More On Affordable Housing - May 10th 2007

ARE RENT CONTROLS THE ANSWER?

Alberta’s legislature is discussing the imposition of rent controls in order to control spiraling property rents in the province’s major cities. The current guidelines are that landlords may only increase rents once a year, but there is no limit on how much they can increase them at the end of each year. Renters are understandably nervous about the imposition of cost increases they cannot control or reliably predict, but is legislation the answer?

How would controls be imposed anyway? Limiting Alberta rent increases to a maximum of 10%/year makes no sense in cities like Calgary where property prices are rising at around 20%/year and make no sense in the smaller towns either where property prices are rising at much less than 10%. It is always much better to let market forces control the rental market. When there is too much supply, prices fall and where there is insufficient supply, prices rise. Landlords react to the changes in supply and demand by buying or selling their properties on the open market. This inexorably ties rents to the property market which is exactly what they should be regulated by. If the province is serious about keeping rents affordable, it needs to take steps to cool the housing market; a very challenging task indeed!

In Calgary, building lots are rated according to the number of dwellings that can be built on them. Most city residential lots are zoned for single occupancy yet there are significant numbers of “illegal suites” where homeowners rent out their basements to raise a little extra cash. The city is aware that clamping down on these illegal suites would skew the rental market further so although they pay lip service to shutting down a few when complaints are received, they largely leave well alone. Renting out a room in your house that is not partitioned from the rest of the property is not illegal and there are a few unscrupulous slumlords who are taking advantage of this loophole. There are rooms for rent in parts of Calgary where new houses have been specifically constructed for the purpose. These houses have no kitchens and often no bathrooms either and are simply divided into as many “rooms” as possible that are rented out on an individual basis. Changing the laws to legalize suite conversions and regulate room rentals would do much to cool the rental market, allow many cash strapped households to survive without having to move outside the city and protect those at the bottom end of the rental market.

There is much talk in the city about providing “affordable housing” yet the practical steps taken so far have not had the desired effect of getting the homeless off the streets or of providing any affordable housing. The city looks after the homeless in a palatial drop-in centre built at public expense in the heart of downtown where lot prices are sky high. The Mustard Seed charity has plans to build a similar palace not far away for use as transitional housing. Whilst the Mustard Seed does much to alleviate suffering amongst the homeless, their thinking on this particular project is as muddled as that of the city council. An approach that has been successful is that pioneered in New York where mayor Rudi Giuliani’s zero tolerance policy reduced the homeless problem to those who really didn’t have any other option and thus made it easier to deal with sensibly. OK, the policy also came with increased reports of police brutality and was by no means perfect but versions of it have been adopted by other major cities in the USA with similar success. Calgary’s approach on the other hand is to build comfortable shelters that simply encourage the lazy to migrate to the city to live on handouts and harass those who work downtown with their begging and squeegee antics.