Sticker shock

Along with announcing that rents will be limited to a 1.5-per-cent increase in 2005, Manitoba Finance Minister Greg Selinger said that the provincial rent control regime will be reviewed.

When undertaking the review, the finance minister must consider the detrimental effect that rent controls have on the real estate market as a whole, and on the people the regulations were meant to protect. Rent controls artificially suppress the value of all real estate, especially in Winnipeg where the vast majority of rental units are found. Lower property values means higher property taxes for other property types. In effect, the suburbs, where most of the city’s wealth is found, is paying for a provincial decision to manipulate the marketplace for political reasons that are gaining less credence as time goes by. 

The decision to create a rent control regime has resulted in soaring rents in recent years rather than a controlled marketplace. The simple explanation is that since the 1970s, when rent controls were first imposed, investment in multiple-unit rental buildings has been virtually nil and many existing units have deteriorated because landlords have had no incentive to make much needed repairs.

The curbs on the marketplace have also meant that vacancies are at all-time lows. Perversely, captive tenants with nowhere else to go and low interest rates have given landlords the wherewithal to finally address the repair deficit. The captive tenants are paying for the major repairs now being undertaken after years of neglect. Once repairs are made, the landlords — as is their right — are now approaching the Residential Tenancies Branch and with receipts in hand are demanding rental increases far beyond the annual rent control regulation. And, they are winning their cases because of the  proof they are able to provide of the costs associated with extensive repairs.

In instances of major repairs and Residential Tenancies Branch decisions, the increases to tenants are often in the double-digit range. A rent of $600 a month is suddenly $660 or more — it’s sticker shock in the extreme. The very people the rent control regime was expected to save from the so-called vagaries of the marketplace suddenly find themselves potentially out on the street. And, this has happened in the case of seniors on fixed income. In the case of the less privileged of our society, the choice often comes down to buying food or paying for increased rent. It is a myth that rent controls have protected the province’s poor.

The Professional Property Managers Association has documented the number of rental units affected by above-regulation increases between 1999 and 2002. The number of units affected by above-regulation increases in 1999 was 7,102, but by 2002, the number had risen to an estimated 15,168. 

Tonya Moreton, the executive director of the PPMA, said that “while both the former and the current provincial governments continue to extol the virtues of rent controls as ‘protecting the rights of residents to affordable rents and reasonable increases,’ the number of units that have seen their rents rise above the guideline, has increased dramatically over the past four years (of the PPMA study).”

The PPMA has also reported that government claims of increased rental stocks are disputed by figures from Canada Mortgage and Housing Corporation which show that the number of rental units has been steadily decreasing due to building demolitions or conversions to condominiums. CMHC figures show that the number of rental units (apartments, row houses and three-plus unit buildings only) was 54,924 in 1998 and 54,419 in 2002.

For a period of 15 years, there had been no new rental housing units built until last year — one developer is building two projects in one area of the city where rents in one project will be in the $1,000 per month range and the rent in the other project will be at least $200 above the city average. The government decision a couple of years ago to raise the exemption on new rental buildings from five years to 15 years has been a failure. The reason for this failure is quite simple — the new construction, even in a tight vacancy market of under one per cent — must compete with old construction which falls under the rent control regime. New construction requires rents well in excess of what the average is now in Winnipeg (or in the province overall), thus they can  only attract upper-income earners who are more prone to homeownership or can opt for condo living, paying a low-interest monthly mortgage at less than the monthly cost of rent.

Avrom Charach, speaking on behalf of the PPMA, said the economically-viable rent for a newly-constructed suite comparable in size and quality of construction to existing units renting for $500 to $700 would require a monthly rent of around $1,200. He said it doesn’t make economic sense to build new units when residents can rent an existing suite for half the price.

Other provinces have understood the detrimental effect of rent controls and have dropped them, leaving Manitoba as the only province to still manipulate the marketplace to the disadvantage of renters and property owners. 

A review of the rent control regime is definitely long overdue and should be open to public scrutiny to ensure that  politics does not once again impede the decision-making process.