Rent controls create “have-not” province

by Avrom Charach

Manitoba may soon be the only western “have-not” province in terms of  supply, availability, and quality of rental accommodation, a commodity which is paramount to the attraction and retention of the talented young people who drive the economy. 

Manitoba’s recently announced 2.5 per cent rent increase guideline for 2006 will do little to improve this situation

Alberta and Saskatchewan have abolished rent controls. British Columbia reinstituted rent controls in 2004 with a guideline based on CPI plus two per cent which recognizes inflationary operating increases and allows for capital repairs. B.C. also deregulates on vacancy allowing adjustment to market pricing between tenants and allows existing tenants and landlord to agree to any rent increase regardless of the regulations. In essence, B.C.’s rent control system is almost a market economy system.  

As a consequence of using market systems, all three of our western neighbours have enjoyed growth in available units over the past few years. In contrast, Manitoba has seen a net loss of more than 1,000 units between 1998 and 2004 and our vacancy rates have decreased from 5.5 per cent to 1.1 per cent over the past decade, well below the 2.7 per cent national average. 

Winnipeg has the lowest vacancy rate of any major city in Canada. In addition, Manitoba had the highest rent increases in the West at an average of $19 or 2.9 per cent in 2004, almost twice the guideline. This is due to the large number of landlords who apply for, and are granted, increases above the guideline based on proven costs. 

Manitoba’s CPI has been over three per cent for the majority of the past 12 months, yet the announced guideline again falls below CPI. How does this reflect reality? How does this slow the loss of rental units or stimulate new construction? 

It doesn’t. 

Every year, Manitobans see more rental units converted to condominiums.  We also have a thriving life-lease program, where a person over the age of 55 provides a down payment to the developer which buys them the right to live in their apartment for as long as they wish.  

Contrary to increases on rent in standard apartments, condominiums and life leases are not legislated to require applications to the province to set increased common element costs. These costs go up with inflation or on consensus.  

Apartments are boarded up rather than being renovated and very few new rental units are being constructed. Why? Landlords tell me that the best economic use of their properties is to convert to life-leases or condominiums and sell the units. 

Both of these types of accommodation require down payments and allow management to pass on real cost increases each year without government intervention. It takes them out of the rental universe and places many of them out of reach of young people and new immigrants. 

Contrast this to B.C., Alberta and Saskatchewan where life-lease properties are virtually unknown and a large percentage of condominium units are purchased as investment property. That is because operating costs can be recovered through market rent adjustments without government review which often requires six to 12 months in Manitoba.  

The purchase of condominiums as revenue property is not a recommended investment strategy in Manitoba because our rent structure yields little return. Developers who work in Manitoba and other provinces report that local investors refuse to participate in the construction of rental stock in Manitoba choosing instead to put their money in projects out west. Real estate investment trusts avoid Manitoba, but purchase large volumes of rental property in other provinces first. 

Do rent controls protect any segment of the population? One would presume they protect the poor. But, that is not the case, either philosophically or practically. 

Rental benefit warrants for people on social assistance in Manitoba have not increased since 1992, and the majority of apartment units being boarded up due to lack of maintenance are those with the lowest rental rate units — the very same units that low income earners are best able to afford. Meanwhile, mid-priced rental units benefit the working middle class since they are kept affordable for them, especially when the guideline is consistently less than a COLA increase under many union contracts. The federal government has acknowledged this reality and is working on portable rental subsidies for low-income earners. 

It is clear that Manitoba will continue to be a have-not province when it comes to accommodation unless our rent control system is eliminated.  Manitoba continues to maintain a 30-year-old rent control system which no economist or business person can defend while rent controls have been abandoned or radically changed by almost every other province, including Saskatchewan who removed it under an NDP government.  

We know that Manitoba’s government has said they are looking at a made in Manitoba solution. Why try to reinvent the wheel when the free market system works in Saskatchewan and Alberta and B.C.’s rent controls are really a modified free market system? These systems inherently acknowledge the fact that economics, not political considerations should be the only modifier to rental rates.  

Our province continues to spend millions of dollars in staffing (including the hiring of new staff in part to accommodate the explosion in applications for rents in excess of guideline) and new technology to administer a rent control system which leads us further down the path of being the only have not province in the West?  These funds could be more effectively spent on rental subsidies to ensure that the people who can not currently afford safe, affordable housing gain access to it. 

How is Manitoba to become a have province when our own investment dollars are being spent out West? How are we to house thousands of new immigrants with a diminished number of rental accommodations? The answer is that without the removal of rent controls we will only fall further behind the rest of the west. 

(Avrom Charach is the CGA  director of finance for Kay Four Properties Inc., the vice-president of the Professional Property Managers Association, and a director of the Canadian Federation of Apartment Associations.)