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Globe editorial: To make any rental market better, hit rent-control-delete

When the Ontario Liberal government of Kathleen Wynne announced in April that it was going to expand rent control to all new and existing apartments in the province, critics – this page included – foretold of dire consequences.

Applying the strict rent controls that cover apartments built before November, 1991, to every single unit would discourage developers from constructing much needed new stock, came the cry from all those familiar with the economic certainties of supply, demand and artificial pricing, not to mention history.

In cities that have brought in rent control in the past, including Toronto in the 1970s, very little rental stock gets built afterward – which helps explain why controls were eventually lifted in Ontario for buildings that went up after 1991.

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Lo and behold, a study released this week contained the headline-grabbing news that as many as 1,000 rental apartment units currently under construction in Toronto will instead be sold as condominiums.

As well, it predicted a shortfall of 5,750 new rental units every year for 10 years, most of it in Toronto where the economy is booming, houses are incredibly expensive and new people are arriving all the time.

We're confident that, in the long run, the more extensive and restrictive rent control is, the more it depresses the quantity and quality of a city rental housing stock. The evidence is global, and there's a lot of it. However, this latest study still deserves to be taken with grain of salt.

It was commissioned by the Federation of Rental-housing Providers of Ontario, an advocacy group for those "who own, manage, build and finance, service and supply residential rental homes." Making the case against rent control is the FRPO's job.

And this latest batch of evidence isn't entirely convincing. The bit about the loss of rental units is based on a survey of FRPO members. The study's authors also admit that data are limited, and that much of what they conclude is based on assumptions about how developers will behave in the future.

At best, the study says "it can be argued" that rent controls, or their lack, will be the main influence on whether there is a gap in supply and demand for rental stock in the next decade, but "it is not possible to fully document all factors or account for all changes that may occur in the future."

It should also be admitted by all that, even though new construction has been exempted from rent controls, there has been no gold rush of new purpose-built apartments in Toronto. Most of the new units coming online have been in the form of condos that investors buy and rent out. (Perhaps that's because developers feared that the exemption of newer units from rent control would end, eventually. And it did.)

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Still, it's too soon to find conclusive evidence of the dire consequences of a rent-control expansion that only took effect in May.

But we do know what impact rent control has had around the world, and in Toronto.

A little more than a generation ago, the city was experiencing a construction boom of new rental towers. But developers stopped building them in the 1970s, after rent control came in.

There are alternatives to rent control.

In modern welfare states with functioning markets, the most efficient way to make the necessities of life affordable is not to cap prices. It's to let the market decide on prices, while subsidizing poorer people's incomes. To help those who can't afford food, the government doesn't put price controls on bread. Instead, it gives money – welfare, child benefits, family benefits, and so on – to people with low incomes. The problem is treated as one where some people's incomes are too low, not as a case where the entire market has prices that need to be controlled because they are too high.

Rent control is never ideal, but at least the less restrictive it is, the less it interferes with the market – and the less it decreases supply. In Quebec, for instance, the Régie du Logement regulates rent by calculating annual applicable percentage increases for actual costs, such as heating fuels, hydro, and capital expenditures. Landlords can ask for any increase they want, but if it's out of whack with the increases set by the Régie, tenants can challenge it and try to reach a settlement deemed fair by all parties. As well, these rules don't apply to buildings less than five years old.

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The FRPO report says there are currently two rental units per 1,000 people under construction in Quebec – twice the number the Greater Toronto Area. Something is working, or is at least less dysfunctional, in the Quebec market.

The bottom line is that there is solid historical evidence that, in the long run, rent control is counterproductive. More rent control doesn't lead to more rental housing, cheaper rental housing or better rental housing. Quite the opposite.

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