Will Toronto suffer a decline like Winnipeg’s?

Worth A Look, Housing Affordability, Frontier Centre

Winnipeg — Notwithstanding recent signs of life, including a new arena under construction, Winnipeg continues to suffer from one of the most depressed downtowns in Canada: its streets deserted at night, parking lots triumphing over new construction, muffler shops the preferred form of commercial venture.

Now, inexplicably, the Ontario Liberals under Dalton McGuinty want to inflict one of that city’s worst mistakes on Toronto.

Plenty of reasons get offered to explain Winnipeg’s decline from fourth-largest city in Canada half a century ago to No. 8 today (and probably No. 11 by the end of the decade, if Hamilton, London and Kitchener-Waterloo continue to burgeon). Some cite the decline in the importance of railways and agriculture; others, the strains placed on the city by a growing aboriginal underclass; still others, the isolation from large U.S. markets.

But Winnipeg, which dominates Manitoba in a way no other city dominates any other province, is also afflicted by municipal and provincial policies perfectly, if unintentionally, designed to do it harm. Among the worst is rent control.

The provincial government continues to impose a cost-of-living-based ceiling on allowable rent increases by landlords. The result in Winnipeg is identical to that of every city with rent controls: dilapidated buildings, a chronic rental-housing shortage and a complete absence of new rental units, especially for low-income citizens who disproportionately congregate in city centres. In Winnipeg’s case, there has been no substantial rental construction in 20 years.

British Columbia, Alberta, Saskatchewan (under Roy Romanow) and Ontario weakened or scrapped rent controls in the 1980s and ’90s. The result in all these markets, over time, has been a slow but steady increase in rental construction. Some provincial and municipal governments have further relaxed restrictions on redeveloping old downtown industrial districts, producing a boom in condominium developments that have enticed many renters into the homeowner market. The result of new rental and condo construction in Toronto and some other cities has been record vacancy rates and steadily lowering rents.

Although Manitoba Premier Gary Doer has offered developers a 15-year holiday from rent controls on any new buildings and is rewriting the city’s governance act (Winnipeg is the most heavily governed and taxed major city in Canada), that’s not nearly enough to get landlords interested in upgrading existing stock and risking capital on new buildings. And so Winnipeg continues to wither.

You would think that, once a government had abolished the evil of rent controls, it would never consider turning back. But the Ontario Liberals, in a platform that otherwise contains some good ideas and many that are at least not terribly bad, have vowed to reimpose rent controls if they win the next election. To assuage anti-poverty activists who are actually arguing against the best long-term interests of low-income tenants, the Liberals are willing to convert a virtuous circle back into a vicious cycle.

The housing situation is too complex to assign praise or blame to any one government policy. A plethora of federal, provincial and municipal restrictions and disincentives deter developers from building rental units. For example, landlords who own only one or two buildings do not qualify as small businesses for income tax purposes, while developers get a better GST deal on homeowner construction than on rental units.

Politicians forget that every time they create an incentive for one group, (offering, say, tax breaks for first-time home buyers), they effectively impose a tax penalty on all other segments of the market. The power of the demographically crucial new-home buyer leads government to inadvertently penalize renters. The result is a shortage of rental housing, which leads to higher rents, which leads to government action to curb those rents, which exacerbates the shortage. Rent controls are the ultimate signal to the housing industry that governments are prepared to put short-term tenant interests above long-term market growth.

Low-income earners, students, seniors on fixed incomes and others who need an affordable place to live need to ask Dalton McGuinty what, for them, will seem like a counter-intuitive question: Why, when the urban rental market is more open than at any time in a generation, is the Ontario Liberal Party determined to reimpose a statist regulation guaranteed to help dry that market back up?

Why is he trying to turn Toronto into Winnipeg?

Frontier Centre speech on Rent Control