Well-meaning attempts by government to regulate prices usually fail. Manitoba’s highly regulated apartment market is no exception. Yet, in September the provincial government announced that Manitoba landlords would again be limited to a one per cent rent increase for the coming year. The failed saga of rent controls continues.
Why failed?
Over time, rent controls reduce apartment supply because they divert investment to activities that can capture a higher return, and avoid the hassle involved with the rent controls bureaucracy. Construction of moderately priced units stops. Existing apartments deteriorate because the owners defer maintenance.
Overall, rent controls do not help the poor. The unregulated portions of the market, in Manitoba’s case apartments less than five years old, have dramatically higher rents. Only luxury apartments are built, leaving lower-income renters with a smaller, more costly supply. Those unlucky enough not to be renting when the controls started, namely young lower-income families, chase fewer apartments and pay more for them.
To close the circle of waste politicians then compensate by building tacky public housing ghettos. When the costs of bureaucracy, subsidies on capital and tax exemptions are included, public housing units turn out to be two to three times as expensive as private ones. Higher taxes pay for such waste. Worse, it diverts scarce public resources from other useful activities.
In short, rent controls raise prices and limit choices for lower-income families. They replace quality private apartments with less durable, more costly public housing. We get fewer and more expensive apartments for more money, higher taxes and fewer public services elsewhere. A more bone-headed and socially irresponsible policy is hard to imagine. Yet, the provincial government continues with it.
Why does Manitoba still have rent controls when practically all other provinces have discarded them? Some history:
The controls arrived in the fall of 1970 as rents rose with strong demand and high inflation. Two elections later, Gary Filmon, then a minister in Sterling Lyon’s government, recognized their folly and began dismantling them. He thinks the Conservatives lost the next election because apartment dwellers in key Winnipeg ridings voted against the government.
Apparently, Filmon was so shaken by the experience that he keeps the destructive policy in place although any possible justification for rent controls disappeared long ago.
With virtually no inflation, record low interest rates and deepening malaise in Winnipeg’s property markets, why do we bother? Rents are falling from slumping demand.
The political atmosphere is changing. More people now grasp that Winnipeg’s sky-high property taxes are damaging its economy. The property market is stagnant. Developers are selling out and moving to Calgary. House prices, especially in the most heavily taxed part of the market, are falling.
Some of this can be attributed to amalgamation, which put an end to locally responsive, competitive, smaller-scale municipal government. School taxes have increased due to mushrooming costs and declining provincial contributions. Few people realize rent controls also increase property taxes.
Why? The value of regulated apartments is collapsing due to rent controls. To make up revenue lost from slipping apartment assessments, the city has shifted the load to property taxes on houses. By some calculations, the average Winnipeg homeowner pays from $600 to$700 a year extra in property tax to maintain rent controls.
This information changes the political dynamics of rent control. Communicated properly, there may be more votes in getting rid of rent controls than in retaining them since homeowners outnumber apartment dwellers. Controls are dumb politics. Each year they unnecessarily rob each home-owning Winnipeg family of money for either a year’s worth of cable TV, two months of groceries, or new tires for the family car.
Low interest rates make the removal of rent controls opportune. Apartment owners report an exodus of tenants who find it cheaper to buy a home than to rent. With Winnipeg’s apartment vacancy rate among the highest in Canada, now is the time to end this failed policy.
