Keeping rents stable: an admirable goal – too bad we’re going about it wrong

By Andrey Pavlov, Ph.D., Goodman Report

The recently announced rent freeze in British Columbia shows yet again that our housing policy focuses on what is politically expedient rather than meaningful.

“We are extending the freeze on rent increases to provide more security for renters during the pandemic,” said Selina Robinson, Minister of Municipal Affairs and Housing. If we’re truly “all in this together,” as Minister Robinson also said in the statement, I can’t help wondering if the same security during the pandemic will extend to homeowners and landlords as well. Will property taxes, insurance, condo fees, maintenance costs and utility costs also be frozen? What about the people who maintain rental properties or build new ones? How will their security during the pandemic be ensured?

More likely, providing security for some will mean causing insecurity for others. To quote Orwell, “All animals are equal, but some animals are more equal than others.”

Divisiveness of these policies aside, my main concern with rent freezes – and rent control in general – is that they hurt the very people they’re designed to help. Rent control, especially the version tied to rental units (called vacancy control), reflects the belief that greedy landlords have a monopoly on and are the sole cause of rent increases. If only the government checks their insatiability, goes this argument, there will be abundant affordable housing for all.

You don’t have to work hard to understand the flaw in this thinking. As the Goodman Report covered in its myths piece of December 2018:

Unfortunately, this isn’t a hypothetical scenario. Rent control, including vacancy control, has been tried before. A recent paper in the American Economic Review uses data from a rent control measure in San Francisco to conclude: “Taking all of these points together, it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal.”

You don’t need to read an academic paper to see that rent control makes housing less affordable. During my graduate studies, I tried but failed to live in Santa Monica, California. You guessed it: at the time, Santa Monica had rent control tied to the unit. Rents were low, but with virtually no availability, you had to pay tens of thousands in “finder fees” to get a place. So I was nowhere near able to afford the presumably “affordable” housing there. Even the people who already had places may not have benefitted that much, as they saw their units, buildings and communities deteriorate.

Closer to home, the misguided fight in Vancouver against landlords and property owners resulted in a meager 1,364 new rental units completing in 2018. The CMHC’s most recent market survey, which measures rental market conditions as of November 2019, reports an insufficient vacancy rate of only 1.1%, unchanged from the year prior.

The future doesn’t hold much promise either. The City of Vancouver issued building permits for 2,291 fewer units in 2019 relative to the year prior (a 30% decline). Applications for new major projects have just about disappeared. The community amenity contributions (CACs) that the City collects in exchange for allowing higher density have fallen from $706 million in 2018 to $86 million in 2019, according to The Globe and Mail. Assuming an average $300,000 contribution per unit, this translates into another 2,067 units lost, even before the pandemic. A recent survey among home builders suggests that if vacancy control is introduced on top of the numerous measures currently in place, about two-thirds of the already insufficient new rental supply would be cancelled or substantially delayed.

In short, rent control – along with redevelopment moratoriums, demands tied to business licenses and other government interventions – reduces rental supply and hurts the very people it’s designed to help. I’m not aware of a single counter-example in which rent control or similar measures have increased vacancy, availability, choice or long-term affordability.

Instead of fighting landlords, we should fight the obstacles to increasing rental supply that our provincial and municipal governments continue to keep in place and even expand. Project approvals at Vancouver City Hall need to be limited to health, safety and impact on neighbours. They also need to be shortened from years to weeks. Land-use restrictions need to be relaxed and building codes simplified. Above all, we need to fight policies that further increase the cost of developing or operating rental properties, as any such increases are paid for by the tenants, either through higher rents or through an even more acute housing shortage.

This program is ambitious but entirely doable. Look at Seattle, which built 17,450 new rental units in 2018: 13 times more than Vancouver the same year. It’s not perfect, and probably also not sufficient, but rents in Seattle were flat, and landlords were offering free rent and Amazon gift cards to tenants even before the pandemic. This was achieved without any rent control, rental-only zoning, redevelopment restrictions or vacancy taxes. Substantial and sustained supply increases were all that was needed.

So instead of fighting against landlords, we should fight for them, so that there are a lot more of them and they offer a lot more rental housing. This is the only way to achieve long-term, sustainable affordability, availability and housing choice for tenants.

Andrey Pavlov, PH.D., is Professor of Finance, Beedie School of Business, Simon Fraser University.