Does rent control work?⁣⁣ Also heads up on

[Anthony Therrien-Bernard]

As the topic of rent control seems to be coming back to the Alberta news I figured I would share some of my thoughts on the topic. ⁣⁣The idea of rent control is obviously very appealing to tenant that see this as a solution to rising rents. Unfortunately, if we dig deeper in both the history of rent control and the economic fundamentals at play the idea of bringing this piece of legislation to solve rising rents single handily falls short of it’s intended results.⁣⁣Think of where rent control is currently in force and where the rental market is currently fairly open, think of cities like New York, Toronto, Vancouver, San Francisco etc. Meanwhile Alberta has some of the best affordability in the country while having no rent control at all!⁣⁣Why does rent control not actually lower rents?⁣⁣- According to the basic theory of supply and demand, rent control causes housing supply to tighten as the incentive to own rental properties gets lowered. Rent control tend to raise demand for housing — and therefore, rents — as a result.⁣⁣- Rent control creates an incentive for apartment buildings to be converted into condos, further decreasing the rental supply.⁣⁣- Because it becomes difficult for landlord to cover their repairs and maintenance cost there is a built-in incentive to let buildings get into states of disrepair and even unsafe living environment. This is something I have witness happen first hand when living in Montréal.⁣⁣⁣⁣Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive.⁣⁣Please read this very interesting publication that looked at the removal of rent control in Alberta back in 1980: https://publications.gc.ca/.../schl.../NH15-532-1982-eng.pdf ⁣⁣In summary from that study: “Review of the rent control literature shows that if rent controls are left in place long enough, they will impact negatively on maintenance levels, abandonment, rental housing stock and investment, and labor mobility.”⁣⁣

What do you all think?

Also heads up I was at a Calgary Residential Rental Association event last week and apparently, the Acorn Tenant Union is getting established in Alberta and will be pushing for rent control: https://acorncanada.org/

[Kevin McGuire]

I have long term rentals in Ottawa (my home town) and now live in the U.S. so I have a mixed view.

@Anthony Therrien-Bernard the economics you laid out is correct wrt supply and demand. There's a very short mention of this in 4.3 Million Reasons Why Multifamily is a Buy in 2022, as I recall the person being interviewed referred to it as "winning the lottery". 

I bought my units in Ottawa knowing there was rent control and accepted it because I wanted to invest in that market. I'm now torn. 

On the one hand I'm sympathetic because, as a landlord, I have control over my tenant's home. Being forced out of your home because of rent increases just seems like such a terrible position to be in. So this asset class, rental properties, is different in nature than the pricing of pretty well any other product except maybe food. I understand the government wanting to protect the average citizen.

At the same time, boy have I had it with the Ontario Rent Control Board! Normally they set the legal rent increase based on the CPI change. That doesn't necessarily equate to my cost increases, but ok. In 2020 they froze rent increases during the pandemic. Meanwhile, my tenants remained gainfully employed, most in stable government jobs, so this was a benefit in perpetuity that none needed and meanwhile all my operating costs went up. Finally, for 2023 they set the rent increase to below inflation (2.5%, should've been 5.3%). Again, a discount in perpetuity. They effectively gave my tenants money by reaching into my pocket. Now, if the government wants to provide subsidies during a pandemic, or tax rebates during high inflation, that's fine, that should come out of the government's general ledger, not mine. As time goes on, my NOI is effectively decreasing because my revenue isn't keeping up with operating costs. All I ask is it remain neutral, I don't need to jack up rents above my cost increases.

Rant aside, here's where it's left me: I've been considering selling those properties and investing the proceeds in the US in "landlord friendly" states. And to your point @Anthony Therrien-Bernard that's to be expected from the economic incentive system: investors will shift to more favorable locales, which reduces the stock of rental units, which creates a rental housing shortage. Tenants who remain in place win, landlords are disincentivized to do upkeep, those who are looking for a place probably pay higher rent because supply is low. 

The thing that's caused me to hesitate is I'd actually feel quite bad for my tenants if someone bought the unit to live in and evicted them.

One thing's clear, I'll not be investing more there.