Winnipeg Free Press
By Vince Brescia
I read with interest a recent exchange in your newspaper regarding rent control. It was amazing to me that in this modern era that people even debate this issue. The fact of the matter is that rent control has been a disaster everywhere in the world that is has been implemented, including Manitoba. No fewer than eight Nobel laureates have panned rent controls, including socialists like Gunnar Myrdal, the architect of the Swedish Labour Party’s welfare state, who said: “Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”
You don’t have to look far from Manitoba to see the evidence of rent control’s failure. Your immediate neighbour, Ontario, is a case study. When rent controls were introduced in 1975, they led to an immediate drastic reduction in rental starts, in addition to the much more important, but less well understood, expansion of demand at the same time. The result: chronic low vacancy rates and rental housing shortages, reduced investment in the rental stock, rapid deterioration of the rental stock, reduced jobs in the sector, reduced government tax revenues, rapidly increasing rents in the uncontrolled sectors and grey market, and so on. By the early 1990s, under Ontario’s strictest rent control regime, rental starts had declined by 96 percent from their pre rent control levels, vacancy rates in Toronto generally stayed below 1%, and headlines talked about one housing “crisis” after another.
In addition to all of the above problems, by far the worst impact of rent controls is on the poor. As Nobel laureate Gary Becker summarized: “Price controls are almost always rationalized, at least in part, as a desire to help the poor, yet it is remarkable how frequently they harm the poor.” This is counterintuitive for many people. How can keeping prices low hurt the poor? It is one of those cases where the road to hell is paved with good intentions. When prices are artificially lowered, for any commodity, the result is always shortages (as evidenced by low vacancy rates in rent controlled markets where demand is growing). When goods are in short supply, it is typically the poor and vulnerable people who lose out in the allocation process. Two Harvard economists recently documented the extent of this problem with New York’s rent control regime in the American Economic Review. A geographer, in a report for the City of Boston found “that the special protection promised by rent control – for families, for less affluent households, and for the elderly – has failed. Instead, rent control has caused the gradual displacement of a large disadvantaged renter population by a younger, higher income, better educated, singles population.” Identical studies in Berkely and Santa Monica found the same. The same was found in Sweden, Australia, France, and just about everywhere that rent controls have been tried.
Here again, the experience of Ontario is instructive. Rent controls were softened slightly in 1998. A change allowed rents to go to market after a tenant left, and then lifetime rent controls were applied again for as long as the next tenant remained. Even this small change led to a massive improvement in housing conditions in Ontario. Capital investment in the provinces ageing rental stock skyrocketed: tenants have better homes to come home to. Vacancy rates shot up in the chronically low vacancy rate city of Toronto. Rental starts increased by 500 percent. Customer service, where little existed before, has taken off in a competitive marketplace. Even better, vacancy rates shot up the most at the low end of the market – where there would have been no availability whatsoever under rent controls. Balance was once again restored in the market, and there is greater choice for tenants in all rent ranges.
There is now a new government in Ontario, and the typical to and fro of politics means that, since the previous government made the change, it must be bad and they must go back in the other direction. While they can change the law, they can’t change the facts of this matter. Implementing rent controls caused disaster in Ontario, and scaling them back led to success. Manitoba may not be limited by this dynamic. It was socialists in Sweden who eliminated rent controls after seeing the devastating impact they were having on more vulnerable people in their society. And as soon as they undid the controls, the problems alleviated. Perhaps it is time for Nixon to go to China. The NDP in Manitoba should begin undoing the damage caused by punitive rent controls and focusing on policies which really will help poor and vulnerable households.
Vince Brescia is President & CEO of the Federation of Rental-housing Providers of Ontario, a non-profit industry association of rental housing owners and managers.