August 23, 2007
Not Time to Undo Major NDP Policy Success
One of the Saskatchewan NDP’s major policy successes during the 1990s was its 1992 decision to remove rent control. Unlike rent‑controlled Manitoba, average rents held as apartment supply grew. Until recently, Winnipeg had the lowest apartment vacancy rate on the Prairies. In 2005, Regina had twice as many apartments available as did Winnipeg, a city almost three and half times larger. Saskatoon had three times as many available apartments. Regina rents were 7 per cent lower than Winnipeg’s, while Saskatoon’s were 12 per cent lower. The moral of the story: rent control strangles supply and unnecessarily raises rents.
This brings us to the old fable about the sun and the wind competing to remove a man’s coat. The wind boasts of its power and produces a stiff breeze, but the man pulls his coat tighter and carries on. Furious, the wind unleashes its strongest gale, but the man pulls his coat tighter still. The sun takes its turn, and with warm rays shining on his back, the man happily removes his coat.
Saskatchewan’s economic upswing is producing a temporary affordable housing crisis and many people are desperate for a solution. Unfortunately, despite all the evidence that rent control harms those who can least afford it, the common remedies of rent control and restrictions on condo conversions, more like the cold wind than the warm sun, are oozing their way back onto the political agenda.
By definition, renters do not invest in property of their own. They rely on others to invest, so they can make small, regular payments instead of one big one. The low vacancy rate means not enough investment is happening to satisfy the demand for low‑cost rental housing. Restricting prices and condo conversions will be as effective at increasing investment as the wind trying to blow off a man’s coat.
Prices are important in any economy because they transmit information. The Soviets realized this soon after the 1917 revolution and after four years of famines in a priceless economy, prices were reintroduced.
Saskatchewan’s rising real estate prices tell people there is business to be done in property. A young builder might decide to move to the province, a farmer with property abutting the city might decide to sell some land for development, or a retiree might decide to invest in buildings instead of in company shares. On the other hand, sacrificing freely moving prices to rent control eventually leads to a housing famine.
Apart from information, prices provide incentives. Rent control is like a maximum wage for property investors. Nobody has ever suggested a maximum wage for workers, but it is worth considering what would happen. With no chance of a pay raise and possibly already getting less than they are worth, fewer workers would bother with more education, extra hours, turning up regularly, or even being civil to colleagues. It is not surprising that employers have never called for a maximum wage in order to save on payroll costs. It would get them nowhere, and rent control will not help renters for the same reason.
In a more subtle way, restraints on condo conversions have the same effect as controlling rent does. Apart from rental returns, rental property is worth building and investing in because of the potential to redevelop it or sell it. Unfortunately, restricting development possibilities will make investment in low‑cost properties less attractive. What is more, the stronger rent control or development restrictions are, the more they backfire.
Renters need more investment in housing, and policies that discourage this are going to rebound onto them. Government development of housing seems like a solution, but public housing is typically twice the cost of private alternatives, so it is a policy that wastes resources that can be used more wisely elsewhere. Smart solutions will encourage more supply and target only those most affected by the affordability crunch. Making it easier to get planning permission for more land development would increase housing supply. Tax breaks and vouchers for low‑income renters would help the immediate crisis of people being unable to afford housing. Expanding homeless shelters as an alternative to private housing should be a short‑term last resort.
Truly sustainable solutions to the low‑cost housing problem must take into account that there is no such thing as a free lunch. Low‑income renters need more investment and applying the cold wind of intervention to property investment will only make sure investors tighten their coats.
The Calvert government needs to think carefully about overriding the wisdom of the NDP’s 1992 decision to free up the supply of rental housing. Saskatchewan has lower rents and more choice for its renters thanks to it.
direct the Centre’s Saskatchewan office from 2007 to 2011. He holds degrees in Electrical Engineering and Philosophy from the University of Auckland, where he also tutored Economics. In four years working for the Frontier Centre, David carried out extensive media work, presenting policy analysis through local and national television, newspapers, and radio. His policy columns have been published in newspapers in every province as well as the Globe and Mail and the National Post. David has produced policy research papers on telecommunications privatization, education, environmental policy, fiscal policy, poverty, and taxi deregulation. However, his major project with the Frontier Centre is the annual Local Government Performance Index (LGPI). The inaugural LGPI was released in November 2007 and comes at a time when municipal accounting standards in Canada must improve if the municipal government sector is to reach its potential as an economic growth engine for Canada. David is now a policy advisor in Wellington, New Zealand.