Rent Control: Good or Bad?

[Mininari]

It seems that people want to discuss this in the Wpg construction thread so...
Discuss!

[someguy]

http://affordablehousinginstitute.org/blogs/us/2005/05/rent_control_sh.html


Although rent controls help those that already live in an apartment, they are toxic on the future development of a city, and limit the number of units available to rent. Those uncontrolled units will have significantly higher prices, as supply -vs- demand dictates.

[Bdog]

I'll repost what I posted in the other thread, as it's more appropriate here:

Originally Posted by Bdog

While I generally agree that rent control legislation in Manitoba need to be changed, I see both sides to this story. Rent controls may play a major role in our low vacancy rates, but rentals aren't being built much in any market (even in one's without strict rent controls). The problem is that they aren't as profitable, and take much longer to recoup your investment.

But I do agree that rent controls are especially going to discourage development in areas with relatively newer rental stock (ie 60s-early 80s built) in decent areas - While rent controls may hold a 2 bedroom unit in that area 900/mo or so, a brand new building would have to charge maybe 1200/mo, making the new product uncompetitive.

However, there are developers in Winnipeg building new rentals in the suburbs, so it is profitable. A great example is Broadstreet properties - their units are mostly all rentals, and rent out quite well: http://www.broadstreet.ca/index.php?page=2&area=winnipeg

If we're really serious about building new rentals, we've got to return to the system we had in the 60s and 70s (when all those slab towers were built all over the country). Essentially, developers could write off their interest payments on rentals, and non-profits doing rentals would get funding to cover their shortfalls. That obviously has to come from the federal government. Rental shortages are a national issue, although in Winnipeg, vacancies are exceptionally low...

[Spocket]

Actually , I'm not so sure that rent controls are much of a deterrent to anything anymore .

They appear to be being phased out in a very roundabout way whether the government wants to do that or not . I say this not because the government is making any effort to really eliminate rent controls but because with all the exceptions , credits , and more or less recent changes to the policy(ies ?) we're already almost in a defacto rent-control-free status .

The logic of rent controls is lost today and I'm not sure if there was ever any benefit to it in the first place . I mean , we all get the idea but had somebody thought of it from the businessman's perspective then we'd have known a long time ago that rent controls make no sense . Property owners can't price themselves out of their market (the amount of rent they can charge being determined by the state of their properties basically) and they obviously can't undercharge so what's the point of telling them what they can or can't charge ? The market can and will sort it all out in a much better fashion than rent controls ever could .

Overcharge and make no money due to lack of tenants . Undercharge and go bankrupt .

In any case , the government has made so many allowances (and will undoubtedly introduce more of them) that rent control is going the way of the dodo anyway . Kind of like Chinese communism , it's nominal only .

[Winnipegger@Heart]

Trueviking is correct in saying that developers want an instant return. If there was money to be made on rentals (more of an immediate return), do you not think more developers would be digging in the ground as we type? Bravo to the developer of the Residences on York; he is the exception though.

IMO, rent control needs to be removed. The market should determine what people pay.

[h0twired]

Originally Posted by Winnipegger@Heart

Trueviking is correct in saying that developers want an instant return. If there was money to be made on rentals (more of an immediate return), do you not think more developers would be digging in the ground as we type? Bravo to the developer of the Residences on York; he is the exception though.

IMO, rent control needs to be removed. The market should determine what people pay.

The Residences on York is about one third vacant.

Not exactly a poster child to encourage new development in Winnipeg.

[1ajs]

it will fill up once the parkade is in i bet

[Bdog]

Good article about what could be done to encourage more rental/affordable housing development in the Province. Interesting that rent controls were not mentioned as a major deterent. Many of the arguments I made earlier in the thread are repeated here...

http://www.winnipegfreepress.com/opinion/westview/the-house-is-tumbling-down-133944833.html

Winnipeg Free Press - PRINT EDITION

The house is tumbling down
By: Tim Sale and Alan Borger

Posted: 11/16/2011 1:00 AM

ere can I rent an affordable apartment for me and my family? That question haunts 30 per cent of Manitoba renters, and it's gotten worse for most of the last 25 years. The same story is true for most of Canada, and is worst in Alberta and British Columbia. Manitoba has been spectacularly successful in welcoming new families in the past decade, so our cities and towns are growing, some of them, such as Steinbach and Winkler, very quickly. But the refrain everywhere is "Where can we rent an affordable apartment while we get our feet on the ground?"
...
The good news is there is agreement on how to resolve this problem. First, the industry must apply aggressive cost-control and productivity measures to new construction. Local Manitoba developers have told us that with highly skilled crews reusing the same basic building designs, recycling concrete forms and other productivity measures, total construction costs can be reduced to less than $160 per square foot, as compared to more than $200, which is often seen today. Such units use traditional frame construction, meet all code requirements for energy efficiency and are already being built in Winnipeg in several locations.
...
The second solution is comprised of a basket of measures that can be enacted by the federal, provincial and municipal governments to reduce front-end and soft costs, improve early cash flow, reduce land costs, defer or change some aspects of taxation affecting rental property, and reduce property taxes in the early stages of a project. Federally, this means reverting to capital cost allowances of the 1970s, treating groups of apartments as a portfolio rather than as individual buildings, changing the application of the GST and other measures. Provincial measures could include PST rebates, while at the municipal level, Tax Increment Financing (TIF) and a simplification of permitting would significantly reduce project costs. Municipal support can include TIF, zoning and density allowances and lower land charges, among other measures.
...

[Jets4Life]

This thread should read "Rent control: Bad or Horrible?"

[armorand93]

Originally Posted by Jets4Life

This thread should read "Rent control: Bad or Horrible?"

I think some should be controlled, mostly suburban ones though. Keep the riffraff out, move the upper incomes in and voila, downtown revitalization!

[Jets4Life]

Originally Posted by armorand93

I think some should be controlled, mostly suburban ones though. Keep the riffraff out, move the upper incomes in and voila, downtown revitalization!

I don't mean to sound like I am against subsidized housing in general. I am more than fine with non-profit housing cooperatives that help out people with physical and mental disabilities, and such. I just have no desire to see the government control rent. I believe it discourages private developers from building new housing, which keeps the vacancy rate too low.

[tenteno2]

To add a bit of balance...

Is this discussion about modern rent control policies which provide some protection from large rent increase, or the rent control policies of the 50's that provided locked-in rental rates?

Regina has experienced rental cost increases of approximately 75% in the last 3 years. The rental vacancy rate is below 1%. The market does not appear to be making a positive impact here.

If you look at the rental market as a complete system, rent control legislation can provide a control-system dampening effect, cushioning some of the most vulnerable in our society from large swings in rental costs.
Limiting the rate that rents can increase is a minor inconvenience to a long-term investment like a rental apartment (the increases get phased in over a few years), but unrestricted rental increases can be devastating to the tenants.

[The Jabroni]

Good for the short term.

Ridiculously terribad for the long term.

[h0twired]

Rent control should only apply to existing tenants. Occupied units can go up according to inflation, but can not be jacked up unreasonably to empty a suite that the owner want to convert into a condo or to go along with some housing boom.

Vacant suites should be allowed to be rented at market rates.

[Bdog]

I think the real question is "do rent controls hinder construction of new rental buildings?" I think it's pretty clear that the answer is no, or barely. Tonnes of factors trump rent controls, including the high price of new construction, removal of federal tax incentives, relatively cheap ownership options, and slower return on investment.

[h0twired]

Originally Posted by Bdog

I think the real question is "do rent controls hinder construction of new rental buildings?" I think it's pretty clear that the answer is no, or barely. Tonnes of factors trump rent controls, including the high price of new construction, removal of federal tax incentives, relatively cheap ownership options, and slower return on investment.

How do rent controls NOT affect new construction?

Cost of new construction

Would you build an apartment building at $200-250/sq ft and have to charge $1000-1500/month to break even when a 20 year old suite of the same size rents for $700-900/month under rent controls?

Removal of tax incentives

Why should the tax payer be paying the difference for rental construction? If I own a house should I pay for a subsidized construction of an apartment that will be further controlled by the government?

Cheap ownership options

What does this have to do with rent controls? Some people buy, some people rent. This is a personal choice for the most part. We don't have real estate controls telling people what they can sell their houses for, why do we need a government body telling landlords what they can rent for?

Slower return on investment

Why do you think that is? Perhaps it has something to do with a government program that artificially stifles the rental market to a point where it is next to impossible to make any money building a rental apartment.

So do you still think that rent controls aren't a factor?

[tenteno2]

Originally Posted by h0twired

How do rent controls NOT affect new construction?

Fun!

Cost of new construction

Would you build an apartment building at $200-250/sq ft and have to charge $1000-1500/month to break even when a 20 year old suite of the same size rents for $700-900/month under rent controls?

The 20 year old building is paid for. What is an appropriate ROI once the capital costs have been recouped?

Removal of tax incentives

Why should the tax payer be paying the difference for rental construction? If I own a house should I pay for a subsidized construction of an apartment that will be further controlled by the government?

Because dense neighbourhoods are much less expensive to do maintenance on, and result in more vibrant urban neighbourhoods. I haven't seen a quantification of *how much* cheaper (per capita) multi-storey housing is than single family homes, but it isn't pennies.

Cheap ownership options

What does this have to do with rent controls? Some people buy, some people rent. This is a personal choice for the most part. We don't have real estate controls telling people what they can sell their houses for, why do we need a government body telling landlords what they can rent for?

There are many municipalities that *do* dictate what a portion of new homes will cost. In municipalities where there are fixed percentages of "affordable" units in new developments, the government is overtly putting a ceiling on the selling price of those units.

Further, to "cheap home ownership: indirect municipal subsidies to support single family home development artificially lowers the costs of single family homes, distorting the rental and ownership markets.

Slower return on investment

Why do you think that is? Perhaps it has something to do with a government program that artificially stifles the rental market to a point where it is next to impossible to make any money building a rental apartment.

So do you still think that rent controls aren't a factor?

Is the government stifling the rental market, or subsidizing the other markets? (Such as the new downtown office space tax abatement in Regina. )

In Regina approximately 25% of new construction is rental. Either the rental market is better than presented above, or there are a lot of clueless people building multi-unit rental.

[Bdog]

Originally Posted by h0twired

How do rent controls NOT affect new construction?

Cost of new construction

Would you build an apartment building at $200-250/sq ft and have to charge $1000-1500/month to break even when a 20 year old suite of the same size rents for $700-900/month under rent controls?

Removal of tax incentives

Why should the tax payer be paying the difference for rental construction? If I own a house should I pay for a subsidized construction of an apartment that will be further controlled by the government?

Cheap ownership options

What does this have to do with rent controls? Some people buy, some people rent. This is a personal choice for the most part. We don't have real estate controls telling people what they can sell their houses for, why do we need a government body telling landlords what they can rent for?

Slower return on investment

Why do you think that is? Perhaps it has something to do with a government program that artificially stifles the rental market to a point where it is next to impossible to make any money building a rental apartment.

So do you still think that rent controls aren't a factor?

Cost of new construction

When vacancy is effectively zero, you can't use that argument - you can't say "I'm gonna go to an apartment under rent control instead of a new one", because those ones are almost impossible to find. So that point is moot. 200 - 250 p/sq foot would be a very luxurious rental, and wouldn't be competing with 70s commie blocks anyway...

Removal of tax incentives

The tax incentives of the 60s and 70s weren't direct subsidies. They involved differences in the tax code - higher capital cost allowances, differences in the way portfolios of apartments were taxes, etc. Other measures like TIF rebates or GST/PST exemptions are neutral, as we wouldn't have been getting those tax revenues anyway had the new rentals not been built.

Cheap ownership options

This does play a factor into why new rentals aren't being built. As long as housing remains relatively affordable in Winnipeg (although obviously prices have risen substantially in the past decade), then rental is going to be less competitive. People might lean towards a 1,200/month mortgage, rather than 1,200/month rent.

Slower return on investment

Huh? Rentals are naturally a slower return, because the return isn't frontloaded like it is for a condo, where you can build and flip in maybe a 3 year turnaround.


You can rail against rent controls all day - that's fine. But I work and talk with developers all the time - most of them will candidly admit that rent controls are FAR down the list of reasons why new rentals aren't being built, and that the reasons I listed are the greater impediments. Look at companies like Broadstreet - because of how they operate as a developer/builder, they've managed to efficiently build rentals all over the city, and they're full. If rent controls were the real reason, as you claim, other cities would not be having the same problem - interestingly though, the rental shortage is a national problem, not a Winnipeg problem...Why is that, Hotwired?

[h0twired]

Originally Posted by tenteno2

The 20 year old building is paid for. What is an appropriate ROI once the capital costs have been recouped?

That should be left for the landlord to determine. However we are talking about new construction. What level of risk do you expect developers to accept in Winnipeg? Should new developers be subsidized so that they can compete with existing rent controlled buildings while they have a heavy debt load on the new building?

If the raw construction cost of the individual units cost more per month than the average in the city, what should be done to get them to build here?

Originally Posted by tenteno2

Because dense neighbourhoods are much less expensive to do maintenance on, and result in more vibrant urban neighbourhoods. I haven't seen a quantification of *how much* cheaper (per capita) multi-storey housing is than single family homes, but it isn't pennies.

The original quote mentioned FEDERAL tax incentives. What you speak of are municipal tax breaks. That said, the apartment building is only a percentage of the overall usage of the municipal coffers. The hundreds of residents still put a strain on city parks, libraries, buses, roads etc.

Originally Posted by tenteno2

In Regina approximately 25% of new construction is rental. Either the rental market is better than presented above, or there are a lot of clueless people building multi-unit rental.

Regina has no rent control system in place and rental rates follow market fluctuations. They don't seem to have streets filled with homeless people as a result either.

So perhaps they are doing something right.

[micheal]

Rent control doesn't work period. if there isn't a decent cap rate then no one will build. there has to be a decent return on investment. in regina there is a great demand for housing and rental units which has pushed rents up and made it feasable to build rental units. With unemployment the lowest in north america at 3.5%, more will get built. Rent control was a major promise by the NDP in sask. in the last election. the majority were against it and the NDP was left with only 9 seats.