Regina and Winnipeg: The Frontier Centre for Public Policy today released Rent Control and Its Applicability to Saskatchewan. The study analyses the rent control problem from different approaches (financial, theoretical and empirical) and looks at rent ceilings and second-generation rent control as well. The study is authored by Dr. Daniel Huang, an economist and independent scholar residing in Saskatchewan.
“Recent discussions over rent control have emerged again,” says author Daniel Huang. These include several academic papers coupled with the Saskatchewan NDP desires to bring rent control back, “there is a growing need to study rent control.” Rent control is one of those areas in which people naturally assume that controlling prices will help the poor, but there are plenty of indications that the policy often achieves the opposite of what it intends. “So far,” says Huang “no evidence has shown that rent control achieves a fairer income distribution.”
Analyzed financially, where there rent control in place, rent increase is limited, but sale for capital gains could reduce the housing supply. Analyzed theoretically, since rent control artificially suppresses the value of all real estate, owners are less able to borrow against the asset to conduct needed capital improvements. When government controls the rent of housing, it interferes with the right to revenue, and also changes a private good into a semi-public good, making the housing market reflect some features of the public sector. Analyzed empirically, eeconomists have demonstrated that rent control leads to housing deterioration, fewer repairs and less general maintenance. Public housing projects are questioned due to its bad income distribution effect, poor social management, and waste of public resources. OECD data demonstrate that the European countries with the highest numbers of price-rent ratios are those with rent control. Rents in Canadian cities where they were controlled can even be much higher than those in cities without rent control, proving the point that “rent control does not do what most people think it does.”
From analyses in all financial, theoretic, and empirical approaches, one concludes that rent control is not a good idea, and government cannot manage housing better than the private sector. In order to achieve efficiency, there will need to be well-defined property rights; in order to achieve equity, there will need to be a balance between renters and owners. Interference with property rights leads the market to many realignments and a reallocation of resources that is not economically efficient. Therefore, respect for property rights and an arrangement to minimize disputes in transactions and in transaction costs such as the rent-to-own option and cooperative housing will be good choices, while income redistribution can be achieved by cash subsidies.
ABOUT THE AUTHOR: Daniel Huang obtained a Bachelors in English, a Masters in Economics, and a Doctorate in Finance and Banking from Zhongnan University of Finance and Economics in China. He has also studied Economics at University of Oxford during 1996-1997. He was section chief in charge of Money and Banking with the Finance Department at Jinan University in Guangzhou, China. In 2001 he immigrated to Canada. He studied finance and accounting at Vancouver Community College during 2001-2003, where he was elected Treasurer of the Student Association, and Education Council Member. He returned to China in 2003 to teach Finance and Economics at Huazhong University of Science and Technology in Wuhan as Associate Professor and Postgraduate Supervisor. In 2004, he received a Teaching Quality Award there. In 2007 Dr. Huang went to University of Regina as a Visiting Lecturer, where he taught Finance and Economics. He is author of "the Case for Affordable Housing in Regina" published with Canadian Centre for Policy Alternatives in 2009. He now works as a translator for Regina Open Door Society, and is a freelance researcher.
Download a copy of the Rent Control and Its Applicability to Saskatchewan here.
For more information and to arrange an interview with the study's author, media (only) should contact:
Daniel Huang, PhD
Marco Navarro-Genie, Ph.D.
Frontier Centre Director of Research