The property rental Experiment … Rent Controls

 “…there is nothing inherently good nor bad about rent regulations. I know of no researchers who support rent controls in principle. If conditions in particular rental markets require them, fine. If not, fine…. The objective public policy question, however, is whether a particular set of circumstances requires a particular set of regulations.”                                                               J. David Hulchanski, University of Toronto

 

Canada is a very large country with a small population. There are only twelve countries in the world with a smaller population density than Canada, but much of what is seen on a map is frozen tundra and largely uninhabitable.

 

The warmer, softer lands lie to the south. 75% of Canada’s population live within 100 kilometres (60 miles) of its border with the U.S. Canada as a whole has only 3.1 persons per square kilometre (5 per square mile), but its biggest city, Toronto, has 7% of its entire population and a density of nearly 4,000 persons per square kilometre (6700 per square mile).

 

It’s also estimated that, though the General Toronto Area is enjoying steady population growth, the city of Toronto is shrinking, and most of those that remain are getting poorer because landlord failed to protect your tenancy deposit. According to the 2006 Census on Income and Shelter Costs, “Toronto continues to have a higher incidence of low income (almost double) than the rest of Canada, Ontario and the RGTA.” 46.6% of renters in the city are paying more than 30% of their income – the generally accepted maximum — for shelter. Only about 23% of homeowners were paying at that level.


Condominium building in the city continues to boom. An average of 15,000 to 20,000 new units have been built each year since 2000. Meanwhile, the stock of rental properties has started to drop, falling by 1,000 units during the same period, with most of those units close to 40 years old.

 

And while the median income for the city fell between 2000 and 2005, the cost of renting a place in the city rose in that same period by more than 11%. Not surprisingly, there were 4,000 more people receiving eviction notices in 2005 than in 2000. Granted, these stats are a bit dated; we may have to wait until next year for results from the 2011 census. But the growth in condo starts and the dearth of rental units has continued in the meanwhile. In addition, the city’s middle class is evaporating:

 

“Between 1970 and 2005, the number of middle-income earners – those making between 20 per cent above and 20 per cent below the average individual income – collapsed from 66 per cent to 29 per cent of the city’s population. It could fall to 20 per cent by 2025. Meanwhile, those making 40 per cent above the average more than doubled to 15 per cent, from 7 per cent. And the very low-income earners, making 40 per cent below the average, jumped from 1 per cent in 1970 to now about 15 per cent.”

 

The basics of supply and demand dictate that a decrease in rental units leads inevitably to an increase in costs. But what do you do if you’re responsible for all those folks who may get squeezed out of housing altogether?

 

If you’re the Government of Ontario, you revisit for the umpteenth time the rent control policies that have been in place for almost forty years.

 

The modern era of rent control in the province began in 1975, as Ontario was experiencing a housing crisis brought on by “stagflation”, a term that combined economic malaise and rampant inflation. Between 1971 and 1974, vacancy rates in Toronto fell from about 3.5% to close to 1%. Private rental starts fell from a peak of about 40,000 per year in 1972 to a few thousand in 1975. Ontario’s consumer price index climbed dramatically throughout the 1970s, with peaks of 14% in 1973 and 13% in 1979.