December 21, 2002
Ontario Rent Control Lessons
I enjoyed this analysis of the effects of rent control in Winnipeg. Here are some other thoughts from our experiences in southern Ontario. When I first moved to Toronto in the late 1960s, I was amazed at the variety of, and rents for, good quality accommodation. My first apartment was a 2-bedroom unit in a high-rise building which rented for less than the bachelor unit I had occupied in Montreal. That was not an isolated instance.
In those days, there was an abundant supply of rental units in Metropolitan Toronto whereas Montreal had quite low vacancy rates due to the difficulties of gaining approval for new construction within the city and several of its suburbs. Then, the whole picture changed -- the Davis Tories brought rent controls to Ontario. Even before they were enacted, there was a scramble by landlords to raise rents in anticipation of what was coming.
When coupled with a dramatic drop in the construction of new units, there was a rapid rise in rents in the initial years of the program. Of course, that rise in rents gave fuel to the advocates of more stringent rent controls. They also wanted the controls to be more broadly applied.
Before long, our private-developer clients felt the impact. They either abandoned the multi-family housing market altogether (like Cadillac) or became property managers (like Greenwin). Tenants also reacted. Those at the higher end of the market tended to become property owners as the cost of renting came closer and closer to the cost of ownership. Those tenants in the middle and at the bottom of the market were not so fortunate. They were stuck in units whose rents were now guaranteed to increase each year at the maximum permitted.
Even as rents were rising, property owners were cutting their controllable expenses (especially property maintenance) to offset the rise in uncontrollable expenses (especially litigation and related actions brought by more adversarial and newly empowered tenants).
During this period, the Province created a new Ministry of Housing to deal with the growing housing 'crisis'. After 'studying' the housing market, the ministry concluded that the market was not doing the job of providing affordable housing for those most in need. Their solution was to have the government become the major provider of low-income housing.
Additional pressure was placed on the low-income housing market when the Province and some of the major cities stepped up their efforts to condemn older multi-unit rental properties. This was supposed to protect the health and safety of our most 'vulnerable' citizens. In fact, it forced those at the bottom of the rental market into higher-priced units or, if that was beyond their means, onto the street. Not surprisingly, there was a growth in the homeless population. Was the government creating a crisis which only it could solve?
Some brave souls tried to remind the public of earlier public-housing disasters. These included Regents Park in downtown Toronto and the Ontario Housing projects scattered throughout the suburbs. Many of these projects have become centres of drug-dealing and other criminal activity. Critics of the proposed public-housing schemes were met with charges of being selfish and uncaring for the poor.
Eventually, the ministry did alter some of their earlier proposals by incorporating a mix of unit types into some of the public-housing schemes. The idea was to attract medium- and upper-income tenants so as to avoid the creation of more low-income ghettos. In practice, the more upscale units were very difficult to lease at market rents. So, their rents were greatly reduced. The result was significant government subsidies for tenants who could well afford to pay market rents. When this situation was exposed, the public began to question the fairness of these policies.
Construction of the new public-housing projects also became the subject of much discussion -- especially when it was learned that costs were running as much as 50% above comparable construction undertaken for private clients. Although most public-housing projects were developed by private contractors, contracts were awarded after a ministry-sponsored tendering process. That process was designed to encourage the participation of smaller firms and, later, extended to favour female- and minority-headed firms.
As a result, many contracts were awarded to firms without sufficient experience. In fact, some of these firms had been formed specifically to bid on these contracts. Further complications arose when firms were pushed to hire and train individuals from other government programs. Is it any wonder that construction costs were well above the market?
Another early initiative of the Ministry of Housing was to encourage municipalities to prepare housing statements. In these documents, the municipalities were supposed to estimate their future housing needs, with special attention being given to the needs of low-income residents. As an incentive, the Province would pay up to 90% of the cost of preparing a housing statement. They also offered subsidies for the construction of 'affordable' units. A formula was developed to determine which units would be eligible.
Once most of the larger municipalities were on board, the ministry changed the program. Projections of need for affordable housing became quotas. Municipalities were required to include a percentage of affordable housing in every new development within their boundaries. When municipalities complained loudly to Queens Park, the response was to empower provincial staff to grant exemptions to the quotas.
This did little for the housing market or for taxpayers or for the poor. Your conclusion that rent controls have hurt the poor is borne out by the experience here in Ontario. With a lack of resources limiting their options, the poor have had to bear the brunt of all this policy experimentation.
If our governments really want to provide affordable housing for the poor, they should take a cue from other jurisdictions (such as Maryland). In those jurisdictions, housing is provided by the market. The role of the public sector is to provide cash allowances to those who can't afford market rents. Such arrangements allow the market to function more efficiently while minimizing the demands on the public purse.
Changes occur when public opinion becomes informed. I applaud your efforts at shining a light on this critical policy problem.
Director, Cordillera Institute, Toronto
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."