August 9, 2010
How to Get Cheaper Rents
(Hint: Increase Supply)
It’s rare that trial balloons floated in the middle of a different time, say, back when Alberta was booming, are revisited. But Alberta’s approach to the rental market during those time provides a few lessons—some good, some poor—on getting to cheaper rents.
This issue came up again recently in Calgary over the issue of secondary suites. Calgary city council voted to allow such rentals in about 18 per cent of the city’s low-density lots but went no further. It provided a good occasion to revisit the boom-time debate over how to make rentals more affordable
Strangely, during the boom, some ignored an obvious remedy to the rental shortage (or how to get more reasonable rents regardless of whether the greater economy is up or down).
Instead, a plethora of cumbersome and more costly remedies were proposed and acted upon. In one case, two years ago, Calgary spent $10-million on buying 46 condominiums from a developer and renting out 23 out on a subsidized basis.
That’s one way to create affordable housing but an inferior and expensive one. It’s a poor second choice to simply allowing people to live wherever they want and subsidizing those who are poor on a monthly basis.
Then there were the other ideas to deal with rents in a crisis. Some advocated rent control. Others, such as then Edmonton NDP MLA Ray Martin liked that idea but also wanted to ban the conversion of rental units into condominiums.
Meanwhile, Calgary Mayor Dave Bronconnier did what too many politicians do because too many responsibilities are “shared” by almost every level of government. In December 2007, the mayor called on Ottawa to “do more” on housing, i.e., send him and council more federal tax dollars.
Some of these ideas were poor and others nonsensical. Rent control is a great way to squeeze supply, create a black market in secondarily-leased suites and degrade the housing stock into slum-like conditions as landlords save money on repairs and other maintenance.
To his credit, Alberta Premier Ed Stelmach rejected rent control. He properly argued that restricting the ability to get a return on your investment was no way to encourage supply.
Ironically, how extra supply keeps a lid on rent increases is now being demonstrated in Calgary by what happened in the new condominium market. The present glut of condos in Calgary has led to an increase in apartments to be rented. While many are high-end, the extra supply helps everyone. New supply has opened up that competes with existing stock; renters who can afford to do so move out of older apartments; that loosens up supply in the middle-income market and so on down the line.
But some boom-time ideas managed to outlive even the mania. The city’s trial program whereby homeowners were paid up to $25,000 to convert part of their house into a secondary suite was silly. What did they expect to find out? That some neighbours dislike the extra traffic and will always oppose secondary suites? Or that homeowners who have suites like them as they help pay down the mortgage more quickly? That much was already obvious.
By throwing around every sort of idea except the obvious one, Calgary’s politicians managed to waste time and money and avoid a remedy that costs taxpayers nothing and increases the rental stock in the city forever: legalize secondary suites across the city regardless of the neighbourhood.
That action, subject to the usual caveats that such suites should meet code, would finally bring more supply on market and make the existing “mother-in-law” suites legal. It would also allow homeowners to pay down their mortgage debts quicker; and it provides more density, which everyone from urbanists to environmentalists say they want.
Too many local politicians in Calgary have not yet come to this common sense realization—increased supply keeps downward pressure on rents, and property rights should be respected. (Houses belong to their owners, not to “the neighbourhood” and certainly not City Hall). If they don’t get it soon, provincial politicians (in Alberta or in any other province) should act in an enlightened manner anyway and change relevant provincial legislation to grant any and every homeowner the right to secondary suites.
Fact is, several cities in Canada already see the wisdom of this. In 1995, North Vancouver legalized secondary suites for all homes regardless of previous zoning. The City of Vancouver changed its bylaws in 2004 to permit secondary suites city-wide. Toronto, after amalgamation, allowed new homes to “rough in” secondary suites and add them five years later regardless of previous zoning.
So it’s that, or politicians across Canada can continue the “debate” over how to solve homelessness, get affordable rents, and ignore one helpful remedy: an increase in supply.
Mark Milke, Director of Research
also lectures in Political Science at the University of Calgary where he received his doctorate. He is the author of three books on Canadian politics, including the 2006 A Nation of Serfs? How Canada’s Political Culture Corrupts Canadian Values from John Wiley & Sons. He is a former director (first in Alberta and then British Columbia) with the Canadian Taxpayers Federation 1997-2002. Since 2002, among other work, Mark has written policy papers on British Columbia’s treaty process, the Canada Pension Plan, Alberta’s Heritage Fund, automobile insurance, corporate welfare and the flat tax. He is writing a book on the effects of anti-Americanism on deliberative democracy in Canada and is a Sunday columnist for the Calgary Herald. In addition, his columns on politics, hiking, nature and architecture have been published across Canada including in the National Post, Globe and Mail, Reader’s Digest, The Western Standard, Vancouver Sun, and Victoria Times Colonist and the Washington DC magazine on politics, The Weekly Standard.