🚀 go-pugleaf

I am glad you used our private e-mail conversation, even if you did not 
first ask permission to post it publicly, because it rekindles the discussion.

First of all it appears RENT CONTROLS WILL END, since I recently received
a letter from the Premier's office in response to a "carbon copy" of my 
Globe and Mail letter of two months ago.  In this form letter it says that
"We are committed to replacing the current program."  So for those readers
who are complacent in the hopes that the government will do nothing: think
again, and think about what effect it will likely have on you for you not
to know what will happen to your rents in future years, and for there to
be NO LIMITS on the rate of rent increases.

You Anil, are suggesting removing all rent controls and bringing in 
Shelter Allowances for the "needy" which is exactly what Mr. Leech, the 
Minister of Housing on several occasions has said will be done.

The problem with this, is that a program that presently only costs the
government administratively, but cost the government absolutely nothing
in direct subsidies in the private sector housing market (which makes up
the vast majority of all rental housing) will have to pay subsidies to
people that according to the minister will cost $700 Million a year, but
are more likely to cost $2 - $3 Billion a year.  Additionally, if you
talk to economist, though most don't like any subsidies for anything, if
there are to be subsidies they believe in supply side subsidies, not
demand side subsisidies as "Shelter allowances are" because they only
serve to DRIVE UP PRICES FURTHER, thereby increasing the need to increase
these subsidies even further so that these people will not be driven out
into the streets.

As for the administrative costs, they will likely not go down, because
these people will not be made unnecessary but will now be needed to 
administer the new Shelter allowances program.  Additionally, whereas
right now if the landlord has applied for an "above guideline increase"
there can be a "whole building review" where the tenants from the whole
building can submit their application to oppose the landlord, and this
is often done completely in writing without the need to have the optional
public hearing, the new system will force people as individuals to 
go before the courts, which will likely take up much more time to handle
200 separate cases for a building with 200 units, rather than having one
review for the whole building which might have been done only in writing.

You are wrong in saying the government has set price ceilings.  The 
government has only set ceilings on the rate of increase in prices to
provide some stability to the market.  Under the present Rent Control
Act, landlords may raise rents without an application to the government,
by the yearly guideline amount which is set at 2% ABOVE the inflation
rate (averaged over the past 3 years).  Landlords can still apply for
rent increases above this amount for major capital expenditures, and
these rules do not even apply to the first five years for new buidings
which of course are rarely built either in Ontario or in other areas
which don't even have controls such as B.C, and when the occasional
one is built, it is a luxury building, not one that charges anything
near the average rates.

According to the CMHC, a 3% minimum vacancy rate is necessary to begin to
have price competition, and other than a few small market areas in 
Ontario, and in the luxury apartment market, vacancy rates are well below
this level (just as they are in Metropolitian Vancouver where there aren't
any rent controls).  In the Toronto "Census Metropolitian Area" (which 
includes many of the outside areas that help to rase the rate such as 
Mississauga,) the October 1995 vacancy rate was 1.1%, in the Kitchener 
"C.M.A." which includes Waterloo and Cambridge the rate is only 2.2%, and
even in the Vancouver "C.M.A." area where there are no rent controls the
rate is 1.1%.  It is only in very small markets, either with extremely
bad unemployment situations, or other factors such as weather, where vacancy
rates are over 3%; places like Sarnia which makes up less than 1% of the
private market with only 4,985 rental units out of a total of 565,019
in the whole province but is repeatedly used by anti-control people 
(and Mr. Leech, the Minister of Housing) as "an example" with its 8.1% 
vacancy rate, when it is in fact an ANOMOLY not representative of the other 
99% of unitsin the province with their average 2.1% vacancy rate.

You in fact did not address most of the points I made in my letter, so
at the end of the comments you posted in the newsgroups, I will again
post the letter (which was publicly posted) on which you commented.


Anil Upadhyay (akupadhy@undergrad.math.uwaterloo.ca) wrote:

: > On Tue, 9 Apr 1996, Anil Upadhyay wrote:
: >>
: >> I stongly disagree with this article.  I don't know if you were the one
: >> who wrote it.  Rent control is costing the taxpayer way too much and
: >> should be abolished.

: On Tue, 9 Apr 1996, Bob Levitt wrote:

: > Can you tell me how it is costing "too much" to the taxpayer, and why you 
: > thing as you presumably do, that its substitutes which will likely cost
: > subsustially more would be any more acceptable?

: I thought this would be very obvious.  Apparently not.  

: Consider this:

: The government has set a price ceiling.  The quantity of rental 
: accommodations supplied at this price is not what the market pressures 
: say it should be.  Price usually tends to a point called the market 
: equilibrium where the quanity demanded and supplied are equal at a 
: certain price (set by the marketplace not the government).  The price 
: ceiling is significantly below what the market equilibrium should be.

: Now, people who would normally buy homes when the price is at equilibrium 
: are not doing so.  Why?  Because its cheaper to rent!!!  So there is more 
: quantity demanded at this low artificial price than there is available to be 
: supplied.  So who makes up for this SIGNIFICANT shortfall?  Who else?  
: The government who set the price ceiling in the first place.  It is known as 
: government housing.  

: In my neighbourhood alone (in Toronto) there were three government subsidized 
: housing project built in the last five years!!!  I know many of the tenants 
: and they are very much able to purchase a house but it is cheaper to rent 
: at controlled prices.  

: Think about it for a second before calling them cheaters of the system.  
: They are paying what is affordable to them.  If prices were to go to 
: market equilibrium this signifcant number of the tenant base would 
: realized that it is not worth renting and would purchase homes like they 
: should.

: It should not be the governments place to interfere with the natural 
: tendancies of the marketplace.  Doing so is very costly to the taxpayers 
: in that sense.  The job of the government is to run the province not supply 
: housing.

: My proposal would be to eliminate rent controls and offer direct 
: subsidies to those who NEED it.  These subsidiies should be be the 
: difference between what the market equilibrium is what the price would be 
: under rent controls.

: But you need not worry Bob,  I really don't think that even the likes of 
: Mike Harris would have the guts to do something like I proposed.  Far too 
: many people would piss and moan about it.

: Hope I made myself clear and address your concerns.

: Anil Upadhyay 
: 2A Computer Science Information Systems
: akupadhy@undergrad.math.uwaterloo.ca
: http://www.undergrad.math.uwaterloo.ca/~akupadhy


The Globe And Mail,
444 Front Street West,
Toronto, Ontario
Canada   M5V 2S9


To the Editor:
                              RENT DECONTROL

     As was said in your editorial of February 6, 1996, (When Rent Is 
Decontrolled,) economics is harder to understand because of all the 
variables that must be taken into account, but unfortunately you did 
not even make an attempt to analyze these many variables.

     Rent controls are not about vacancy rates; rent controls are to 
ensure affordability of this human necessity in the best interests of 
our society.  Even with rent controls, average rents have continued to 
rise at a rate higher than incomes.  How much higher would rents have 
risen without any controls and what would have been the economic and 
social costs?

     Let's look at several areas that decontrol might affect: development 
and vacancy rates, maintenance, jobs, and the provincial deficit.

     Canada Housing and Mortgage Corporation (part of the federal 
government) has stated that a sustained minimum 3% vacancy rate for 
rental apartments must be maintained for there to be any real competition 
in the market.  

     Rent controls were introduced in British Columbia after almost a 
decade of vacancy rates under 3% in an effort to keep prices affordable.  
(In the City of Vancouver, rates were below 3% for 7 1/2 years of the 
8 years previous to the introduction of rent controls, and during those 
8 previous years vacancy averaged only 1.3%.)  Rent controls were removed 
with the promises of increased construction of new rental units, improved
maintenance of existing units and much higher vacancy rates.  Housing 
starts of apartment units actually dropped after rent controls were 
removed.  There is no evidence that maintenance standards improve at all, 
and more than a decade after the end of rent controls, the present 
Metropolitan Vancouver vacancy rate is 1.1%, (barely much higher than 
Metro Toronto's 0.8% rate, both of which are CMHC October 1995 figures).  
No appreciable number of private rental apartment units have been built 
in B.C. since the decontrol and vacancy continues very low.  The promised 
results of decontrol in B.C. never materialized.

     Who is going to build the new apartments the government promised 
the market will build?  How much will the rents be?  Will the government 
have to make additional concessions to these developers in the way of 
tax breaks, or relaxed health, safety and construction standards to get 
more units built?  Remember, it was the housing minister, the Honourable 
Al Leach, who said to the Ontario Home Builder's Association, "We just
hope the private sector takes up the excellent opportunity to once again 
build rental housing in Ontario, but it's your business if you do, not 
our's."  And if development companies do not construct any new buildings, 
landlords will still increase their profits on the existing units, but at 
whose cost?

     There is no evidence that maintenance has improved since decontrol 
in B.C..  Even under Ontario's present Rent Control Act, landlord's are 
permitted an automatic minimum guideline amount of 2% ABOVE an average 
inflation rate each and every year.  This additional annual 2% (as per 
subsections 12(1)(3) and 12(1)(4)) is for capital expenditures, such as 
major renovations and upgrades.  The landlord does NOT have to provide 
any evidence that they used this annual 2% compounded amount for the 
intended purposes stated in the act.  Landlord's automatically get this 
2% even if they take it out each year as additional profit.  They only 
have to justify it if they apply for an increase above the guideline 
amount.  2% above inflation compounded for 35 years would mean that 
apartments 35 years from now even under the present act would double in 
price in real terms (ie. in present dollars after taking inflation into 
account).  There is no evidence that rent controls have any negative 
influence on whether or not landlords adequately maintain their buildings.  
It is those landlords who do not maintain their buildings who choose not 
to do so.  If buildings are not adequately maintained there are means of 
rectifying this through the municipal building standards codes with
additional sanctions available under the Rent Control Act which means 
that it is possible that maintenance could be worse without these 
additional sanctions.

     Housing costs are the single largest expense for people (excluding 
the situation where you decide to combine all taxes that a person pays 
together in which case housing becomes the second largest expense).  
Average net incomes have been lagging behind the inflation rate for the 
past decade.  The large rent increases that will accompany rent decontrol 
will mean smaller disposable incomes for tenants.  Tenants make up about
one-third of the Ontario population, one-half of Metro Toronto, and about 
five-eighths of the City of Toronto's population.  Smaller disposable 
incomes will hurt retail businesses, leading to lower profits and 
probably layoffs and even higher bankruptcy rates.  This would likely 
be compounded by increased wage demands by those facing higher rents, 
and as renters logically should have lower incomes on average, this would
disproportionately hurt those businesses that use minimum and low wage 
labour.  Decreased retail activity will mean decreased PST revenues to 
the province, as well as eroding the municipal commercial tax bases.  
As for any claimed construction jobs, the B.C. experience proves that 
developers did not build much rental housing after the decontrol, and 
these jobs could also be produced by only decontrolling newly 
constructed buildings (which likely still won't be built,) but these 
construction jobs if any are very unlikely to offset the loss in 
retail jobs.  Lower disposable incomes due to rising rents will be a 
major blow to Ontario's economy and efforts at job creation.

     Not only will the government get reduced revenues after decontrolling 
rents, but will likely face increased expenses.  If there is no help 
for the elderly and disabled, many who are presently living independently 
will be forced to live in much more expensive government run (or 
subsidized) institutions at additional cost to taxpayers.  If instead 
there are "rent subsidies" for these people and the poor, the government 
is implementing a policy that does not bring in revenue and will have a 
direct and very substantial permanent annual cost to the Ontario 
government at a time it claims it is trying to reduce the deficit.

     A rent subsidy is a "demand subsidy" that will serve only to drive 
up prices higher than they otherwise would have risen, by the laws of 
supply and demand.  Since the people who would get any subsidy, if this 
program were implemented, would be the poorest people in the least 
expensive apartments (the one's most in demand,) these units would 
disproportionately have the highest rate of increases, thereby driving 
up the need for even more taxpayer funded subsidies.  These subsidies 
will cost hundreds of millions of dollars each and every year for those 
who live in private sector apartments.  If you include the subsidies 
to those in public sector housing that Mr. Leach intends on converting 
to private sector who knows how high the total cost could run to in 
the future.  These subsidies will also drive up the price of housing 
for those who don't get subsidies, further reducing their disposable 
incomes, hurting the economy more, and in some cases making it more 
worthwhile for these people to quit their jobs and go on welfare at 
the expense of the municipalities so that they can qualify for these 
shelter allowances.  These subsidies will be very vulnerable to the 
vagaries of economic cycles making it very hard for governments to 
even forecast their future expenses.  The subsidies will not end up 
in the pockets of the poor, but due to increasing rents further 
driven higher by the availability of the subsidies in an unregulated 
market, will end up in the pockets of landlords; these subsidies are a
defacto welfare system for landlords.

     Rental apartment buildings are a good investment as proven by 
the ease with which the Province of Ontario unloaded the over 10,000 
former Cadillac Fairview apartment units in some 50 different buildings 
for a substantial profit.  Unfortunately, affordable (midrange and 
low-end priced) rental units are not as economically fashionable nor 
as profitable to construct as luxury condominiums.  Having or not
having rent controls does not solve this particular problem.  So much 
for the editorials "psychology" item.

     Your point about apartments being taxed at the higher commercial 
rates is the one valid point I read.  Both landlord and tenant groups 
have unsuccessfully been trying to get the politicians to address 
this issue for years.  Tenants don't even get to see what property 
taxes are getting passed on to them through their rents.  Separating 
the landlord portion and the property tax portion of the rent on 
leases would at least bring the issue home to tenants, most of whom 
don't even know the extent of the taxation.

     Zoning is an important housing issue but is a separate issue 
from rent control.  It appeared the editorial either used it to fill 
up empty space, or in a desperate attempt to find another point, any 
point, to try to support its thesis.  Zoning is relevant to 
construction of new housing, but the editorial did not manage to 
making any meaningful connection between zoning and the subject at 
hand: rent controls.

     British Columbia's history has shown that removal of rent controls 
did not get any appreciable numbers of rental apartments built, but 
it certainly did hurt affordability.  Furthermore, decontrol will hurt 
Ontario's economy particularly in the retail sector, it will decrease 
government revenues, and it will increase government expenditures.  

     Just on an economic basis and ignoring the appreciable negative 
social effects it will have, getting rid of rent controls would be a 
recipe for economic disaster.

     The social costs of removing rent controls on apartments that 
house over three million people in Ontario might even be more fearsome 
that the economic tragedy caused by removing controls, but then the 
shallow editorial was supposed to be based on economics not on the 
social good; too bad it wasn't an editorial analysis, it was only
unsupported rhetoric.


Sincerely,