Rent Control Isn’t The Whole Story

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Generally speaking my visits to LinkedIn are rare but not long ago I checked in for a few minutes and happened to see the following post (dated August 30th) made by a marketing person in the industry:

“When rents surge and supply gets tighter (like it is now) it becomes easy to forget the paradoxical fact that renters are the biggest losers in rent-controlled cities. There is a plethora of articles, papers, and studies that show that time after time rent control policies drive up costs for renters, limit the supply of rental housing, increase the division between landlords and renters and limit economic growth in cities. The second biggest losers are landlords and developers. So who are the winners? Politicians.”

It’s become an article of faith in this industry, or a nugget of received wisdom, that the introduction of rent controls in 1975 ended the construction of purpose-built rentals in Ontario, and that for the next two decades little or no purpose-built rentals were built until the relaxation of rent controls in the late 1990s, after which construction resumed.

This narrative, like so many narratives that attempt to explain complex transformations of our economy and society, is simplistic, incomplete, and almost certainly wrong. Instead, the multi-decade drop in purpose-built rental construction was undoubtedly motivated by a number of factors, among which rent controls were only one factor, and probably a minor one at that. I think this topic is worth delving into in detail and with that in mind I’m going to work on a discussion paper that explores other factors beyond rent controls that might have affected purpose-built rental construction, including some interesting data that shows just how wobbly the “rent controls are bad” assertion is. Stay tuned!