Rent Control Why It Doesn t Work

Rent Control Why It Doesn t Work

Rent Control Why It Doesn t Work An independent report done by Deloitte LLP concludes that rent control is a blunt tool that works against housing affordability and decreases affordable housing stock. After examining several jurisdictions with rent control, the Deloitte report says artificially fixing rental rates inevitably causes negative effects, including reducing the supply of affordable housing. The Deloitte report recommends the government address affordable housing through increased use of rental supplements, including rent subsidies, as opposed to interventionist policies like rent control. The Deloitte report states the private sector plays an important role in helping to provide rental housing that is affordable, but there needs to be absolute clarity that this housing stock is privately owned and is not a public utility. According to the analysis, a segment of the market will always need assistance in affording housing. This was noted in the Deloitte report by the fact that people still require assistance in the current depressed market where rents have declined on average by 7.0% in Calgary between October 2015 and October 2016. Additionally, there are more rental units under construction than at any time in the past 25 years, and condominium construction levels are also elevated which has increased the secondary market supply. Rent Control Why It Doesn t Work Page 1

The perception that rents have risen out-of-line with economic growth is dispelled: Deloitte cites StatsCan data that show from 2002-2016, rental growth, as measured by average rental rates, was slightly below the Consumer Price Index. Deloitte reports that rent control has an immediate short-term effect on affordability that is quickly wiped out by longer-term consequences, including erosion in housing stock and lack of new supply. Some of the other proven, but unintended consequences of rent control are: Lack of new construction Reduced maintenance Generates mismatch between units and tenants. Often this can mean families out-growing a small unit, but unwilling to move because of fixed rent. Rent Control Why It Doesn t Work Page 2

Creates black markets. Tenants have been known to sublet rental units at a higher rent than what they are paying, then pocket the difference. Reduced mobility. Some tenants in controlled units don t move to more suitable housing, by either moving to larger accommodation or buying into the condo or single-family market. This creates an accommodation shortage that makes housing less affordable for a greater percentage of the population. Encourages conversion of rental units to the re-sale market. The Deloitte Report notes the profile of landlords varies greatly and includes individuals, private companies, public companies, and large pension funds. The majority of (CRRA) members are small players, owning between one and 10 units. There are key themes between small and larger landlords; they all aim to earn a financial return through owning and operating the property, but in order to earn this return they take on significant risks and responsibilities. This risk doesn t only include the changing rental market, but also includes regular maintenance, changing building code requirements, normal wear-and-tear, damage to the units by tenants, and changing/increasing costs for insurance rates and tax rates. A survey done in 2016 of CRAA members reveals that members had almost $6 million dollars in damage done to their properties by tenants in the previous 12 months. Security deposits are relatively minimal, but provide at least a modicum of relief for a landlord faced with excessive clean-up or damage costs. The private sector provides the vast majority of rental housing in Alberta that meets the needs of the majority of the population. The public sector must be responsible for meeting the needs of those not able to compete in the free market. Rent Control Why It Doesn t Work Page 3

According to the Deloitte report, the private sector has always responded to increases in demand by providing new supply whereas the public sector has traditionally under-delivered on the creation of new public housing for those with acute housing needs. Finally, according to the Canadian Federation of Apartment Associations the rental industry is a significant portion of the national economy, contributing $70 billion in Gross Domestic Product, $26 billion in tax revenue, and supporting 435,000 full time jobs. Alberta s numbers are believed to be more than the pro rata share of the national numbers, meaning landlords contribute significantly to the economic well-being of the province. To conclude: Interventionist polices like rent control serve to make the affordable housing situation worse. The provincial government is instead encouraged to increase and improve rental supplements, including rent subsidies, for Albertans who have difficulty accessing housing they can afford. Rent Control Why It Doesn t Work Page 4