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Sunday, June 15, 2008

Rent control means less affordable housing for the poor

Over the weekend, I got a healthy dose of free-market thinking at the Acton Institute's summer Acton University. Lord Brian Griffiths of Goldman-Sachs (and close advisor to Maggie Thatcher) gave a great talk about the heroic and moral calling of business. This I already knew, but it was nice to be reminded. But one thing that I did not know was what Jay Richards, author of the forthcoming Christian Case for Capitalism, pointed out about good intentions and their bad consequences. It seems that a study done of the largest cities in the U.S. (and I can't verify the report until Richards' book comes out) which employ rent control legislation in an effort to provide "affordable housing" for the poor actually results in less affordable housing for the poor.

Richards explained that if a landlord would normally rent an apartment for 800.00 a month but because of rent control must keep the rent at 600.00 then one of three things will happen:

1) The landlord will have to cut back on maintenance or utilities and many properties become slums;
2) The landlord will have to close down an apartment complex to cut costs;
3) The landlord can convert the apartment complex to condominiums.

All of these result in less affordable housing. More people without a place to rent. When this was explained to me it made sense. Once we artificially set prices the result is less available goods. Then I came across this article from Saskatoon Star Phoenix. It seems Jack Layton, the NDP leader, says that while the federal gov. doesn't have any jurisdiction over rent control (one can just hear a condescending sigh at the sadness of that fact, can't one?), where ever rent control has been tried, it has been helpful.

Oh really? Then why is it that Layton is calling for the federal gov. to prevent the conversion from apartments to condos? Here's what Layton had to say: "Let the investors in condos build new ones if they want to, but (we oppose their) coming in and taking over rental housing and turning it into more expensive, diverse ownership housing for investors who could be far away and all they're concerned about is return on investment," he said. This REALLY makes me madder than a wet hen, as we say in Mississippi. Never mind the subtle subtext about greedy capitalists who are--egads--concerned about return on investment! As if that was a bad thing. Let's look at the progression. First the state/local officials tell landlords they can't charge more than what some bureaucrats decide is fair. Then when the owners want to cut their loses and have a choice between closing up shop, skimping on customer care, or selling what is their bloody right to sell, they chose the most humane route and then they are told, "Nope sorry chum. That option is also closed to you. You'll just have to charge what we tell you is fair and don't skimp on the amenities are we'll call you a slum lord." What happens next? Is there a law to prevent apartment complex owners from closing up and demolishing the building? This seems the only free option left to owners. Except I bet there is a law that says they can sell it to the state. Or there will be soon and I'll just bet the term "urban blight" will be used in the justification.

Posted by Jay Lafayette on June 15, 2008 in Current Affairs | Permalink


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Excellent post, Jay -- and welcome to the Shotgun blog.

Our readers should know that they can listen to you on the Political Animals radio show which is part of the Western Standard Radio network.

As for your post, you wrote:

"Is there a law to prevent apartment complex owners from closing up and demolishing the building?"

Yes! Well, sort of. There are municipal laws that prevent property owners from boarding up houses that they can't rent for a profit or renovate due, in part, to rent control.

In Winnipeg, for example, the city even has the right to seize vacant properties without providing compensation to the owner.


By the way, your links don't seem to work.

Posted by: Matthew Johnston | 2008-06-15 6:39:37 PM

Your links now work.

Posted by: Matthew Johnston | 2008-06-15 8:00:01 PM

And in the UK they had the latch key fee.

Posted by: DML | 2008-06-15 10:10:15 PM

British Columbia's rent-control laws are a good example of how the system messes up the market. I know about this pretty well because, in some sense, I'm a beneficiary of the law (well, not that I have much choice in the matter). My rent, because I've lived in my building for several years - and because I moved in right before a major adjustment - is grossly below market levels.

Of course, on the other hand, if we had a proper free market in housing then I might actually be able to afford to buy something, instead of being stuck in a situation where an income which could buy a house in most of the country would be stretched trying to buy a studio apartment.

Posted by: Adam Yoshida | 2008-06-15 11:12:01 PM

I saw a news report on one of the American tv networks this weekend blaming rising gas prices on soft home sales in the suburbs. According to the report (which seemed to be based on anecdotes, if anything) fewer people want to spend all that money on gas commuting to their jobs, so fewer people are buying houses in the 'burbs.

I CANNOT WAIT for the lefties who have long ranted against "suburban sprawl" to start calling on governments to bail out all the poor, out-of-work suburban construction workers and regulate gas prices so the working man can afford a home in the 'burbs.

Posted by: Anonymous | 2008-06-16 7:41:45 AM

What happens next? Is there a law to prevent apartment complex owners from closing up and demolishing the building? This seems the only free option left to owners.

Don't joke. Remember the "Seven-Year-Squat" in Ottawa: http://www.ottawaxpress.ca/news/news.aspx?iIDArticle=4547. http://nefac.net/node/709.

Posted by: Anonymous | 2008-06-16 7:45:58 AM

Apartment buildings aren't built anymore, no one is dumb enough to invest in rental accomodation that is historically targetted by government for semi-expropriation.

Posted by: philanthropist | 2008-06-16 2:50:44 PM

Actually, I can think of a few rental apartment buildings that have been built in Ottawa recently. True, the construction of condos is more common, so much so that people are quite surprised when they discover a new building is rental-only. But it still happens here. I assume it's because Ottawa has such a large high-income transient population, what with all the politicians and diplomats and all.

Posted by: Anonymous | 2008-06-17 7:20:15 AM

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