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This is a letter I sent to the Vancouver Sun in late 2008 and to some AB politicians in slightly edited form.
There is some debate at the moment in Alberta as to “should we implement some form of rent control?” and to tighten existing rules in BC further. Rent control is in effect already in BC, Ontario and Quebec, in many US cities and many European countries. Usually rent control is perceived to benefit the person living in an apartment in a high rent / low vacancy environment. Is this really true? Does anyone lose in a rent controlled environment?
Landlords are private enterprises, sometimes individuals but often small, medium or large companies. They have a choice as to where they deploy their capital, ingenuity and human resources. Is $10,000 or $1,000,000 best spent on a rent controlled building or a building where the free market allows a better return of capital? Clearly, the return is better when deployed in a suite or a building where the rents can be adjusted with more frequency. How does this benefit the tenant though? He/she receives a nicer suite, with more upgrades such as a new bathroom, new paint, new lights, and new appliances. In a rent controlled environment those investments are usually not made...thus allowing the building to deteriorate. Is this what tenants and government want when they say “rent control”... deteriorating buildings in a slum lord type of environment? When looking at the (fairly upscale) English Bay area of Vancouver with mostly rent controlled apartments this is visible for the trained observer. Look at less pristine parts of Vancouver and it is shockingly obvious.
Secondly, this lack of investment into existing apartment buildings ripples through the entire economy: fewer painters are employed, fewer new bathrooms purchased, fewer carpets ordered and fewer fridges fixed .. causing the economy of a rent controlled city, state or province to experience far less economic stimulus by private enterprises, on a scale of millions of $s affecting thousands of jobs. Is this what this government is all about ? Reducing the economic activity ?
A third drawback for tenants is the lack of available reasonably priced accommodation. Rental apartments are being occupied by tenants that “got lucky” many years ago, but don’t really need them. Example: Wilma and Chris Smith are a retired couple living in Vancouver near English Bay in a 3 bedroom + den 1600 sq ft apartment, with a balcony, a view of the ocean for $950/month, all because they rented it over 10 years ago for about $600/month in the slump of the Vancouver real estate market (brought on by the BC NDP I might add). Today they don’t need such a big place because their two sons left a few years ago, but why leave and pay $2000 for a similar suite a block down the street. They win, as BC has rent control. The Chad’s, a couple with 2 teenage children can’t find a place in the area. Without rent control, the suite the Smiths occupied would have been vacated as the rent would have been adjusted to $2000, a price the Chad’s are more than happy to pay because he works as a consultant downtown Vancouver and she is a part-time nurse. The Smith’s would have moved into a smaller suite, perhaps even bought a condo. The Smith’s win, the Chad’s lose and the landlord loses, and the BC government loses as they now collect less tax. As you can plainly see, in this situation there are three losers, the government, the Chad’s and the landlord. The only party that benefits are the Smiths who happened to get lucky, even though they could afford a more expensive suite. This rent control actually reduces available housing to new in-migrants ! Is this what Alberta or BC stands for: we don’t want you here ? Go home ? Rent control penalizes immigrants and inter-provincial migrants.
Fourthly, landlords collect less money than they could which affects not only their income but also the valuation of their building. Let’s use a specific example. Currently, we are negotiating the purchase of a 20 suite apartment building in a promising BC city. We are buying it for roughly $1.0M or $50,000/unit – primarily because the rents are too low. If this city where not rent controlled (it is in BC on the coast with a view of the ocean after all) rents today would be about 30-40% higher. Therefore, the seller could achieve a sales price of perhaps $1.4M. In essence, he is penalized $400,000 because of rent control. Is this fair? A 40% “tax” on a capital asset in addition to annual loss of potential income? No wonder, few are building properties to be rented. Rent control stifles economic activity and taxes one group of society (building owners) to subsidize another. This is not to say that there are not people in our society that need support, but there are better ways to do it.
A fifth reason why rent control actually works against existing tenants is that a rent controlled environment reduces the ability of landlords to view rental apartments as a solid investment and increases its chance to be converted to condos. Often, the only way to make money in an old beat-up apartment building in a rent controlled environment is to convert it to condos, thus changing the use and further reducing the availability of rental apartments to lower income parts of society.
Of course, the example often cited in newspapers is that of low-income tenants forced out of their homes without rent control. Certainly hardship can be created in a low vacancy environment, when your rent goes from $450 to $850. There is a role for government to either subsidize rents to market levels to certain low income tenants or to purchase entire apartment blocks and use them for low income tenants, as opposed to using rent control which benefit few and cost a lot in terms of lost taxes or economic activities. Is it Safeway’s or Sobey’s responsibility to provide food for low income people ? Is it the shoestore’s responsibility to provide shoes for low income earners ? How about Toyota giving car subsidies to people who wish to get a car but can`t afford one ?
There you have it. Rent control means deteriorating buildings, less overall economic activity, crowding out of capable tenants, less affordable housing, increased condo conversion, and taxing building owners - thus dramatically reducing rental availability and increasing rental pricing. Is this what governments want when they say “rent control”?
There is some debate at the moment in Alberta as to “should we implement some form of rent control?” and to tighten existing rules in BC further. Rent control is in effect already in BC, Ontario and Quebec, in many US cities and many European countries. Usually rent control is perceived to benefit the person living in an apartment in a high rent / low vacancy environment. Is this really true? Does anyone lose in a rent controlled environment?
Landlords are private enterprises, sometimes individuals but often small, medium or large companies. They have a choice as to where they deploy their capital, ingenuity and human resources. Is $10,000 or $1,000,000 best spent on a rent controlled building or a building where the free market allows a better return of capital? Clearly, the return is better when deployed in a suite or a building where the rents can be adjusted with more frequency. How does this benefit the tenant though? He/she receives a nicer suite, with more upgrades such as a new bathroom, new paint, new lights, and new appliances. In a rent controlled environment those investments are usually not made...thus allowing the building to deteriorate. Is this what tenants and government want when they say “rent control”... deteriorating buildings in a slum lord type of environment? When looking at the (fairly upscale) English Bay area of Vancouver with mostly rent controlled apartments this is visible for the trained observer. Look at less pristine parts of Vancouver and it is shockingly obvious.
Secondly, this lack of investment into existing apartment buildings ripples through the entire economy: fewer painters are employed, fewer new bathrooms purchased, fewer carpets ordered and fewer fridges fixed .. causing the economy of a rent controlled city, state or province to experience far less economic stimulus by private enterprises, on a scale of millions of $s affecting thousands of jobs. Is this what this government is all about ? Reducing the economic activity ?
A third drawback for tenants is the lack of available reasonably priced accommodation. Rental apartments are being occupied by tenants that “got lucky” many years ago, but don’t really need them. Example: Wilma and Chris Smith are a retired couple living in Vancouver near English Bay in a 3 bedroom + den 1600 sq ft apartment, with a balcony, a view of the ocean for $950/month, all because they rented it over 10 years ago for about $600/month in the slump of the Vancouver real estate market (brought on by the BC NDP I might add). Today they don’t need such a big place because their two sons left a few years ago, but why leave and pay $2000 for a similar suite a block down the street. They win, as BC has rent control. The Chad’s, a couple with 2 teenage children can’t find a place in the area. Without rent control, the suite the Smiths occupied would have been vacated as the rent would have been adjusted to $2000, a price the Chad’s are more than happy to pay because he works as a consultant downtown Vancouver and she is a part-time nurse. The Smith’s would have moved into a smaller suite, perhaps even bought a condo. The Smith’s win, the Chad’s lose and the landlord loses, and the BC government loses as they now collect less tax. As you can plainly see, in this situation there are three losers, the government, the Chad’s and the landlord. The only party that benefits are the Smiths who happened to get lucky, even though they could afford a more expensive suite. This rent control actually reduces available housing to new in-migrants ! Is this what Alberta or BC stands for: we don’t want you here ? Go home ? Rent control penalizes immigrants and inter-provincial migrants.
Fourthly, landlords collect less money than they could which affects not only their income but also the valuation of their building. Let’s use a specific example. Currently, we are negotiating the purchase of a 20 suite apartment building in a promising BC city. We are buying it for roughly $1.0M or $50,000/unit – primarily because the rents are too low. If this city where not rent controlled (it is in BC on the coast with a view of the ocean after all) rents today would be about 30-40% higher. Therefore, the seller could achieve a sales price of perhaps $1.4M. In essence, he is penalized $400,000 because of rent control. Is this fair? A 40% “tax” on a capital asset in addition to annual loss of potential income? No wonder, few are building properties to be rented. Rent control stifles economic activity and taxes one group of society (building owners) to subsidize another. This is not to say that there are not people in our society that need support, but there are better ways to do it.
A fifth reason why rent control actually works against existing tenants is that a rent controlled environment reduces the ability of landlords to view rental apartments as a solid investment and increases its chance to be converted to condos. Often, the only way to make money in an old beat-up apartment building in a rent controlled environment is to convert it to condos, thus changing the use and further reducing the availability of rental apartments to lower income parts of society.
Of course, the example often cited in newspapers is that of low-income tenants forced out of their homes without rent control. Certainly hardship can be created in a low vacancy environment, when your rent goes from $450 to $850. There is a role for government to either subsidize rents to market levels to certain low income tenants or to purchase entire apartment blocks and use them for low income tenants, as opposed to using rent control which benefit few and cost a lot in terms of lost taxes or economic activities. Is it Safeway’s or Sobey’s responsibility to provide food for low income people ? Is it the shoestore’s responsibility to provide shoes for low income earners ? How about Toyota giving car subsidies to people who wish to get a car but can`t afford one ?
There you have it. Rent control means deteriorating buildings, less overall economic activity, crowding out of capable tenants, less affordable housing, increased condo conversion, and taxing building owners - thus dramatically reducing rental availability and increasing rental pricing. Is this what governments want when they say “rent control”?
