The Financial Post reports that there is new evidence that rent controls do not lower rent prices, and in fact, accelerate the increase in rents in the long run.
Rent Control Doesn’t Slow Increase in Rental Prices, But Accelerates Them by Reducing Growth in Available Stock of Properties
Murtaza Haider and Stephen Moranis write that “recent data from Ontario” offers proof that strict rent control laws do not slow the increase in residential rent, but actually accelerate the increases by reducing growth in the available stock of rental properties.
Haider is an associate professor at the Ted Rogers School of Management at Ryerson University, and Moranis is a real estate veteran.
They report that the Toronto Real Estate Board’s (TREB) Rental Mark Report for the second quarter shows the act had no impact on market-based rent. Rents grew at a similar rate from the year before the policy was instituted to the year after.
The data comes from its rental listing service for the Greater Toronto Area and surrounding regions.
The Wynne Government’s Rental Fairness Act May Have Had No Measurable Effect
In April 2017, the Wynne Government introduced the Rental Fairness Act, which expanded rent control to all private rental properties, restricting price increases to 1.5 per year.
According to the previous Liberal government, the policy was meant to “protect tenants from unfair rent increases,” and provide “fair and affordable” rent to Ontario residents.
Chris Ballard, then Minister of Housing and Poverty Reduction, said the act would have the effect of ensuring Ontarians “have an affordable place to call home.”
The TREB report also showed that rent for three-bedroom apartments actually significantly increases on average in 2018.
Here is the data for Toronto from TREB:
The Financial Post writes that this data proves “more of a market-based view” of the rental market than what is reported by the government-owned Canada Mortgage and Housing Corporation.
They write that “unlike TREB, which lists market-based units (condominiums and townhouses) that are primarily owned by private investors, CMHC’s reporting of rental markets is largely for, but not restricted to, purpose-built apartment rentals.”
Although, even the CMHC’s data showed the acceleration of rent prices in 2017, as rents for two bedroom apartments increased by 3.3 percent and 3.2 percent in 2015 and 2016, respectively, but increased by 4.2 percent in 2017.
Stock of Properties Has Remained the Same in Toronto for Over a Decade
The Financial Post also reported that the number of purpose-built rentals in Toronto has remained at 330,000 units for over a decade, while in the same time, the number of rental condos in the GTA has doubled.
Moreover, the rents of purpose-built housing that the CMHC reports have much lower average rents, likely because of their “less than ideal location and dilapidated condition.
Haider and Moranis write that “these buildings have remained under rent control for decades, and their owners are disincentivized to improve the quality of the rental stock. TREB data, by contrast, is based on privately owned rental condominiums whose owners, until recently, were incentivized to maintain their units in a state of good repair.”
They argue that since the Wynne policy came into place, condo rentals and other types of rentals have been provided the same disincentives for improvement.
“With high turnover rates where new tenants are not subjected to rent restrictions, rent controls are ineffective tools for addressing rapid rent increases.”
Policies That ‘Facilitate, Instead of Hindering, New Residential Development’ Are the Way Forward
They write that the average rent for almost all types of units has risen above the stipulated rate since the Rental Fairness Act came into force. “In the long run, rent controls reduce the growth in available rental stock, which further accelerates the increase in rents.”
In terms of policy, they propose that changing regulations to encourage and facilitate new developments is the way to produce stability in the prices of rent, instead of strict rent controls.