Winnipeg Free Press
February 9, 2005
By Gerald Flood
MANITOBA'S rent-control regime has reached that nadir that only truly awful public policy sinks to -- it has become bad for everyone, including politicians who uphold it.
Renters have been aware that the regime this government upholds to secure their loyalty at election time stopped working years ago. Although renters most years are told their rents will not be allowed to rise above a one per cent baby step, rents instead increase by leaps and bounds.
What happens is the guideline is announced and shortly thereafter your typical renter comes home to their typical 40-year-old,
L-shaped apartment with its aged gold appliances and rust-stained tub to find notices that the rent is increasing by two, three, five times the regulated rate.
Last year, for example, the guideline was announced to be one per cent but the average increase was 3.6 per cent.
Why is this happening? Because the rent-control regime has always allowed landlords to pass on in higher rents extraordinary costs for such things as heating and maintenance, they just didn't do it.
In the past, back when there remained in the market a surplus of apartments, landlords were unwilling to pass along these costs for fear of driving tenants through the doors of competitors.
But over time, as old apartments were taken off the market -- either because it was more profitable to convert them to condos or because they were condemned as unfit for habitation -- the number of suites shrank even as more renters entered the market.
A recent analysis by the Professional Property Managers Association shows that despite some new apartment construction in Winnipeg, there are 1,300 fewer apartments available today than there were in 1998. This shrinkage has occurred even as the government crows about population growth driven by new immigrants who typically seek rental accommodation. (The pressures are such that ghettoes are developing for immigrants and aboriginal people, but that's another story.)
So with the vacancy rate at one per cent -- and at zero with waiting lists in more attractive areas -- and with interest rates at historic lows, landlords are starting to repair their dowdy building and to pass on those costs and the costs of heating to renters.
Last year, at least 35 per cent of apartments in Winnipeg were allowed to increase rates above the announced guideline. It is believed that a more thorough analysis that identifies units exempted in previous years will find that half of apartments in Winnipeg operate outside of rent-control guidelines.
But that's not all. Since 1992, landlords have been allowed to bank approved rent increases. Say a landlord gets approval for a 10 per cent increase to recover costs but fears he will price himself out of the market if he passes this on to tenants. In such circumstances, the landlord is allowed to "discount" his rents. Every renter who today is enjoying such a "discount" -- and there are thousands -- should be aware that the discount can be converted tomorrow into a rent increase regardless of the guidelines.
In other words, rent guideline announcements are shams and renters are becoming aware that they are shams.
Since 1976, when the then Schreyer government introduced rent controls, economists and industry experts have warned that rent controls would have precisely these effects -- that maintenance and construction would decline. Most apartments in Winnipeg today were built prior to 1964 and, as mentioned, there are fewer apartments today than there were then.
But experts also warned that homeowners would pay a price to protect renters.
A decade ago, a study found that the rent controls had caused the market value of apartments to decline relative to the value of houses.
This caused an average shift in property taxloads of $600 from apartments to houses.
The shift has continued unabated. The most recent property reassessment found that while the assessed values of apartments has increased by 12 per cent in the past five years, the values of houses increased by 24 per cent.
Although the cost in dollars is not yet known, homeowners will soon realize that their taxes are increasing while taxes on apartments fall.
So renters aren't happy, and homeowners aren't happy.
But neither is the government, and not just because its policy is likely to turn sensible people against it.
The Doer government has decided that having messed up the rental market, it should try doing the same in the development market. It is the lead developer in Waverley West where it proposes to build a lot of apartments.
But it won't be able to live up to its promise to be a "progressive" developer unless it changes rent controls to make new apartment construction profitable.
Changing the rent controls to suit its ambitions will be a clear conflict of interest. But not changing them will only exacerbate existing problems in the rental market and inequities imposed on property taxpayers.
As I said, the rent-control regime has reached its nadir.