A Tale from the Public Policy Crypt

Commentary, Frontier Centre, Housing Affordability, Manitoba, Uncategorized

Although it’s a lovely place, Manitoba’s virtues do not include being on the cutting edge of public policy. But that has a bright side: tourist dollars from archaeologists who come to dig into our crypt of old, ineffective public policy ideas.

Much evidence supports the observation that intervention in commercial markets usually causes damage to the community that outweighs the benefits it allegedly produces. Attempting to control prices or quality of goods and services smothers markets and usually backfires; i.e. produces unexpected costs and consequences.

The Filmon government’s mouldiest old regulatory chestnut is rent control. Straight out of the garish flare pants 70’s, this piece of wizardry mandates rigid, Soviet-style price regulation of most forms of affordable residential rental property. Even though many provinces have loosened or dumped this policy altogether – give Saskatchewan’s reality-conscious NDP a pat on the back for revoking it – our government hangs on to it in a mute daze of inertia.

You don’t have to be Einstein to figure the downside of rent control. When the rent control administrators forbid landlords to raise rents to cover increased costs, no one builds new apartments and existing apartments fall apart as owners defer maintenance. In addition to its obvious undermining of the rental sector, the policy inflicts nasty fiscal and social side effects on the regions and governments that adopt it. Rent control has also contributed to Winnipeg’s relative stagnation.

How so?

As apartments crumble and run down, particularly in the downtown core, both their value and the property-tax revenues they garner fall correspondingly. So the tax load they used to carry gets shifted on to homeowners. In turn, this encourages the prized and stable middle class to locate in the low-tax communities beyond the perimeter. At the same time, the city core rots as "downscale" tenants move into the deteriorating rent-controlled apartments.

There are other, less obvious costs. Since no one with even half a brain builds moderately priced apartment units when the law forces them to lose money, public dollars end up building public housing units that often turn into shabby and stigmatized eyesores.

To wit, a cautionary tale about the rent control bureaucracy.

Richard Morantz, a Winnipeg property manager, recently bought an apartment building where the previous owner had been providing laundry facilities to tenants at no charge. He soon embarked on an adventure into the treacherous waters of Manitoba’s rent control legislation.

As soon as Morantz assumed management, he learned that many tenants were inviting friends and relatives over to use the washers and dryers. The machines and rooms were run down. So Morantz made a deal with a laundry-service company to redecorate and put in new equipment. For a year the service was to cost 25 cents each per wash and dry; after that, prices were to go to market levels.

It seemed like a good idea at the time: it would limit unwanted building traffic, improve the laundry facilities and increase revenues down the road. Little did Morantz know that this simple win-win situation would attract the ire of Manitoba’s rent control police. First, they ordered him to apply in advance for permission to make the change. To add injury to insult, he was informed that the "withdrawal application" would trigger rent reductions in his new building of as much as $20 per month per tenant. The matter continues.

It takes over 50 rent control officials and several million dollars in payroll to produce farces like the Morantz debacle — and to smother the rental marketplace.

Another grisly tale from the Manitoba Mausoleum of failed public policy. Oh, and by the way, last week the Minister of Rent Controls, Mike Radcliffe, approved yet another 1% rent increase for the next year.