists of the left and the right agree that rent control has a deleterious effect on the quantity and quality of affordable rental housing.

Both theory and evidence support this view.

Indeed, in a 2012 survey of economic experts only 2 per cent opined that rent control has a positive effect.

It’s a shame that our government is introducing a policy that only superficially appears to address the problem, but will actually harm those who need to rent affordable homes. David Goldreich, Professor of finance, director, Rotman Commerce, University of Toronto