Rent control, affordable housing and the Vancouver Tenants Union

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Last Saturday, activists met to launch a new organization for renters in Vancouver: the Vancouver Tenants Union. The VTU’s functions will include both member services, such as advice, support and legal assistance for tenants having trouble with landlords, and organizing and advocacy for policy change. Overall, I think this is a tremendously positive and exciting development, and I encourage people to donate to or join the organization. However, I have serious reservations about the VTU’s stated goal of implementing “real rent control” — one of four core demands, along with greater protection against eviction, more housing, and broadly shared increases in income.

The phrase “real rent control” is ambiguous (“real” as opposed to what?) and the VTU’s website offers no further details on this or any of the other core demands (which is fair enough as this early stage, I think). But in the CBC article linked above, Wendy Pedersen is quoted citing Montreal as a model for what the VTU hopes to achieve. This is still very vague, but clear enough to raise the following concern.

Among economists, there is a robust consensus that rent control along the lines practiced in cities like Montreal, San Francisco and New York has perverse consequences, meaning that while the aim of the policy is to improve access to affordable housing, the actual effect of the policy is to worsen access to affordable housing. The theory is simple. Prices are signals and incentives; fixing the price of housing lower than it would otherwise be sends the signal that demand is low relative to supply, increases the incentive to rent rather than own (further increasing the hidden demand), and reduces the incentive to invest in increasing supply (relative to incentives to make other investments). The expected result is a shortfall in the supply of housing. So much for theory; what about practice? In his book Economics Without Illusions, the philosopher Joseph Heath writes:

What’s interesting about the case of rent control is that the real world does work almost exactly the way that Economics 101 says it should (as anyone who has lived in New York or Montreal can attest). As the (left-wing) economist Assar Lindbeck once put it, apart from generating housing shortages, rent control produces “black markets, privileges for those who happen to have a contract for a rent-controlled apartment, nepotism in the distribution of the available apartments, difficulties in getting apartments for families with children, and, in many places, deterioration of the housing stock. In fact, next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.”

The political consequences of making affordable housing scarcer are worth thinking about too. Rent control does have benefits for insiders — in this case, current tenants. So let’s suppose we only care about current tenants (i.e. no weight is given to the interests of their children, the homeless, newcomers to the city etc.), and the interests of current tenants are understood in the narrowest terms, as being able to stay in the units they currently occupy (i.e. we don’t think mobility is an important part of the right to housing, we don’t care if tenants miss out on opportunities that require them to relocate in the city, we don’t care if their housing needs change because they start a family or have a relative come live with them or they become disabled etc.). If that’s all we care about, rent control would deliver the goods. But with a fixed supply of affordable rental housing, the proportion of relatively high earners in the city would grow steadily, and low-income individuals would become steadily more marginalized in social and political as well as economic terms. This seems like a shortcut to the nightmare scenario: Vancouver as Dubai on the Salish Sea. So even if current tenants’ interests are weighted as I’ve just described, there is a critical need to increase the supply of affordable housing on social engineering grounds, to halt (or ideally reverse) the growing political imbalance in the region.

Given the strength of the theoretical and empirical case against rent control, it may seem puzzling that the VTU would adopt this as a core demand. I suspect there are two reasons why the VTU has done so. The first is that rent control offers immediate relief from one of the significant hardships renters face. The most serious negative consequences of rent control are felt over time, but the negative consequences of the status quo are felt here and now. The other reason is that rent control might seem more politically achievable because of general hostility residents often express regarding new construction (even — or perhaps especially — when the new construction includes units set aside for low-income housing) and the popular prejudice that regulatory changes are basically costless (as opposed to, say, public investment in affordable housing).

These considerations may explain the VTU’s demand for rent control, but I don’t think they provide a justification for it. There may, however, be a case for implementing a strictly short-term rent control regime as part of a comprehensive housing policy package. The negative consequences of rent control are most profound over an extended period, not in the short term. If the government introduces other measures that are likely to be more effective at improving access to affordable housing over the long term, like creating a new crown corporation to oversee the construction of new affordable housing and a mandate for municipalities to reform their zoning bylaws, then why not also introduce a temporary rent control policy to tide people over? As long as the government’s commitment to the policy’s sunset provision is generally regarded as credible (which may be a difficult hurdle to clear, given that the most famously disastrous cases of rent control were originally intended to be merely temporary), the long-term effect should be negligible. I think it’s critical, then, for the VTU’s core demands to be considered as a bundle, not as a collection of discrete, independently worthwhile objectives. For the time being, however, it’s an open question whether this is the VTU’s own understanding of the demand for rent control. Clarifying its position on this issue could earn the fledgling organization some badly needed credibility at no significant cost, and I encourage the organization to do so.

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