This Week February 14, 1990. Page M7 FACE TO FACE Greater Victoria, Vancouver and other urban centres throughout B.G. are suffering a rental housing crisis. Were witnessing vacancy rates that have forced families to live in motels and substandard housing. So intervention to solve the pro me are calling for major government blem. Walter Block, a senior research fellow at the Fraser Institute and a member of the B.C. Rent controls will only ‘make housing problem worse By WALTER BLOCK ent control fever is now sweeping British Columbia. Self-styled spokes-persons or the poor, church and feminist groups, unions, tenants’ or- ganizations, members of the New Democratic Party, have all been vocit- erously calling for some sort of cap on the increasing rents which have been making life more and more difficult for thousands of poor and even mid- dle-class people. As a result of all this political pressure, dozens of smaller communi- ties have set up study commissions. Now the largest city, Vancouver, has threatened the Social Credit govern- . ment that unless the office of the Rentalsman is dragged out of moth- balls and set up on a province-wide basis, it will institute its own rent review board. Happily, the Socreds have so far resisted all such demands. Housing Minister Peter Dueck has coura- geously rebuffed this initiative, citing the failure of Ontario’s rent control system as a case in point. It is time once again to consider the argument against rent control. Per- haps cooler heads will prevail, when the economic analysis of this legisla- tion is carefully con- sidered. The trouble with the Rentalsman — whether empowered to control rents or merely to monitor them — is that his very existence has a retardant effect on investment in resi- dential rental units. In order to see why this should be so, ima- gine that you have just won a lottery, and now have $5 million to invest. This is still a free country, so you can place these funds | in any industry you wish. If you invest your money in any number of busi- nesses — seals, ships, sealing wax — government will place only certain limited controls and taxes on your enterprise. But if you entrust your hard-won money to rental housing, there is one additional hurdle you must pass: the rentalsman, with his hearings, red tape, and rent ceilings. Under these conditions, is it any wonder that you are less likely to purchase rental suites? But if this line of reasoning holds for you, it holds for everyone else. As a result, the supply of apartments for rent will be far less than it would otherwise be. Not so amazingly, this analysis holds true not only for the case where rent controls are in place, but even when they are only threatened. Vir- tually no new rental housing units have been built in the last few years in B.C., even though controls have not been in effect since they were abol- ished by the Bennett government in 1983. The mere anticipation, howev- er, is enough to place a chilling effect on such investment. Instead, everything else under the sun in the real estate market has been built: condominiums, office tow- ers, hotels, warehouses, commercial WALTER BLOCK space. Why? Because such invest- ments have never been subject to rent controls, and no one fears that they ever will be. It is no accident that these facilities boast healthy vacancy rates, and only slowly increasing re- ntals, while residential space suffers from a virtual zero vacancy rate, and skyrocketing prices. Rent control is so bad for tenants, especially poor ones, that if govern- ment really had their best interests at heart, it would do the very opposite of imposing rent restrictions: it would instead control the price of all other goods and services available, apart from residential suites, in an attempt to divert resources out of all those other opportunities, and into this one field. But that, of course, would bring about full-scale socialism, the very system from which the Eastern Euro- peans are now attempting to escape. Given that British Columbia cannot stop other Canadians from entering the province, and thus adding their demands to the extant housing stock, what can be done? Certainly, government can get its own house in order, and stop exacer- bating the problem. It can repeal restrictive zoning; it can legalize se- condary suites; it can cancel the Agri- cultural Land Reserve; and it can halt excessive and unne- cessarily restrictive building codes — all of which limit the supply of housing in general, and thus boost prices. But none of these are addressed partic- ularly to the rental market. Perhaps the best way to safeguard tenants’ ability to ob- tain relatively cheap accommodation is with a constitutional prohibition of rent control. If investors knew for sure that such regulations would never again be imposed, the high rate of profit to be earned in the rental market would soon enough attract massive invest- ment. This, in turn, would lower rents. Under such conditions, zero vacancy rates in rental units would be as rare as for any other sector of the real estate market. It may seem paradoxical to many people that the best way to help tenants is to grant economic freedom to landlords. And yet, if there is any thesis upon which most economists agree, it is that “a ceiling on rents reduces the quantity and quality of housing available.” This very statement was recently posed to the entire Canadian econom- ies profession, along with 26 others relating to the economy. According to a report on the survey written by myself and my colleague at the Fraser Institute Dr. Michael Walker, and published in Canadian Public Policy, only 4.7 per cent of the respondents demurred — which established the consensus on this question as the third highest of all 27 issues probed. At a time when the Eastern Euro- peans are struggling to free them- selves from the economic tyranny of socialism, it would be the height of folly for us to adopt such central planning as rent control. Association of Professional Economists and the Canadian Eco- nomic Association, says that would be a mistake. He outlines his position here in an article based on an earlier piece published in The Vancouver Sun. Robin Blencoe, Victoria MLA and housing critic for the NDP, stops short of calling for rent controls but heis advocating action by government to help solve the problem. It’s time for a return to moderation in housing policy By ROBIN BLENCOE an we find a home? Can we afford it? Can we feel secure in it? Such questions are all too common in British Co- lumbia today. British Columbians face one of the most difficult housing markets in Canada. Scarcity of serviced land,. in- migration and the boom and bust nature of the economy contribute to the problem. While the single-family home market remains buoyant, mar- ket rental housing has not been built in sufficient supply to provide a work- ing rental market, ie., three per cent vacancy rate. Rental rates have dropped dramati- cally from the average in the 1983-85 period of 2.5 per cent to between .5 and .3 per cent in 1989. The rental crunch has been aggravated by wides- pread demolition and condominium conversions resulting from high land values. Federally imposed high interest rate policies, supported by Social Cre- dit, have prevented first-time buyers from finding a home, compounding the ever growing squeeze on a shrink- ing supply of rental accommodation. But what about the Social Credit’s housing policy? In 1983-84, the Ben- nett government dis- mantled the Rentals- man, abolished rent controls and eliminat- ed any system of rent review. The govern- ment eliminated se- curity of tenure for families renting and introduced a weak Residential Tenancy Act. One million ten- ants in British Co- lumbia, 36 per cent of the entire population, were left to fend for themselves with any rent increase legal and forced into courts to get even damage deposits returned. The basic defence of the Social Credit government has been “tenants can always move”. The economic argument given for aban- doning tenants was that if you elimi- nate the Rentalsman, rent controls and rent review, the private sector would respond positively. Get rid of those market interferenc- es, the theory went, and “market equilibrium” would once more return to British Columbia. Supply would meet the demand and one million tenants would not require security laws. Based on this theory, the rental sector should be booming today. But a gigantic hole appeared in the Socred theory. The market failed to respond with new supply. The result of dismantling the fair laws for 36 per cent of British Columbia's population was sharp rises in rents once the recession receeded. There simply has been no positive result of following the supply theory only. The evidence is available to drive a truck through the hole in the Social Credit theory, written by those from the ultra right-wing think tanks. Let us look at the private rental starts in the city of Vancouver, where an extremely high ratio of the popula- tion relies on rental accommodation. In 1982-83, a total of 1,821 units were - wing theorists still refuse to protect ROBIN BLENCOE built by the private sector, during those so called terrible years of Re- ntalsman, rent control and rent re- view. In 1984, the last year of the Rentalsman and rent review, a farther 846 private sector units were built. But then in 1985, with all those so called market interferences gone, only 275 private sector units were built (only nine per cent of all starts!) A dramatic drop followed in 1986 by only 88 private sector units (only three per cent of total starts). What happened to the theory? Where was the promise of “market equilibrium”, the promise that if you removed the Rentalsman, rent control and rent review the private sector would respond. Plainly, the theory has failed. Ten- ant families face large rent increases, short supply and have little or no security of tenure. Today the same Social Credit party and its ultra right British Columbian tenant families and their homes. On behalf of the New Democratic Party, I have presented a comprehen- sive housing strategy for the 1990s. It deals with supply, home-ownership, Crown land policy and greater supply of affordable housing units. It also states there must be fair laws to ensure Se- curity of tenure for tenant families. There must be a process of rent re- view/ rent stabiliza- tion giving tenants the right to appeal un- justified rent increas- es, not rent controls with an arbitrary ceil- ing for rent increases, but a system that en- “sures landlords pro- vide bona fide reasons for increases that go beyond the Consumer Price Index. We need fairness, moderation and a dia- logue between lan- dlord and tenant, with a system that treats both landlord and tenants equally. Indeed, I note that Los An- geles, a centre of private enterprise, for 10 years has had a rent review/ stabilization program that works! But this moderate process is being attacked by Social Credit and the gurus of ultra nght economic theory. Their answers to our housing prob- lems — eliminate the Agricultural Land Reserve to make up for their theory failures. But British Columbians will have nothing to do with that preposterous, clutching-at-straws solution. Walter Block, of the Fraser Institute, glibly says the best way to help tenants 1s to grant “economic freedom” to lan- dlords. Freedom to do what they want, when they want but with no checks and balances. But what about the “economic freedom” of a million tenants. I suspects he has no answers. We need sound, rational thinking and a partnership between the pri- vate sector and the public sector to tackle our housing needs. No more desperate theories that have failed. The talent exists in both housing sectors — let’s work together and provide hope for British Columbians.