A ‘Market’ Solution to the Rent Crisis

Frontier Centre, Housing Affordability, Media Appearances, Uncategorized

Rising rents for housing are drawing two very different responses.

One says that government should try to control the rent landlords can charge. The other believes rising rent is a symptom and that the real problem is too few rental units. This response emphasizes boosting the supply of apartments, suites and houses.

Saskatchewan today enjoys the country's strongest growth rate. More people are arriving and looking for homes; at the same time we suffer from the second-lowest stock of rental housing in Canada per-capita.

Investors find it more attractive to build for sale than for rental. A new condo quickly returns the capital invested, while an apart-ment ties it up for years with limited returns and more bureaucratic burden.

If renters need more and better choices, rent control only make the problem worse. Adding apartments requires additional investment. Rent control chases investment away.

The Manitoba experience bears this out. After years of inadequate supply under rent control, Manitoba changed its regulations to something called "second generation." Controls no longer applied to new apartments, only to those 20 or more years old. The result: a spurt in new investment.

Instead of being a justification for rent controls, Manitoba's experience is actually one of the best arguments against controls in the first place.

"Second generation" is misleading, like trying to be a little bit pregnant. Controls are inherently antiinvestment. They limit funds for upgrading, introduce delay and unproductive paperwork, and create a special extra burden for the smaller operators who provide much of the older supply. They can even force older units off the market by making it more attractive to sell a deteriorating property than to continue the struggle of renting it out.

Second-generation rent control is being advocated for Saskatchewan. If adopted, we are likely to see at least two effects.

First, we will create two classes of renters: established tenants in rent-controlled older buildings, and tenants in newer buildings with no controls. Second, because buildings 20 or more years old often need for renovation, controls will push older, more affordable units into the substandard category by discouraging upgrades.

The Manitoba experience, and recent studies by the Frontier Centre and the Saskatchewan Chamber of Commerce highlight how rent control is a superficial approach to a substantial challenge.

A much better answer for people on modest incomes is shelter allowances. Allowances are getting wider use in Saskatchewan, topping up the amount available to pay for rent. They allow people more choice, and avoid the many negative side-effects of trying to manage rents.

The rental housing challenge – and the issues of housing generally – must be addressed with more supply. Public policy should encourage renovating exist-ing stock by lowering property taxes, which penalize upgrades. Secondary suites could provide quick-to-market accommodation with the infrastructure advantages of greater density, but they are often regulated out of existence.

Saskatchewan's new housing strategy is moving in positive directions. Our association welcomes better shelter allowances and more money for them. We urge consideration of a tax incentive to draw new money directly into new rental development. And in the larger picture, we urge a review and renewal of housing regulation and planning, to allow this vital industry to be more responsive to what people clearly need.