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Control freaks: economists argue that Alberta's modest measures to stem rising rents won't work, and may make matters worse.

"Except for bombing," asserted the socialist economist Assar Linbeck, "rent control appears to be the most efficient technique presently known to destroy a city." Indeed, experts across the political spectrum are virtually unanimous that rent control reduces the quantity and quality of housing available, hurting the tenants it is intended to help. Nonetheless, responding to Alberta Premier Ed Stelmach's concern over the alleged "housing crisis," the province's Affordable Housing Task Force hopes to overcome the lessons of Economics 101 in their newly released report to the government.

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Chaired by MLA Len Webber, the 16-member panel spent 45 days compiling their report, speaking with some 1,400 people in nine cities. The panel consisted of urban planners, labour union members, and even a high-school student for good measure. Notably, there was not a single economist on board. Small wonder, then, that when Stelmach's government responded to its recommendations, half of the proposals were rejected.

Task force members weren't sure why an economist didn't take part, but say they looked at studies and understood that rent control options had failed in the past. Nonetheless, this is "an emergency situation," says Ray Martin, the New Democrat representative on the panel. "The unbridled market wasn't working," he claims, while noting that 97,000 people moved to Calgary alone last year.

Fellow panelist Mary Ann Eckstrom agrees. While admitting it was "a strong possibility" that rent controls could dissuade investment in the city, she contends, "The thing is--people are hurting right now ... Even if you strongly believe that rent control won't work, when you hear people's stories--you have to somehow stop the bleeding of these people."

Many of the group's recommendations were welcomed without much fuss into the new budget. A total of $285 million of new funding was included for municipalities and housing. The task force had asked for over $400 million, but even supporters knew this number was unrealistic. Critics still argue that while the government's spending spree is indeed unprecedented, it's not enough for today's growth pressures. Task force member and activist lawyer Brian O'Leary, for instance, calls the government's response "a big step in the right direction," but adds, "we would have liked them to go farther."

The government approved an annual budget of $100 million for the new Municipal Sustainability Housing Program, a further $96 million to increase affordable housing, an increase of $16 million towards two programs to support the homeless, and an increase of over $14 million for the Rent Supplement Program. Also approved was a generous project for affordable housing in Fort McMurray, an aborginal housing program, and the creation of a homeless and eviction fund.

But while bureaucrats and activists are counting their new jackpot, the most contentious issue is already a shining red light for investors. Though four of the five recommendations for "rent stability guidelines" were rejected, the supposedly cautious measure to "stipulate rental increases once annually" has been approved. According to Don Campbell, president of the Real Estate Investment Network, it's "basic economics" that landlords need to keep up with the market. When the Western Standard spoke with Campbell just a day after the government's media conference, he confirmed that his office had become chaotic: "We are overwhelmed with people saying, 'I'm raising my rents right now, as high as I possibly can.'" One of Campbell's associates, who owns 400 units in Edmonton, had already raised his rents "across the board" in apprehension of the new regulations. Usually, Campbell says landlords increase their rent incrementally, balancing market demands with affordability concerns; but when the government deprives them of the right to do that, they are forced to compensate with immediate, substantial increases.

As someone currently writing a study for foreign investors about the "economics, migration and income earnings of the entire province," Campbell is well aware of Alberta's exceptional growth. But calling it a "crisis," he maintains, is merely "political posturing." Citing RBC Economics Research's Housing Affordability Index, Campbell says bluntly, "Let's be realistic: it's still incredibly affordable in Alberta, compared to many areas around the world, and to many areas around Canada.... As long as you don't start penalizing the people who are actually building houses," the market can handle it, he says.

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Walter Block, an economist and the author of Rent Control: Myths and Realities, remarks that "rent control is a great idea, if what you want to do is promote the production of everything else except rental housing." And his message to investors is simple: "Avoid like the plague any place that is considering rent control."

After experiencing the effects of rent control in Winnipeg, Dennis Owens concurs. As a senior policy analyst at the Winnipeg-based Frontier Centre for Public Policy, Owens suggests that any projects involving rent control be wiped off the table immediately, because it would send a clear signal to capital investors right away. He suggests instead that the government "liberalize building codes and create units with smaller square footage."

"Since rent controls were imposed in Winnipeg in the early seventies," Owens comments, "there hasn't been one new unit of multiple-housing built with private money. Not one." If the government wants to intervene, he advises, it should only be to promote a demand-side strategy by giving direct subsidies to tenants in need.

Economists say Stelmach deserves some credit for rejecting most of the rent control proposals, but as panelist O'Leary tells the Western Standard: "There is no such thing as never. They've rejected it this time, but who knows what they'll do two years from now." Any renter hoping for more apartments to be built had better hope O'Leary's wrong.
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Title Annotation:AFFORDABLE HOUSING
Author:McGee, Patrick
Publication:Western Standard
Geographic Code:1CANA
Date:May 21, 2007
Words:937
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