Canada's 'housing bubble' deemed close to bursting

[milomilo]

Originally Posted by whatnext

And it should be noted that nothing currently restricts landlords in BC from hiking the rents on a unit by an outrageous amount when one tenant moves out and a new one moves in. The costs Misher is moaning about can be recouped that way.

And be recouped they will be, plus more. The outrageous amount would be lessened somewhat, had rent controls not been in place.

[theman23]

It seems like even those arguing that rent control is bad policy have admitted that it - at worst- has a negligible real impact on rent supply. Why are we spending this much time on it then?

[CityTech]

Originally Posted by misher

Ah I guess someone not in Vancouver wouldn't understand how much costs increase here when they aren't passed on to the tenant. In Vancouver we are seeing 5-15% property tax increases annually, 5-15% service/utility increases annually, 15-40% increases this year in insurance costs, and large increases in the costs of contractors. I would love a system where utility and other costs are passed on to the tenant. Would help block the city from constantly raising them.

Property taxes increases by 5%-15% a year in Vancouver? Ouch. Here in Ottawa, mayor Watson has held the line on taxes for pretty much the whole decade; between 2011 and 2018, property taxes per capita fell by 6% relative to inflation.

In Ontario, utility costs are paid by tenants, generally. Landlords can choose whether to pay for utilities or pass them on.

In Ontario, if a landlord's property tax costs, not-passed-down utility costs, or security costs increase by more than the rate of inflation, they're allowed to increase the rent by more than the guideline to make up the extra cost. They're also allowed to increase rent by more than the guideline if it's needed to pay for the cost of repair work. There's a bit of paperwork involved as the landlord has to prove the costs and show their books to the government's rental board, but it's easy enough for a landlord to get these approved if they're being honest.

[milomilo]

Originally Posted by theman23

It seems like even those arguing that rent control is bad policy have admitted that it - at worst- has a negligible real impact on rent supply. Why are we spending this much time on it then?

I didn't. It might seem to have a negligible impact in the short term, but over years and decades it will have a larger impact, more so the more stringent it is. You can't buck the market.

Better to never have it in the first place - we shouldn't have to argue why it is a bad idea to implement, the proponents should be arguing why it is a good idea, and why they think they can break the rules of economics.

[Xelebes]

Originally Posted by milomilo

Just because the market is complex does not mean the fundamentals of supply and demand don't exist. It's like denying the laws of thermodynamics. The market will always win, if you restrict supply, you will increase the price. Perhaps not for the individual renter in the short term, but eventually that renter has to move, and now the new place he gets is priced higher than it otherwise would have been, and the new buyer of the previous place also pays more.

But you are showing a gross oversimplification of what constitutes supply and demand. Firstly, I imagine that you treat economic curves as continuous functions. They are not continuous functions, even at the aggregate level but are approximations of behaviour. Secondly, you are treating them as knowable.

The wise stance to take with supply and demand is to hedge the assertions with a fair sized grain of uncertainty and allow that some control policies actually result in lower prices and greater supply. This is modern economics. You actually have to test this stuff before you drop in with theory.

[milomilo]

It's been tested. It failed. Case closed.

[Xelebes]

Originally Posted by milomilo

It's been tested. It failed. Case closed.

Citation please. What were the controls? What was being tested?

[milomilo]

Originally Posted by Xelebes

Citation please. What were the controls? What was being tested?

Here's one:

The Eects of Rent Control Expansion on Tenants,
Landlords, and Inequality: Evidence from San Francisco∗

In this paper, we have studied the impact of rent control on its tenant beneciaries as well as
the landlord response. To answer this question, we exploit a unique rent control expansion in
San Francisco in 1994 that suddenly provided rent control protections for small multi-family
housing built prior to 1980. By combining new panel micro data on individual migration
decisions with detailed assessor data on individual parcels in San Francisco, we get quasiexperimental variation in the assignment of rent control at both the individual tenant level
and at the parcel level.
24
We nd that, on average, in the medium to long term the beneciaries of rent control
are between 10 and 20% more likely to remain at their 1994 address relative to the control
group and, moreover, are more likely to remain in San Francisco. Further, we nd the eects
of rent control on tenants are stronger for racial minorities, suggesting rent control helped
prevent minority displacement from San Francisco. All our estimated eects are signicantly
stronger among older households and among households that have already spent a number
of years at their current address. On the other hand, individuals in areas with quickly rising
house prices and with few years at their 1994 address are less likely to remain at their current
address, consistent with the idea that landlords try to remove tenants when the reward is
high, through either eviction or negotiated payments.
We nd that landlords actively respond to the imposition of rent control by converting
their properties to condos and TICs or by redeveloping the building in such as a way as to
exempt it from the regulations. In sum, we nd that impacted landlords reduced the supply
of available rental housing by 15%. Further, we nd that there was a 25% decline in the
number of renters living in units protected by rent control, as many buildings were converted
to new construction or condos that are exempt from rent control.
This reduction in rental supply likely increased rents in the long run, leading to a transfer
between future San Francisco renters and renters living in San Francisco in 1994. In addition, the conversion of existing rental properties to higher-end, owner-occupied condominium
housing ultimately led to a housing stock increasingly directed towards higher income individuals. In this way, rent control contributed to the gentrication of San Francisco, contrary
to the stated policy goal. Rent control appears to have increased income inequality in the
city by both limiting displacement of minorities and attracting higher income residents.
These results highlight that forcing landlords to provided insurance against rent increases
can ultimately be counterproductive. If society desires to provide social insurance against
rent increases, it may be less distortionary to oer this subsidy in the form of government
subsidies or tax credits. This would remove landlords' incentives to decrease the housing
supply and could provide households with the insurance they desire. A point of future
research would be to design an optimal social insurance program to insure renters against
large rent increases.

You don't get to make your own economic theories. You just don't.

[misher]

Originally Posted by CityTech

Property taxes increases by 5%-15% a year in Vancouver? Ouch. Here in Ottawa, mayor Watson has held the line on taxes for pretty much the whole decade; between 2011 and 2018, property taxes per capita fell by 6% relative to inflation.

In Ontario, utility costs are paid by tenants, generally. Landlords can choose whether to pay for utilities or pass them on.

In Ontario, if a landlord's property tax costs, not-passed-down utility costs, or security costs increase by more than the rate of inflation, they're allowed to increase the rent by more than the guideline to make up the extra cost. They're also allowed to increase rent by more than the guideline if it's needed to pay for the cost of repair work. There's a bit of paperwork involved as the landlord has to prove the costs and show their books to the government's rental board, but it's easy enough for a landlord to get these approved if they're being honest.

And thus your rental vacancy rate isn’t below 1% lol. Plus I bet you don’t have an additional “school tax” (it doesn’t go to schools) on your real estate. Rent control like most socialist policies has always been about short term gain for long term pain. The Venezuelan government price fixed goods in stores to make things “affordable,” shelves cleared but business owners made a loss so they didn’t buy more goods to fill shelves and thus they closed down so there wasn’t enough goods for everyone. Rent control is no different than price fixing. At least before you could raise rent 2% more than inflation, this was a reasonable compromise. Ontario’s program where new rentals were exempt from controls to encourage more supply was also great.

[lio45]

It's amusing to see Montreal rents get called "low"; here it's common knowledge that they're outrageously high.

[misher]

Originally Posted by lio45

It's amusing to see Montreal rents get called "low"; here it's common knowledge that they're outrageously high.

It’s all about vacancy rates. Yours dipped below 2% and bad things happened. You need to maintain a rate of 5% to keep things affordable. Seattle managed it and sadly Vancouver failed at it. Mostly because Vancouver focused on rent controls while Seattle focused on building more supply. New York is considered to be in a rental crisis at 3%.

[milomilo]

Originally Posted by lio45

It's amusing to see Montreal rents get called "low"; here it's common knowledge that they're outrageously high.

Are they? I was just repeating what I thought I heard. What is outrageous?

[misher]

Originally Posted by milomilo

Are they? I was just repeating what I thought I heard. What is outrageous?

They were seen as great back in 2016 I believe but what happens with rent control is that things seem great but things don’t get built once you put them in so gradually your supply fills up, vacancies drop below 5% and things become bad. The closer you are to 0 the worse things get.

[Xelebes]

Originally Posted by milomilo

Here's one:

The Eects of Rent Control Expansion on Tenants,
Landlords, and Inequality: Evidence from San Francisco∗




You don't get to make your own economic theories. You just don't.

Did you even look at the controls? This is only a comparison within San Francisco. It's not surprising a highly localised analysis with a very local policy regime produces one kind of result. The counterexample is even more local (within the same country as Vancouver): Montreal. So where is the meta-analysis that teases out what makes Montreal work and what makes San Francisco not work?

Secondly, it only discovers a premium of 15%. That is a difference of 1,150 a month to 1,000 a month, when in fact people are complaining about $2,000 a month rent. Letting go of the rent controls would appear to not provide much relief.

[someone123]

I am not sure you can say rent control is good or bad in the abstract. A couple often overlooked yet important aspects:

CON - Even if rent control works, people are often tied to a single apartment, so you need to either have a complicated set of rules to overcome the artificial restrictions on mobility.

PRO - There's an inherent power imbalance between landlords and tenants even in places where there isn't a housing shortage. In a place with a housing shortage, the power imbalance becomes huge. There have to be some tenant protections to account for this, and if you don't have some kind of rent control you don't have any meaningful tenant protection because you can kick any tenant out by raising their rent by an arbitrary amount.

Overall I think cities and provinces need to have some kind of rent controls and robust tenant protections but they are no substitute for a functional market and public housing construction. The market and public housing are 95% of the picture. People who think that housing affordability and supply can be solved in tight markets by adding rent controls are probably wrong, and may not even like the eventual outcome very much if they find they don't want to stay in one spot.

[milomilo]

Originally Posted by Xelebes

Did you even look at the controls? This is only a comparison within San Francisco. It's not surprising a highly localised analysis with a very local policy regime produces one kind of result. The counterexample is even more local (within the same country as Vancouver): Montreal. So where is the meta-analysis that teases out what makes Montreal work and what makes San Francisco not work?

Secondly, it only discovers a premium of 15%. That is a difference of 1,150 a month to 1,000 a month, when in fact people are complaining about $2,000 a month rent. Letting go of the rent controls would appear to not provide much relief.

OK, sounds like you've pre-determined your position and won't change it. The economic theory obviously predicts rent control creates scarcity, you wanted empirical evidence that it doesn't work, you got it, yet you still deny. Doing studies like this will be quite time consuming, so if the only evidence you will currently pretend to accept is one that encompasses every city, I cannot provide that.

Yes there are many factors and it's complex, but that does not change that rent controls increase prices on average over the long term. If you've got evidence otherwise, go apply for your Nobel prize in economics for proving it all wrong.

[Xelebes]

Originally Posted by milomilo

OK, sounds like you've pre-determined your position and won't change it. The economic theory obviously predicts rent control creates scarcity, you wanted empirical evidence that it doesn't work, you got it, yet you still deny. Doing studies like this will be quite time consuming, so if the only evidence you will currently pretend to accept is one that encompasses every city, I cannot provide that.

Yes there are many factors and it's complex, but that does not change that rent controls increase prices on average over the long term. If you've got evidence otherwise, go apply for your Nobel prize in economics for proving it all wrong.

My belief is only that it is complicated. You can say that it raises prices but that is only looking at a tiny picture. And to get myopic about the issue, tubthumping that they should be removed seems to be more about agenda than it is about actually addressing the issue.

[milomilo]

Originally Posted by Xelebes

My belief is only that it is complicated. You can say that it raises prices but that is only looking at a tiny picture. And to get myopic about the issue, tubthumping that they should be removed seems to be more about agenda than it is about actually addressing the issue.

My agenda is increasing housing affordability, nothing more.

I agree, it is complicated. Adding rent controls makes the problem vastly more complicated and harder to solve. It seems like a good idea at first, but after ten or twenty years rent will be more expensive, in part due to the rent controls themselves. Then you have a huge population that will be screwed if you take away the controls and will be very vocal about keeping them. So they stay in place, and the problem gets worse.

[someone123]

Originally Posted by milomilo

I agree, it is complicated. Adding rent controls makes the problem vastly more complicated and harder to solve. It seems like a good idea at first, but after ten or twenty years rent will be more expensive, in part due to the rent controls themselves. Then you have a huge population that will be screwed if you take away the controls and will be very vocal about keeping them. So they stay in place, and the problem gets worse.

You also get the senior living solo in a 3 bedroom apartment for 25 years because it would actually cost more to move into a smaller place and reset the rent control. Or somebody who is reverse commuting an hour out of downtown while somebody else is doing the opposite commute from an identical suburban apartment.

The big contributors to poor housing affordability in Canada are that we're not willing to rezone neighbourhoods of detached houses and the federal government and provinces have largely stopped building large-scale public housing projects. Given current interest rates and construction costs, if the political will were there it would be possible to build lots of cheap apartments in even the most expensive Canadian cities. In Vancouver this would amount to picking 10 SkyTrain stations and building 10,000 housing units in 40 storey towers near each of them. Similar to projects like Lougheed Town Centre in the 1970's.

[milomilo]

Originally Posted by someone123

You also get the senior living solo in a 3 bedroom apartment for 25 years because it would actually cost more to move into a smaller place and reset the rent control. Or somebody who is reverse commuting an hour out of downtown while somebody else is doing the opposite commute from an identical suburban apartment.
t
The big contributors to poor housing affordability in Canada are that we're not willing to rezone neighbourhoods of detached houses and the federal government and provinces have largely stopped building large-scale public housing projects. Given current interest rates and construction costs, if the political will were there it would be possible to build lots of cheap apartments in even the most expensive Canadian cities. In Vancouver this would amount to picking 10 SkyTrain stations and building 10,000 housing units near each of them.

Yep. Fair enough we don't want landlords to be able to turf people out at will, regulations against that are well worth the small hit on market efficiency. But trapping people in rentals for years because they can't afford to move? Absolutely not. Rent controls are a poor salve for the symptom of affordability, but they do nothing to treat the cause.