Is rent control good or bad? This seems to be an ongoing debate. One challenge that needs to be addressed is education around the issue. I often here arguments from each side of the issue, and neither seems to have a clear understanding of how rent control works. I have heard arguments from both sides in recent months, without anyone laying out what a platform could look like. It is a big topic for some of our current municipal candidates, even though they do not have the power to make change, they appear to be selling false hope to win votes. The unfortunate part is that the victims are the people who it affects in the short term. In Canada housing for the most part is a provincially regulated business and in the USA it is regulated by the state.
What I want to do is dig beneath the surface, and provide a brief education and provide some resources. I feel it is important for people to know what the pros and cons might be.
A great place to start is Wikipedia: Rent regulation is a system of laws, administered by a court or a public authority, which aims to ensure the affordability of housing and tenancies on the rental market for dwellings.
Who currently has rent control systems in place in Canada and the USA? Every province and state has a system in place to regulate residential tenancy. Ontario Canada has the most notable rent control system, A couple of interesting things that happened in the past couple of years are as follows: They have blocked all rental increases for 2021 (of course there are some exceptions). The other thing they did was remove rent controls limits on newer buildings, which has reportedly resulted in double digit increases for many tenants (Source The Star).
In the USA the most well known system of rent control is in New York. It is mentioned on many shows and movies over the years. Other places in the USA with forms of rent control are California, New Jersey, Maryland, and Washington DC. According to Wikipedia: Thirty-seven states either prohibit or preempt rent control, while eight states allow their cities to enact rent control, but have no cities that have implemented it.
What is important for landlord and tenant / housing groups to realize is that rent control is not just one simple system, not a one size fits all defined system. Even in areas with what might be considered strict rent control, their are exceptions.
Pros of rent control for tenants:
Savings for tenants: This is especially important for tenants in gentrifying areas. I have read several articles where a building has changed hands and the new landlord increases the rent significantly without adding much value in the form of building improvements. If you are a tenant being faced with a huge annual bump in rent due to market conditions beyond your control is never fun.
More housing options for lower income tenants: If an area has rent control lower income tenants will likely find more units that they will qualify for.
Less of a reason to move: This can be a pro for landlords as well, since the cost of tenant turnovers generally runs around $1000, not including any deferred maintenance or required capital expense. Tenants often have to move since they get priced out of their apartments. With rent control a maximum annual increase will limit the amount rent can be raised. If that is set at 5% for example that would mean the maximum annual increase would be about $50 per year for every $1000 of rent. This makes renting more predicable, especially in areas experiencing growth and property value increases.
Cons of rent control for tenants:
Annual rent increases – I know I should not say this, but many people in the small rental property space simply do not raise the rent on an annual basis. It generally only happens on turnover. Especially if the tenants are great, because most small landlords realize that apartment turnovers are expensive, time consuming, and an all around pain in the ass. If rent control is implemented it could force landlords to pay closer attention to maximizing rent and have them increase the rent to the maximum allowed under rent control on an annual basis. The reason would be that if a landlord wanted to sell a building, they would need to protect the value, by making sure the rents were in line with other buildings in the area.
Deferred maintenance – depending on the model, if rents are capped in an area, it does not provide incentives for landlords to upgrade buildings. It would not make sense for example to upgrade to granite counter tops, and install new appliances if the landlord cannot increase the rent. Since rent control usually applies to older buildings, it means many buildings that would be upgraded, will not even be considered and purchased by developers / new landlords.
Reduces development of new inventory – Many major cities are struggling to meet the demand of the amount of tenants looking for accommodation, this has caused developers to scramble to build rental units. If rent controls enter into an area, it could cause developers to either not build at all or switch the would be rental buildings to condos.
New Inventory and Upgraded apartments might not be as nice – There is definitely a demand in the market for all new apartments to have more than one bathroom, as well as way more square footage. An unfortunate by-product of rent control might be to go back to building cheaper apartment units, with cheaper fit and finishes as well as build quality. Right now the apartments being built are way higher quality than ever, with the majority of 30 unit plus buildings having concrete floors, proper insulation and measures to reduce noise (like vibration dampening beams inside adjoining walls).
Competition for units – If rent control is in place in a high demand area, landlords will want to make sure to chose the least risky tenants. That could mean it would be tougher for low income or people with poor credit / rental history to qualify for a place to live.
Less new units built would lead to less aged & available units – Rent control can slow down development, and why should tenants care? Every time a high end building is built it creates more competition. Landlords can only charge the amount of rent an area will bare based on economics. In our area, there are several 80’s built apartments that at one time were considered luxury. They are dramatically different from what is considered a luxury apartment today, now with so many new buildings on the market, these older buildings have to stay competitive to get good tenants. Many of these buildings have downward forces placed on the amount of rent they can charge.
What people are saying about the topic in my area:
Recent CBC news article: Steep increases stir up calls for rent control in Nova Scotia:
Amber Lane resident and tenant was quoted saying the following: “I do understand that the cost of living does go up, but before it was always reasonable, say $25, $50 a year.” Unfortunately when new owners took over her building recently she is now being faced with a steep increase her rent increased from $800 to $1,000.
Kevin Russell (Executive director of IPOANS) was quoted as saying the following:
He said rent inflation currently is a symptom of rising costs like insurance. He said insurance companies are also increasingly demanding capital upgrades to buildings to keep them insured.
Beyond the business case, Russell said he believes capping rents “is not the magic elixir to fix affordable housing issues.”
“Jurisdictions where rent control has been implemented result in developers exiting the purpose-built rental market. And when this happens, there’s a severe reduction in rental units that at a time drive up rents,” Russell said.
Rent Control Not a Good Idea: CMHC Analyst (source allnovascotia.com)
CMHC’s Senior Analyst Kevin Ndoro said “rent control gets a lot of news coverage, but very few economist support it.”
He also said “negative consequences of the market intervention outweigh short-term benefits to tenants”
Dylan Kennedy (candidate for city council in the North End of Halifax) Said: “He’s tired of incumbent candidates saying that housing is a provincial jurisdiction and council’s powers are limited”.
Adam Barrett (landlord and developer) was quoted saying: “margins are small in the apartment business and any limits on rental increases will be passed on to tenants in the form of reduced amenities and fewer services.” He also said: “good tenants generally receive small rental increases because landlords want to keep them around.”
Summary
The controversy around rent control / rent regulation will be a never ending debate. I believe some politicians, especially ones that are not in a decision making position on the issue are selling false hopes to win votes. I do not think there is an easy answer to the issue, I mean mixing something as important as housing with free market capitalist points of view seems a bit toxic. I do think politicians would be better served to work on plans for rent subsidies for low income individuals, perhaps open up debates on a universal basic income.
Until Next time,
Design your landlord experience,
Michael P Currie
Landlord by Design
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