Does rent control work?

Aug 30, 2022 | Calgary Real Estate Investing Blog

As the topic of rent control seems to be coming back to the Alberta news I figured I would share some of my thoughts on the topic.⁣

The idea of rent control is obviously very appealing to tenants that see this as a solution to rising rents. Unfortunately, if we dig deeper in both the history of rent control and the economic fundamentals at play, the idea of bringing this piece of legislation to solve rising rents single handily falls short of it’s intended results.⁣

Think of where rent control is currently in force and where the rental market is currently fairly open, think of cities like New York, Toronto, Vancouver, San Francisco etc. Meanwhile Alberta has some of the best affordability in the country while having no rent control at all!⁣

Why does rent control not actually lower rents?⁣

  • According to the basic theory of supply and demand, rent control causes housing supply to tighten as the incentive to own rental properties gets lowered. Rent control tend to raise demand for housing — and therefore, rents — as a result.⁣
  • Rent control creates an incentive for apartment buildings to be converted into condos, further decreasing the rental supply.⁣
  • Because it becomes difficult for landlord to cover their repairs and maintenance cost there is a built-in incentive to let buildings get into states of disrepair and even unsafe living environment. This is something I have witnessed happen first hand when living in Montréal.⁣

Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive.⁣

Please read this very interesting publication that looked at the removal of rent control in Alberta back in 1980

In summary, from the publication:

“Review of the rent control literature shows that if rent controls are left in place long enough, they will impact negatively on maintenance levels, abandonment, rental housing stock and investment, and labour mobility.”

Questions?

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