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Wednesday, December 15, 2010

Rental Fascism

What's the best why to reduce the availability of housing stock in a large city? Make it as unappetizing as possible for owners to rent out their properties. Case in point, Ontario's Residential Tenancies Act:

The law appears to have been drafted on the assumption that all landlords are rich and greedy. Under the Act, a tenant can allow anyone to move into his or her unit indefinitely. So after you sign a lease for, say, a one-bedroom apartment, you can invite your unemployed buddies to come stay with you — forever. The Act does not require you to give names, addresses or references to the landlord. Even if you decide to move out, the scrubs can stay behind until they are formally evicted, which requires a court order … which, in some cases, the landlord cannot obtain because he doesn’t even know what name to put on the eviction notice.

The Ontario government's war against landlords is not a recent phenomenon. Bill Davis, the Greatest of all of Ontario's Red Tories, imposed rent controls in 1975. With Conservatives like these, who needs the NDP? A statist tradition which Stephen Harper, whom Brampton Billy endorsed, has diligently continued.

Not surprising to those acquainted with rudimentary economics, these controls soon produced a crippling shortage of rental properties in Ontario, particularly in Toronto. These controls have been tinkered with over the years, but not abolished. Landlords, unless they get permission from a government board, are limited to a certain percentage increase each year. 2.1% for 2010 and a whopping .7% for 2011. 

While this hasn't destroyed the rental housing market in Toronto, it has limited rental housing starts. Over the last three decades the city has instead seen a massive boom in condominium construction. Having been restrained from making steady profits in the rental market, capital simply moved into the business of building and selling housing. Not surprisingly, in years after the imposition of rental controls, Toronto had very low vacancy rates.

Over the last few years vacancy rates have been trending upwards, because while the quantity of housing units being supplied has fallen, the quantity demanded has fallen even further. This has been chiefly thanks to low interest rates, which makes buying more affordable. Rent controls in Ontario seem to be partially binding. High enough to make sense for existing housing stock to be maintained, but not high enough to encourage new constructions. The result is that new demand for housing stock is being met instead through condo construction. 

A complete scrapping of controls would probably not, at the moment, produce much of a spike in rents. Consumer inflation is low and vacancy rates are at historic highs. From the perspective of practical politics, now is probably the best time in decades to scrap these controls. There would be little immediate negative effect - no skyrocketing rents pushing angry renters to besiege Queen's Park - but could convince developers that rental units are once again a sound long-term investment. Once interest rates return to their historic norms, vacancy rates are likely to fall, producing a windfall opportunity for those who already have rental stock in place. 

Such are the dreams of free marketers, which in are rarely met in this economically fallen age. However much sense it makes to have a free housing market it has not, nor will it soon, come to pass. What keeps the absurdity of rent controls in place is not economics but ethics.

It is widely believed that landlords - who are perceived to be rich plutocrats - have a moral duty to provide homes to renters - who are perceived to be, and usually are poor. Since most middle class Canadians are owners, rental controls sound to them like another government program for the poor. Little different in principle from progressive income taxation. A bit of Robin Hooding for the apartment crowd.

But it is not an ideal consistently adhered to. The electorate believes that landlords have a right to be make a profit - be selfish - but only up to a point, beyond which their conduct becomes immoral i.e. gouging. This contrasts with parts of Europe, where squatting is legally encouraged. A political system in which property is privately owned, but its actual use is controlled by the government, is correctly described as fascism. What we have had in Ontario since 1975 is rental fascism.

The brother's keeper approach to housing policy may rest on altruism, but it's a one sided altruism. The landlords are selfish for demanding a market clearing price for their property, the renters, however, are not being selfish by demanding a below market price for their housing. It is altruism for a selected class of privilege. Their need gives them a moral right to demand something they have not earned. When that something being demanded nearly vanished, the needy complained about the greedy. They had only themselves, and their ethical code, to blame.


Posted by Richard Anderson on December 15, 2010 | Permalink


At a certain point, we can expect landlords to start torching their buildings, as a pile of ashes and a vacant lot will have considerably more value than a finished, habitable building. Rest assured, statists will turn this country into a parking lot before long.

Posted by: AB Patriot | 2010-12-15 7:43:48 AM

This type of government interference in the market place exists in every province and is the reason why I would never want to own rental properties.

Posted by: Alain | 2010-12-15 12:22:44 PM

Landlords in Ontario are regularly taken 'hostage' by renters who know the system. Read the "Help Forum." It's scary.


Posted by: Scott | 2010-12-15 2:57:48 PM

The best solution to getting rid of "tenants" is to throw a big party with a bunch of really big friends. Take over the couches and seats, get really rude. It worked for someone I knew. The "tenants" were gone in less than 24 hours. The bigger the freinds the better. Bikers work even better.

Posted by: kent | 2010-12-16 3:15:13 PM

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