Rent control and affordable housing in Alberta

Brianna Heinrichs, Commentary, Frank Atkins

Bill 202, which has passed second reading, is officially titled the Alberta Affordable Housing Review Committee Act. Under this bill, the government will establish a committee of no fewer than three members to report on five areas. Four of the five areas listed in the bill for committee review are about tenancy: rent regulation, rent subsidies, security deposits and the affordability of rental rates. The fifth is about the affordability of home ownership.

This bill appears to be an attempt to deal with a major area of ideological concern to progressive governments, given that it is aimed at the traditionally vulnerable and low income members of the population: rent control. However noble in intent, the potential policy implications of this bill are concerning.

There is a vast literature which shows that rent controls are associated with a decrease in the supply of rental units and even an increase in prices. Tenants in price-controlled units often stay where they are regardless of their family size, which leads to inefficient use of space. When new rental units become available which are not yet price controlled, the asking price is typically higher than they otherwise would be, due to limited supply and landlords’ fears of being unable to raise the rent in the future. Because rent controls restrict the rent, landlords also have fewer resources or less incentive to invest in maintenance, and the quality of rental housing deteriorates. Therefore, rent controls can lower the quantity and quality of rental units. This is clearly not an outcome envisioned or contemplated by this legislation.

Housing affordability, be it rental or ownership, is a vague term which means different things to different people. The belief that someone, somewhere can build or provide housing cheaper than the private sector is not grounded in reality. If this were true, this would be the proverbial economic free lunch. Given the context of this bill, housing affordability is really about subsidized housing.

There are several aspects of the subsidized housing issue that require much deliberation. The first major issue is whether we want to provide subsidized housing? If so, should it be subsidized by taxpayers more generally or by landlords or both? There may be strong public support for spending taxpayer dollars on subsidized housing. However, we also have to decide who is eligible for this subsidized housing. This is likely to be contentious, as we undoubtedly have to delve into the murky issue of “means tests”.

In addition to the above policy issues, this bill suffers from severe timing problems. The bill was introduced by MLA Robyn Luff, who says, “Housing in Alberta is at a crisis point.” Ms. Luff’s recent speech in the legislature sounds like it could have been written before the drop in oil prices, with the part mentioning the “difficult times in Alberta right now” almost sounding like an afterthought. The housing and rental market has been noticeably affected by the province’s economic downturn. House prices have gone down and many tenants are taking advantage of reduced rental rates and other incentives being offered by desperate landlords, such as free televisions. The timing problem is best summed up by MLA Tany Yao who stated, “I can’t help but think that this bill is trying to fix a housing market that isn’t broken.”

There is undoubtedly room for improvement in the way Alberta’s most vulnerable are housed, and we at the Frontier Centre for Public Policy have consistently argued that housing affordability in the province is on a dangerous trajectory. But the government needs to be forthright about what and whom this bill is about, and hopefully this committee to be established would provide evidence-based policy recommendations and not be distracted by ideology.

 

Brianna Heinrichs is a researcher and Dr. Frank Atkins is Chair of Finance & Capital Markets at the Frontier Centre for Public Policy.