Economics One Lesson by Henry Hazlitt: Chapter 18: What Rent Control Does
Government control of the rents of houses and apartments is a special form of price control. Most of its consequences are substantially the same as those of price control in general, but a few call for special consideration.
Rent controls are sometimes imposed as a part of general price controls, but more often they are decreed by a special law. A frequent occasion is the beginning of a war. An army post is set up in a small town; rooming houses increase rents for rooms; owners of apartments and houses increase their rents. This leads to public indignation. Or houses in some towns may be actually destroyed by bombs, and the need for armaments or other supplies diverts materials and labor from the building trades.
Rent control is initially imposed on the argument that the supply of housing is not `elastic``i.e., that a housing shortage cannot be immediately made up, no matter how high rents are allowed to rise. Therefore, it is contended, the government, by forbidding increases in rents, protects tenants from extortion and exploitation without doing any real harm to landlords and without discouraging new construction.
This argument is defective even on the assumption that the rent control will not long remain in effect. It overlooks an immediate consequence. If landlords are allowed to raise rents to reflect a monetary inflation and the true conditions of supply and demand, individual tenants will economize by taking less space. This will allow others to share the accommodations that are in short supply. The same amount of housing will shelter more people, until the shortage is relieved.
Rent control, however, encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space. Under conditions of monetary inflation or real housing shortage, rents would rise just as surely if landlords were not allowed to set an asking price, but were allowed merely to accept the highest competitive bids of tenants.
Talks between the TTC and the province`s Metrolinx agency are proving fruitful enough that a compromise transit plan for Toronto should be ready by the end of January, both sides say.
And, despite fears that Mayor Rob Ford`s focus on getting more subway into Scarborough will kill light-rail-based Transit City, signs point to a hybrid plan with at least the Eglinton Crosstown LRT surviving, and Toronto paying a premium on the provincially funded expansion to get more of it underground and otherwise away from road traffic.
TTC and Metrolinx staff are communicating `daily,` said Metrolinx chief executive Bruce McCuaig, while the agencies` leaders, and senior officials from Ford`s office, are to meet again before the end of next week, following a `very constructive` Dec. 17 session.
`I think we would like to bring (a revised plan) forward to both the Metrolinx board and the TTC as early as we can, and if we can do that before the end of January, then we`ll do our darndest to get there.`
In Ontario an election, yes, but much else besides
One event will overshadow all others in Ontario politics this year. But 2011 won't just be about the fall election campaign. There are plenty of storylines to follow before then, many of which will have a major impact on how that race plays out. Among them:
The Deficit Dance
The primary short-term deficit measure promised in last year`s budget, a public-sector wage freeze, didn`t live up to the hype. Does Finance Minister Dwight Duncan have another trick up his sleeve?
If not, Dalton McGuinty`s government will take flack for its lack of urgency ` especially if the province`s credit rating gets downgraded, which is not outside the realm of possibility. But deficits have yet to become a burning political issue, and the Liberals may decide their re-election prospects would suffer more from draconian measures to reduce red ink quickly and dramatically.
Although the current federal-provincial health accord remains in effect until 2014, negotiations to replace it are expected to heat up this year, and it`s already becoming a big story nationwide.
Residential property sales recorded through the MLSÂ System of the Barrie & District Association of REALTORSÂ Inc. posted a solid end to the year, with December sales coming in above a five-year average for the month.
Residential sales numbered 193 units in December 2010, down just seven per cent from a very strong month of December in 2009. The small year-over-year decrease was a considerable improvement from the large double-digit declines that had characterized the previous seven months. This was reflected in the seasonally adjusted figure, which jumped 14 per cent to reach the highest level since April.
Annual sales activity totalled 4,105 units in 2010. This was down five per cent from levels in 2009, and stood one per cent above 2008.
`December was a strong month for home sales in the region,` said Catherine Garbe, President of the Barrie and District Association of REALTORSÂ. `Despite a considerable amount of volatility over the past year, 2010 was still a solid year for home sales, with activity topping the 4,000 mark for the ninth consecutive year.`
The average price for all homes sold via the Association`s MLSÂ System in 2010 was $281,966, up seven per cent from the average price in 2009.
Light rail would probably produce 'more winners' than subway: Environmentalists
Environmental activists defended a plan to lay down light rail transit tracks across the city, saying that it creates `way more winners` than Mayor Rob Ford`s subway plan.
Using statistics released by the Pembina Institute, the Toronto Environmental Alliance compared Mayor Ford`s proposal for 18-kilometres of tunnel along Sheppard and the Scarborough RT to a 148-kilometre LRT network that is only partially funded. The provincial government has committed $8.15-billion to build 53 kilometres of light rail along Eglinton, Sheppard, Finch, and the Scarborough RT. The four lines were supposed to stretch 75 kilometres, but Queen`s Park delayed half of funding last year and shortened the lines to be completed by 2020.
`We`re here today essentially because there has been a heck of a lot of talk about transit in the last while but unfortunately most of it has been of the political variety,` Jamie Kirkpatrick, a transit campaigner for the TEA, said standing next to a map that showed more than double the number of LRT lines than those that have committed money. He defended the use of the full 148-kilometre map. `Even if you look at the four priority lines that are funded, there is still way more winners created by using the light rail network then there are by adding a little bit of subway.`
Pembina Institute`s report, which was also released on Wednesday, calculated that the four lines, in their original length, are within a six minute walk of 290,000 residences or workplaces, including 45,000 low-income residents. Mayor Ford`s subway plan, by comparison, would serve 61,000, it found. Graham Haines, one of the authors of the report, estimated that about 200,000 workplaces or residences are within six minutes of the scaled back version that is funded. That includes about 30,000 low-income people.
2010 was good to Toronto homeowners, with more to come
After three decades in the business, Toronto real estate broker Paul Swartz is still trying to figure out the market.
`I really don`t know what to tell clients. It`s just been about impossible to predict. We all know the ride is going to end, but nobody knows when.`
Swartz figured, like many analysts did, that 2010 would be slower because of a recovering economy. But despite the predictions of economic gloom, the Toronto existing home market rang out 2010 with the third best year for sales on record.
`I can`t tell you how many times I`ve gotten in trouble counseling first time buyers to wait because prices may fall. And then four years later they`re still going up.`
Make that 14 years. Prices have been appreciating since 1996, despite stock market crashes and global economic meltdowns along the way.
Some analysts have said the market is overvalued by as much as 25 per cent. But that hasn`t spooked buyers.
Fossil fuels don`t get much respect, but in a year when Ontario`s rivers ran low, they kept the province`s lights on and air conditioners humming.
Ontario`s much-maligned coal-fired generating plants boosted their output by 29 per cent in 2010, year-end statistics show.
The Liberal government has pledged to shut the coal plants by 2014.
Meanwhile, output from gas-fired plants surged by 33 per cent.
The increases from the fossil plants were needed to offset a 19 per cent drop in output from hydroelectric plants, which ran far below capacity this year because of low runoff following the warm, dry winter.
Toronto`s Board of Health is asking the city for $500,000 more to help it exterminate the bed bug epidemic plaguing some high-rises, defying the city manager`s request to shave its budget.
The board voted to increase public health`s funding request 1.49%, or $660,000, over last year, for a net total of $44.8-million. By spending $500,000, it is entitled to receive $1.5-million from the provincial government for a bed bug eradication program. Most of public health`s programs are mandated and 75% paid for by Queen`s Park. That`s why Chair John Filion said that a `guideline` from senior city staff to cut costs by 5% was never a realistic proposition.
Stay or go: What will nine Weston homeowners decide?
The letter Metrolinx sent last month to nine homeowners along the Weston rail corridor was straight and to the point.
It said their property `will need to be acquired,` in the process of expanding the tracks to accommodate expanded GO service and the coming airport rail link, and that `a member of our real estate team will be contacting you shortly to discuss the property acquisition.`
That impersonal message, delivered not by hand but to the mailbox, triggered a wave of resentment that culminated in property owners angrily shouting down Metrolinx executive director Stephen Lipkus during a design presentation at a public meeting in October.
Chrysler likely to invest $400M in paint shop in Brampton
Chrysler Canada celebrated the launch of two new redesigned cars at its Brampton assembly plant on Friday and confirmed that it will probably invest up to $400 million in a new paint shop but didn`t specify a date.
After more prodding from Canadian Auto Workers president Ken Lewenza on a stage in front of more than 1,000 employees, Chrysler Group chief executive officer Sergio Marchionne acknowledged to reporters that the existing paint operation `needs a complete overhaul` and plans are already in place for the long-awaited project.
However, Marchionne added the timing of the investment hinges on whether the company can generate enough production at the plant to cover the cost over time.
The company expects a boost in output with Friday`s launch of a new generation of the flagship sedan, the Chrysler 300, and the Dodge Charger muscle car. It also builds the Dodge Challenger sports car at the plant, just northwest of Toronto, and has capacity to assemble more models.
Ontario is pouring $5 million into the fight against bedbugs in a new push to curb infestations that have been on the rise for years, the Star has learned.
The province`s 36 local health units can apply for a share of the funding, which will also support a public education campaign and a website coming soon at www.bedbugsinfo.ca.
The program, to be announced Monday, will teach people `how they can recognize bedbugs and what actions they can take` in a battle that will also take on the myths about fighting the pests, a government source said.
`The best tool to fight bedbugs is education, so we want to arm Ontarians with reliable information,` the source added, crediting Liberal MPP Mike Colle (Eglinton-Lawrence) for doggedly pushing the issue at the Legislature.
`We also know that our public health units are on the front lines of this battle and this funding is going to better equip them to target their efforts to the communities that need help most,` the source said.
Waterloo plans to be first to introduce rental licenses
WATERLOO ` Waterloo proposes to become the first local city to regulate landlords who rent houses, charging them $1.2 million a year for rental licences.
Critics see it as a costly red-tape headache that will dissuade people from renting out bedrooms and houses.
`It`s really an attack on the Mom-and-Pop operation,` said Glenn Trachsel, of the Waterloo Regional Apartment Management Association. He predicts it will lead to a housing shortage.
Proponents say rental regulation will improve property standards and tenant safety.
`We know we have lots of rentals and we want to make sure that they`re all safe,` said Jim Barry, director of bylaw enforcement. `And by safe, we want to make sure that they`re safe for the people renting, and for the neighbourhood around them.`
Landlords would be charged fees ranging from $501 to $819 to secure a rental housing licence. Annual renewals would cost $231 to $405. Fees would pay all costs for rental regulation.
We live in the generation of the renovation. Granite countertop upgrades, hardwood-floor installations, a wall removal here, some feng shui there. There are so many television shows centred on renovations that you might start to feel abnormal if you aren`t doing something to your home. Then again, with so many people living at or beyond their means, why would you want to be normal?
There are two major reasons why you would want to renovate your home: You want to improve your living space or you are making an investment that will increase the value of your home above and beyond the cost of the renovation. My beef is with people who use the latter reason to justify being financially irresponsible.
Don`t get me wrong, I don`t have anything against upgrading your living space, even if you don`t get a positive return on your investment. You just need to be able to afford it, and it would be nice if it didn`t end your relationship, either.
For example, perhaps you are looking at an extensive upgrade to your condo. According to Christine Rivard, a real-estate representative with Re/Max First Realty, you need to consider the factors that affect your condo`s value: `If the value of the condo is perceived by the neighbourhood, amount of space offered and/or amenities provided by the condo corp., renovating may not be an important factor in achieving desired return as would market timing.`
WATERLOO ` Angry landlords blasted council Monday over its proposal to cap rentals to three bedrooms per unit and charge them $1.2 million a year for licences.
The proposed bylaw was attacked as `a gross violation of rights` and a `massive iceberg of injustice` and a `great sucking vortex of devaluation` by landlords who operate lodging houses where more than four tenants are allowed.
More than 100 people packed council chambers to hear landlord after landlord trash the proposal. `I`m angry, shocked and disillusioned,` Mike Milovick said.
He derided city consultations as draconian, non-democratic, deceptive, unclear, flawed, sneaky and dishonest, before Coun. Scott Witmer ordered him from the chair to stop attacking city staff.
Other landlords called the proposal embarrassing and chaotic. `I`m pretty sure there will be hundreds of lawsuits,` James McBride warned.
`I cannot begin to express my concern,` Laura Van der Veen complained.
So far, Etobicoke`s great gift to the city has been Rob Ford. But that could change.
If councillor and newly appointed planning committee chair Peter Milczyn (Etobicoke-Lakeshore) gets his way, whole swaths of the former borough will be transformed in the decades ahead to a denser, more urban, transit-based, model.
`The idea is to urbanize those parts of Etobicoke that need to be urbanized,` Milczyn explains. `I want to create opportunities for people to live near the subway and places for people to gather. The hope is to give people a sense of community and a sense of place.`
In answer to the only question that matters today ` who will pay? ` the councillor, and trained architect, proposes to sell city-owned land, but not before it has been pre-zoned and pre-approved for the kind of urban-scale growth appropriate in the 21st century.
When you understand the importance of job creation on real estate markets, this 36 page report will bring you excitement
Ontario is emerging from a severe recession, but construction has escaped with minor damage ` at least in comparison to the 1991`1996 episode. The Greater Toronto Area and the Central Ontario region will lead the other regions in a strong expansion that includes both residential and non-residential trades and occupations. While both sectors will grow, the non-residential trades and occupations are starting from a higher base and by 2018 will have added more than 40 percent to the current workforce, while gains in residential will be about 20 percent.
Ontario is estimated to have the strongest labour markets and the biggest expansion of construction across the scenario for all provinces. This makes Ontario the centre of activity for attracting and recruiting a larger construction workforce over the long term. Labour market tracking here and in other reports implies that requirements will not be easily met from Canada`s population and immigration will need to fill the gap. The industry`s priorities are shifting to promoting careers, attracting new workers, and training and certification as the recession ends and the recovery begins.