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More rent control on the horizon? Economists say it is a bad idea

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Housing is top of mind in this year’s municipal elections in Ontario and British Columbia. Neither Toronto nor Vancouver has ever been comfortably affordable in recent memory, but now both are jockeying for the top spot in the rankings of North America’s most unaffordable cities. 

These unaffordability challenges have led to a growing number of activists, policy voices, and politicians calling for a new politics of YIMBYism (Yes In My Backyard), that favour upzoning and densifying single-family neighbourhoods. 

Mayoral candidates, John Tory and Gil Peñalosa in Toronto, and Mark Marissen in Vancouver, for instance, have broadly touted these ideas in their respective campaigns. Their main message is to boost housing supply in order to make it affordable. 

Yet there remain some housing advocates who reject these pro-development calls. Instead, they argue in favour of the controversial idea of rent controls in response to concerns about housing affordability.

Rent controls can come in different forms. But, in simple terms, they amount to a government policy that mandates how much private landlords can charge tenants in monthly rental payments. It is a long-standing idea that is practiced in some of North America’s most unaffordable cities. And it is also universally rejected by economists.

“Rent control is a zombie idea that just won’t go away,” says The Hub‘s editor at large, Sean Speer, who has written about housing policy for the Macdonald-Laurier Institute. “Its political appeal is that it’s simple and visible. But its economic challenge is that it fails to reckon with basic ideas about incentives, supply and demand, and the laws of unintended consequences.”

Patrick Condon, a University of British Columbia’s School of Architecture and Landscape Architecture professor and frequent commentator on housing affordability, is a proponent of a form of rent control known as vacancy controls. These controls would cap how much landlords can increase rents when tenants are replaced. 

B.C. currently limits how much an existing tenant’s rent can be annually hiked, but dramatic jumps in rents in between tenancies are common. Advocates in Ontario have recently called on the provincial government to similarly implement vacancy control legislation. The average rent for a one-bedroom apartment in Vancouver is listed by multiple rental sites at $2,500 per month, up 16 percent since last year.

“Vacancy control is, under these critical circumstances I would argue, way more necessary than it was even in the 1970s because this situation we find ourselves in is literally unprecedented since the 1920s,” says Condon. 

Condon says vacancy control will help mitigate increases in land value because real estate investment trusts look at the value of land, not the physical structure itself. 

Most economists, however, warn that rent control is a bad idea. Their opposition stems from extensive evidence showing that while rent control keeps existing tenants in their apartments, rental housing construction often slows down. The end result is that it is much more expensive for prospective renters to find an affordable apartment. 

Nobel Prize-winning economist Paul Krugman has called rent control “among the best-understood issues in all of economics, and—among economists, anyway—one of the least controversial.”

In 1995, San Francisco passed a rent control ordinance subjecting multifamily buildings built after June 1979 to the measure. Over 60 percent of San Francisco’s rental units are now rent-controlled, and the city is currently the third most expensive city in the United States. 

Critics point out that monthly rents in San Francisco rose sharply thereafter due to landlords reducing rental units by 15 percent and demolishing existing apartment buildings. 

Waitlists for rent-controlled apartments in other cities can be decades long or distributed in a random lottery system

A 2019 analysis from the Bank of Montreal has said rent control is not a long-term solution. Instead, most economic analysis points to building more rental units as key to easing unaffordability.

A 2021 report by Scotiabank, for instance, found that at 424 housing units per 1,000 in population, Canada has the lowest number of housing units per population of any country in the G-7. Toronto has 360 units per 1,000 residents and Vancouver has 406 units per 1,000 residents, both below the national average. 

The federal government has pledged a 10-year, $20 billion plan to address unaffordability, including $123 million in tax incentives for developers to build and renovate rental housing. 

Even if Condon disagrees with the YIMBY’s solution of more housing supply, he sympathizes with younger Canadians who are struggling with housing affordability challenges. 

“I think what they get really correct is that there’s a huge problem in housing affordability that elevates to the level of crisis, particularly for their generation,” says Condon. 

Canada is an outlier as another hybrid Parliament resumes

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As the House of Commons resumed sitting this week, Canada is an outlier.

Canadian politicians are voting, debating, and listening to their colleagues in a hybrid Parliament, with some members attending in-person and others continuing to participate online.

A look around the Western world shows that most countries have resumed normal business and in-person proceedings, including the United States, the United Kingdom, and the European Union parliament.

On top of that, the Canadian Parliament is also an outlier inside Canada, with all of Canada’s largest provinces moving back to in-person sittings recently.

In British Columbia, the legislature introduced a safe-return protocol for the fall sitting a year ago, bringing most MLAs back to Victoria. The legislative assembly in Ontario resumed this summer without any COVID-19 measures in place. In Alberta, the legislature never fully switched from in-person sittings, with only a brief period of remote voting in May 2021.

Canada’s hybrid Parliament has divided politicians, much the same way that “back to the office” movements have divided Canadians in their workplaces.

NDP leader Jagmeet Singh has argued for a permanent hybrid Parliament that would encourage more people to get into politics by reducing the onerous travel regime and providing more flexibility.

The Conservative opposition, on the other hand, has argued for an immediate return to fully in-person proceedings, arguing that the government is avoiding accountability by conducting its business on Zoom.

“It reduces the accountability because they don’t have to be physically present to answer pressing questions. They can often read from scripts on their screen without having the physical cut and thrust of debate,” said Conservative MP Michael Chong on an episode of Hub Dialogues this week.

“In addition, they don’t have to physically attend to the House. In other words, they don’t have to go through the press gallery that is sitting in the foyer that sits in front of the entrance to the House of Commons. They can avoid the scrutiny of dozens of journalists who are eager to ask them questions about their portfolios,” said Chong.

Liberal MP Nathaniel Erskine-Smith said he mostly favoured a hybrid Parliament but has noticed that it’s harder for members of Parliament to build relationships in a virtual setting.

“In politics, my experience has been that it makes it even harder to build cross-party coalitions to get things done, especially with MPs who one hasn’t already built a relationship with before virtual work,” said Erskine-Smith.

Any shift to a hybrid Parliament would have to be accompanied by a “firmer in-person component for relationship building,” he said.

After only two years, the effects of the switch to a hybrid Parliament are hard to untangle. In mid-2020, Carleton political science professor Jonathan Malloy identified some areas that would be worth watching in the revamped Parliament.

He predicted that the ever-present tension between Parliament’s dual functions of representation and governance (or accountability) would be worsened by the crisis.

Chong and other members of the opposition have argued that the virtual proceedings can only have a negative effect on their ability to hold the government to account because ministers can more easily evade questions with prepared remarks, which are technically not allowed during question period, or skip out on question period without the obvious tell-tale sign of an empty chair.

In terms of representation, the effect could be more mixed, Malloy argues. For one, it could boost attendance in the virtual House of Commons because MPs who are sick or otherwise unable to attend in person can attend virtually, representing their constituents in a way that would have been impossible any other time.

The Conservative MP Scott Reid, though, has argued that individual MPs can more easily be marginalized by party leadership when Parliament is being conducted remotely, limiting the ability of MPs to represent their constituents.

Reid ripped his own party leadership, and others, for conducting backroom deals while MPs were absent.

“A new convention will have emerged: That on any occasion when a new and unexpected crisis arises, MPs may be ordered to stay home by their respective party leaders so that some kind of elite-level deal may be executed to apply their votes in their absence,” said Reid in March 2020 when the parties were undergoing the first round of talks about how to conduct business during a pandemic.

Malloy described Reid’s comments as precisely articulating the tension between governance and representation.

Although it may be tempting to view the divide on hybrid legislatures as a result of the governments looking to avoid accountability, it hasn’t always broken down those lines in Canada. For example, in Alberta, the governing United Conservative Party was pushing for in-person legislative sessions while the opposition NDP argued for a hybrid legislature.

It’s also not individual MPs trying to lighten the load of the punishing travel schedules that our politicians often have to contend with. Federally, the Conservatives have a big contingent of MPs from Alberta and British Columbia, with some of the longest flights to Ottawa, and the party has been pushing for in-person Parliament. In Alberta, the NDP argued for a hybrid legislature, despite most of its members being within driving distance of the building in Edmonton.

A hybrid Parliament could allow a new crop of potential MPs to consider the job, but it can’t be an excuse to stay home permanently, said Duff Conacher, the co-founder of the advocacy group Democracy Watch.

“I don’t think that you should never have to go to Ottawa. And you can see that happening more in a majority government situation where someone would say, ‘I’m never going,'” said Conacher.

“I don’t think that should be allowed, because I think it is important for in-person relationships and exchanges to happen between members from different parties.”