Does rent con­trol sti­fle con­struc­tion?

Un­til there’s more data, the jury re­mains out

The Daily Press (Timmins) - - BUSINESS - MurTAzA hAiDEr and STEPhEN mOrANiS

On­tario has done yet an­other som­er­sault on rent con­trol reg­u­la­tions.

Premier doug Ford’s gov­ern­ment re­cently re­versed the strin­gent rent con­trol reg­u­la­tions that were en­forced last year by the lib­er­als. Un­der the re­vised reg­u­la­tions, new or pre­vi­ously un­oc­cu­pied ren­tal units will no longer be sub­ject to rent con­trol.

ex­ist­ing ten­ants in pur­pose-built or pri­vate rentals will con­tinue to be pro­tected. The change in reg­u­la­tion ap­plies to newly built or pre­vi­ously un­rented units in ex­ist­ing build­ings.

since the lib­eral gov­ern­ment in­sti­tuted strin­gent reg­u­la­tions in april, 2017, that in­cluded price con­trols, ren­tal va­cancy rates have barely budged from lev­els of less than 2 per cent and rents have con­tin­ued to rise. ev­i­dence has mounted that such de­mand-side mea­sures were in­ef­fec­tive.

sup­ply-side so­lu­tions, i.e., build­ing more pur­pose-built ren­tal units to ease the pres­sure, re­quire in­cen­tives and rent con­trol does not qual­ify as one.

The de­bate about rent con­trol is far from over. Ge­ordie dent of the Fed­er­a­tion of metro Ten­ant’s as­so­ci­a­tion and an­drea hor­wath, leader of the pro­vin­cial NdP, say that re­mov­ing rent con­trol in 1987 did not en­cour­age new pur­pose-built ren­tal con­struc­tion in On­tario.

but the data sug­gest oth­er­wise. ren­tal starts in On­tario were in free-fall from a high of more than 5,000 units in the third quar­ter of 1991, to fewer than a hun­dred units in the first quar­ter of 1997.

ren­tal starts in On­tario started to rise in 1999 and grew steadily un­til 2004, av­er­ag­ing around 1,000 starts each quar­ter. For the next ten years, that num­ber was rel­a­tively con­stant, while con­struc­tion of con­do­minium build­ings ac­cel­er­ated in ur­ban On­tario. many new con­do­mini­ums were made avail­able to the ren­tal mar­ket, thus grow­ing the over­all sup­ply of ren­tal units in pur­pose-built and pri­vate build­ings.

Pur­pose-built ren­tal starts in On­tario started to in­crease again, be­gin­ning in 2014, and reach­ing a high of 1,664 units in the first quar­ter of 2018. The ques­tion to ask is would the ren­tal starts have reached th­ese num­bers, mod­est as they may be, had rent con­trol reg­u­la­tions re­mained in place since the late eight­ies.

Vot­ers in cal­i­for­nia have strug­gled with sim­i­lar ques­tions. For decades, hous­ing prices and rents in ur­ban ar­eas have risen at rates that far out­paced the ap­pre­ci­a­tion in av­er­age in­comes. The de­sir­abil­ity of the place for its nat­u­ral en­dow­ments and as the hub of in­no­va­tion in the United states has meant that the de­mand for all types of hous­ing out­paced the sup­ply.

ear­lier in Novem­ber, cal­i­for­nia vot­ers de­feated Propo­si­tion 10, which would have al­lowed lo­cal gov­ern­ments to im­pose rent con­trols.

in a fiercely con­tested bal­lot ini­tia­tive that at­tracted more than $100 mil­lion in cam­paign spend­ing, vot­ers re­jected a move to re­peal the costa-hawkins ren­tal hous­ing act. among other pro­vi­sions, the law al­lowed land­lords to charge mar­ket rents when a rent-con­trol unit is va­cated.

Ken­neth rosen, a renowned ur­ban eco­nomics pro­fes­sor with Uc berke­ley, ar­gued that rent con­trols shrink the sup­ply of new ren­tal units, ex­pe­dite struc­tural de­te­ri­o­ra­tion of rent-con­trolled units, and en­cour­age land­lords to switch ren­tal build­ings to other res­i­den­tial or com­mer­cial uses.

an over­whelm­ing ma­jor­ity of economists agree with rosen, that ren­tal hous­ing af­ford­abil­ity will im­prove with an in­crease in the sup­ply of ren­tal units and not nec­es­sar­ily be­cause of rent con­trols.

The de­bate about rent con­trol ef­fi­cacy in canada can cer­tainly use some hard em­pir­i­cal ev­i­dence. some im­por­tant ques­tions de­mand an­swers. is it in­deed true that elim­i­nat­ing rent con­trols does not in­crease the sup­ply of ren­tal units? do rents grow slower in rent-con­trolled mar­kets in canada?

The avail­able ev­i­dence can be stretched to sup­port the ar­gu­ments for and against rent con­trol.

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