National Post
March 2, 2001
Prisoners of rent control
David Gratzer
Once upon a time, there was hope the Ontario Tories, with revolutionary vigour,
would scrap
Toronto's rent control regulations. Those days have long passed. In conversation
with a government
staffer, abolishing rent control was termed "neo-conservative excess."
Glen Murray has been accused of many things, but neo-conservatism is not one of
them. Winnipeg's
Mayor has never even belonged to a provincial Progressive Conservative party.
Indeed, he was
once a card-carrying New Democrat. In the mid-1990s, as a city councillor, he
briefly flirted with
running for the NDP. He chose to stay in municipal politics and, with a
coalition of left-wing activists
and unions, won the big job at City Hall in 1998.
But these days, you wouldn't know it. On the issue of rent control, Glen Murray
sounds remarkably,
well, free market. If the Ontario Tories deem this topic too controversial, Mr.
Murray doesn't. Asked
recently about Manitoba's decades-old policy, he was clear: Dump it. What would
drive a
bread-and-butter socialist such as Mr. Murray to dismiss the idea of rent
control? Try nearly 30 years
of failed public policy.
Historically, rent controls were widely used by governments across North
America. New York
introduced it as a temporary wartime measure during the Second World War. Many
cities followed
suit: Montreal, Washington, Toronto, Boston and Los Angeles, among others. Faced
with high
inflation and ever-rising prices, the Manitoba government, like many
jurisdictions both north and
south of the border, embraced rent control in the early 1970s.
Why would a government want to dabble in the infinitely complicated world of
rental pricing? The
political rewards are clear: The tenants get guaranteed low rent at the expense
of the landlords'
profit potential. For politicians, it's a winning formula, given there will
always be far more tenants
than landlords.
But rent controls have an unintended consequence: They turn tenants into
prisoners of their own
apartments. Landlords, after all, have little capital (or incentive) to build
new units. As a result,
shortages of rental units develop. In the early 1990s, at the heyday of rent
control in Toronto, a
friend offered me advice about finding a place: Start by looking in the
obituaries. As William Tucker
notes in his book on the topic, in Europe, where rent control governs large
sectors of the housing
market, the result has been "labour immobility," where moving a
factory across town can mean
losing half the workforce.
In Winnipeg, the stagnation of rent control is obvious. It's been more than a
decade since the last
apartment rental building was built. Moreover, landlords are not in a rush to
renovate their buildings.
Winnipeg's apartments come complete with antique plumbing and electrical wiring.
One way of
measuring the quality of a rental unit is to look at its market value as a
percentage of the
replacement cost -- in other words, the present sale price compared to the cost
of building a new
apartment. In 1976, the average unit replacement cost was 85% of the market
value. By 1993, it
sunk to 43%. Winnipeg distinguishes itself as having the lowest property values
of any major city in
the country.
If rental units are not refurbished, their value stagnates and home owners
disproportionately pick up
the slack in property taxes. In a Frontier Centre for Public Policy paper, the
late Robert Hanson
calculated that homeowners would save about $700 a year in property taxes if
rent control had not
been implemented -- or about $13,000 in total.
This leaves Winnipeg homeowners with a big bill -- and a decaying inner city.
Victor Vrasnik, director
of the Manitoba Taxpayers' Association, observes: "Plagued by depopulation
and disregard,
Winnipeg's inner city has become the preferred travel destination for vandals
and pyromaniacs.
Leave it to the rent control aficionados to blame the slum lords."
Faced with similar problems, many jurisdictions have reconsidered. During the
'80s and '90s, 31
states prohibited this type of price-fixing by law or constitutional amendment.
On this side of the
border, one of the first major decisions of Roy Romanow's government was to end
Saskatchewan's
rent controls. And for those governments without the intestinal fortitude to
fully scrap controls, there
is a partial relaxation of the government regulation: allowing rents to rise
when tenants move. This
was the approach taken by the Mike Harris Tories in Ontario.
Will Winnipeg get Mr. Murray's wish? Right now, it appears unlikely. Despite
pressure from the
Mayor's office and growing property tax fatigue, the Manitoba government seems
determined to stay
the course, proving that just because the New Democrats are new to office
doesn't mean they can't
make old mistakes.
David Gratzer, a Toronto physician, is the author of Code Blue:
Reviving Canada's Health Care System, which was awarded this year's $25,000
Donner Prize for best Canadian public policy book.
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