GREGORY MELLE

Sky-High Rents

Is there any limit? The debate over rent control

By Mike Sadava

Marni Armstrong received the shock of her life when she opened the envelope. Enclosed was a notice from her landlord explaining that the rent for her one-bedroom apartment in the Mission district of Calgary was going up—way up—from $650 to $1,500. That’s an increase of 130 per cent, and with no rent control in Alberta there’s no law against such an increase. 

Armstrong’s case in 2007 was an extreme example of big rent hikes happening all over the province at that time of rising oil prices and economic boom. The average rent in Alberta had risen by 17 per cent the previous year and Calgary had become the most expensive Canadian city in which to rent an apartment, surpassing even Vancouver and Toronto. At the same time, rental units were disappearing—1,750 converted to condominiums in Calgary alone in 2007—and very few new ones were being built.

Like many other Albertans, Armstrong, a kinesiologist, did not benefit directly from the last boom. The building where she made her home had been sold and the new owner had raised rents in an effort to get rid of the tenants and convert the building to condominiums, to make a quick profit. Armstrong complained to the province, but was told the owner had done nothing illegal.

She ended up subletting from a friend for six months, and then found a place for considerably less than $1,500. “I was fine; I had a good job,” she says. “But there was an older woman downstairs who lived on her own and had to move in with her daughter.” Armstrong says she supports rent control because citizens need protection from price gouging, and from the kind of “economic eviction” that happened in her case. “For low-income people, you can’t double their rent. It isn’t right. I don’t think rent should be related to the price of oil.”

Although Armstrong’s rent increase was extreme, the media reported numerous similar cases, and public pressure for rent control grew. A 2007 Ipsos Reid survey of 666 residents of Calgary and Edmonton for the Calgary Herald found that 78 per cent of homeowners and 92 per cent of renters supported government-imposed limits on rent increases. The government resisted, the economy eventually cooled off, and rents stabilized. But in a boom/bust economy like Alberta’s, rents will shoot up again, especially if Prime Minister Stephen Harper’s efforts to push major pipelines through to the West Coast and the US are successful and, of course, depending on the price of oil. 

Alberta’s property developers, apartment owners and provincial politicians tend to regard rent control as a measure that stifles the free market, backfires and exacerbates rental-housing problems. Advocates say some kind of rent control is a necessary and reasonable protection from the cost increases that stem from giving developers free rein to increase rent by any amount. In the unrestrained market, landlords are most apt to impose hefty increases when the economy is booming and demand for accommodation is up. 

Rent control can be defined in any number of ways, and misconceptions abound. The University of Alberta’s Institute of Legal Research and Reform, in the 1970s, articulately summarized the different systems that could be called “rent control.”

1. Rents are fixed by law and the landlord is not allowed to charge higher rent or negotiate the rent.

2. A rent freeze is imposed for a fixed period, such as a year. Subsequent increases may or may not be limited to a fixed percentage per year.

3. A system that allows rent increases only when property taxes, utilities, maintenance or other costs to the landlord increase.

4. An appointed board determines what is fair rent and has jurisdiction over applications for rent increases.

The average Alberta rent rose by 17 per cent in 2006. With no rent control in this province, there’s no law against such an increase.

Many people hear “rent control” and immediately think of the New York City model, which has high-flying lawyers and such celebrities as Cyndi Lauper, Faye Dunaway and even former mayor Ed Koch paying less than half market value for their digs. New York is also where, early last year, the US Supreme Court rejected a constitutional challenge to rent control by building owner James Harmon, who told Bloomberg News that the US Constitution “does not allow the government to force us to take strangers into our home at our expense for life.” New York’s system started in the 1940s in the full-employment wartime economy, and about one million apartments in the Big Apple are now under some kind of rent control, which directly limits the rent the landlord can charge, or rent stabilization, which sets maximum rates for annual increases. No one suggests Alberta adopt a similarly extreme model—though, notably, a recent survey found the median household income in NYC stabilized units was about $37,000.

In Canada measures are typically less rigid than in NYC. Five provinces, comprising more than three-quarters of the population, have rent control. Most Canadian models also originated during the Second World War, when the federal government temporarily took control of rents. Controls were eliminated in all provinces except Newfoundland and Quebec by 1954, but with high inflation and falling vacancy rates in the 1970s, rent regulation returned to five provinces, and then temporarily to all provinces when Ottawa introduced wage and price controls. With political and economic cycles over the ensuing decades, the provinces, which regulate tenancy provisions, have had varying experience with rent controls. Today Ontario, Quebec, BC, Newfoundland and Prince Edward Island have some form of rent control. Most have imposed limits based on the consumer price index or costs such as heating. In most rent-control provinces, landlords can apply for an increase based on their capital costs for improvements.

Alberta has not seen rent control in 30 years; the Lougheed government reluctantly drafted measures to protect renters at the request of Ottawa when Albertans were faced, like all Canadians, with federally imposed wage and price controls during an era of sky-high interest rates and inflation. From the start, the province made it clear that rent control would be temporary, and in 1976 annual rent increases were limited to between 8 and 10 per cent at a time when inflation and interest rates were soaring. Controls were gradually removed starting in 1977 and by 1980 they had totally disappeared.

When the economy isn’t booming, there is no huge public call for rent control in Alberta. Organizations such the Landlord and Tenant Advisory Board in Edmonton currently report few calls about rent gouging. But back in 2007 the provincial government was feeling a lot of pressure to implement rent control, not just from renters and the general public but also from business interests concerned that skyrocketing rents were deterring skilled workers from migrating to Alberta. The government set up a task force of provincial and municipal representatives, as well as advocates for low income Albertans and people with disabilities, representatives of the development industry, and apartment owners. 

The Alberta Affordable Housing Task Force included in its recommendations a provision that Alberta adopt for two years the BC model, which would have limited annual rent increases to the consumer price index (CPI) plus 2 per cent. In 2007 this would have meant rent increases of no more than 7 per cent in Alberta. Landlords would have been able to appeal the limit if they had extraordinary expenses.

“The decision to recommend this protective measure was a very difficult one for the task force,” the report says. “There was a clear concern among many members about the impact of rent stability guidelines on overall housing supply and on rental rates once guidelines are removed in two years. At the same time, the task force was confronted everywhere with the plight of many renters who were losing their homes now.”

The 16-member panel, which included MLAs from all the major parties and municipal officials from across Alberta, as well as advocates for the homeless, people with disabilities and representatives from the building and development industry, travelled to nine centres and received some 1,400 submissions from the public.

Ray Martin, the former NDP leader who served as an MLA member of the panel, says the panel wasn’t unanimous but a strong majority supported the recommendations. “It seemed to be common sense,” says Martin, adding that the proposals should’ve been called guidelines rather than controls. “They were basically a recognition that not everybody profits when there is a boom—although the government seems to assume that as long as the oil companies are doing well, then everybody’s doing well. We thought it would be better and fairer to say that this is all you can get for the year, and that they [landlords] could appeal if they had major expenses.” 

The government rejected the task force’s proposals. Mike Berezowsky, a spokesman for Service Alberta, says, “What we did do was limit rent increases to once a year, which stabilized the rental market. The legislation also requires three months notice of a rent increase.”

Brent Davies, president of the Edmonton Apartment Association, which represents owners of apartment buildings, says rent control discourages the construction of new rental units. He argues the government should do more through tax breaks to encourage new construction. While the local market for new condos and single family homes is healthy, few rental apartments are being built in Alberta other than those subsidized by government through affordable housing programs as well as the “secondary market” in rented condos and basement suites.

As it is, Davies argues, developers don’t have a lot of reasons to build new rental units. “It doesn’t make economic sense,” he says. “To build a new one, there’s a lot of risk involved. Can you rent that property to cover the cost?” New units typically need rents of $1,200–$1,500 for a two-bedroom apartment, but they have to compete with old walkups commanding only $900–$1,000. Other than for a blip or two, Davies says the local market for rental housing has been mostly soft since 1983, not keeping pace with inflation.

Much of Edmonton’s rental housing was built in the 1960s and 1970s, some with the help of federal tax measures such as MURBs (Multiple Unit Residential Buildings), which allowed owners to depreciate their buildings quickly against their taxes. “They’re getting older every year and we’re not replacing them fast enough,” Davies says. “We’re not in crisis mode, but we could be in two years, i.e., down to zero vacancy again because we’re not building enough units.”

According to a Canadian Mortgage & Housing Corporation (CMHC) report, the number of rental units is actually going down in both Edmonton and Calgary. Between 2011 and 2012, Edmonton lost 353 units overall, while Calgary lost over 600. Davies says that if you add rent control to the mix, “…and all of a sudden owners have to spend more on maintenance and repairs, you’ll have these 40-year-old buildings getting worse. I think the rate of decay would go up dramatically.”

Martin points out, though, that the task force recommend-ations would still have allowed landlords to earn a decent profit by raising rents at least two percentage points above the CPI and to appeal the rent control if they had extraordinary costs. He adds that during a boom, with high costs for labour and materials, there’s not a lot of apartment construction anyway. And when the economy is flat, as it was for a few years after the task force report, rent control doesn’t make much difference. “If there’s competition because vacancy rates are up, rent control is probably a moot point,” says Martin. “But when the boom comes and the vacancy rates are low, people are at the whim of big landlords.”

Bob Dhillon, whose Mainstreet Equity Corp. owns more than 7,000 rental units across western Canada, including 21 per cent of the total number of rental units in Edmonton, wrote in the Financial Post in 2007 that rent control is an attack on all homeowners, as well as a measure that will decrease the quality and quantity of housing. “The value of the home of every person who owns a condo or a house, the silent majority, would be affected,” he wrote. “The PC party needs to remember this before setting up such poor policies.”

Berezowsky says the government shares concerns that rent control could adversely affect construction of new rental units and discourage landlords from spending on maintenance. Economists such as Andrew Muller of McMaster University have studied the effects of rent control on vacancy rates and failed to find a correlation. But Muller’s 1991 study of 10 Canadian cities suggests it would be wise to consider the additional economic arguments against rent control as well, including the potential deterioration of housing stock, reduction in new supply and possible inequity in the distribution of the benefits of rent control.

Brad Butt, former executive director of the Greater Toronto Apartment Association and now MP (CPC) for Mississauga-Streetsville, has argued that “a draconian rent control regime is only a cop-out for governments devoid of good public policy to help low income people afford their homes.” He believes rent control shifts the blame for poverty onto the private sector.

But Dan Meades, a poverty reduction advocate and former director of Vibrant Communities Calgary, says it’s not an either/or situation. “Rent control doesn’t mean that developers can’t make money or property owners can’t earn a profit. It only means that the profit can’t be punitive.” The Calgary Housing Company recently reported an average wait list of 3,576 people for low-income housing, but that’s just the tip of the iceberg, Meades says. In Calgary about 150,000 people live in households below the poverty line as defined by Statistics Canada, which is $22,376.

Meades calls for a combination of measures, including rent control on existing units, that would increase the stock of affordable housing (defined by CMHC as housing that costs 30 per cent or less of total household income before taxes). He also advocates that 15 per cent of new housing units over the next decade be zoned for affordable housing. The builder of affordable housing would be given a tax break and would be pretty much guaranteed long-term tenants. 

The City of Calgary should also encourage the development of safe basement suites that are up to code, he says, rather than continuing to make them illegal in most neighbourhoods. Edmonton legalized secondary suites in 2006 and offered grants to homeowners to encourage their construction, which resulted in the development of about 500 new and refurbished units, mostly in established neighbourhoods. 

The task force recommendations would’ve allowed landlords to earn a decent profit, while limiting annual rent increases to about 7 per cent.

Even though today’s economy is not overheated, hundreds of thousands of Albertans are still having trouble affording their homes. A study by Public Interest Alberta found that one in four Albertans earns less than $15 per hour, and that there are two-year waiting lists for affordable housing in both Edmonton and Calgary. 

John Kolkman, head of policy analysis for the Edmonton Social Planning Council, which has fought for rent control, says the vacancy rate rose in 2009–2010 when the economy slid, but rents have not fallen accordingly. Landlords are generally averse to lowering rent, he says, and instead use incentives such as a month’s free rent or free satellite television to attract tenants. An important factor, he adds, is that most vacancies are in the upper end of the market. “It’s pretty much down to the fact that people in the low end of the market don’t have options,” Kolkman says. “They’re a captive audience, if that’s the right term, and it’s difficult to get modest accommodation built to service the low end.”

Jim Gurnett, a housing security advocate and the former executive director of the Edmonton Mennonite Centre for Newcomers, says vacancy rates for apartments affordable for low-income earners are probably in the 1 to 2 per cent range in areas such as northeast Edmonton. This shortage goes back to decisions by both the federal and provincial governments in 1993 to stop building affordable housing, which had been a program of both levels of government since the end of the Second World War. Although a joint federal-provincial program in 2002 started putting some money back into affordable housing, Gurnett says the nine-year absence of funding created a dire long-term shortage of affordable housing in Alberta. The government is moving too slowly, he says, and is concentrating its efforts more on people who are homeless and have mental illness and addictions. While Alberta’s 10-Year Plan To End Homelessness is commendable, says Gurnett, it is doing nothing for the working poor or those on social assistance, who are putting more than 30 per cent of their incomes into housing.

“I would be less worried about the absence of rent regulation if we had enough subsidized housing,” he says. “That would take care of the needs of poorer people for housing.”

Kolkman, however, suggests rent control would help address the Alberta government’s mixed record on affordable housing. He notes that the province has recently invested millions directly, providing new affordable housing and getting people who are homeless into housing. But he argues it has not done well in rent supplementation, a program that has stayed at a funding level of $70-million since 2009 despite long waits for low-cost housing. This means that thousands of Albertans are still struggling every month to pay their rent.

The nature of the rental market has also changed somewhat, with more condos owned by single owners. Many were built as an investment because interest rates and returns on GICs and other investments were so low, Kolkman says. Some were converted from rental housing, with the idea of a quick sale after renovations, but the condo market collapsed and the owners have hung onto them, renting instead of selling.

Between 2006 and 2012 the number of rented condos almost tripled in Edmonton and Calgary from around 4,000 in both cities to 12,921 in Edmonton and 14,313 in Calgary, according to the CMHC report on rents and vacancies. The rents reaped from these condos are about $200 higher than for other apartments in both cities. For instance, an average two-bedroom condo in Calgary in 2011 cost $1,460, while other apartments cost $1,084. The difference was not as great in Edmonton, where rents for non-condos were rising faster than in Calgary; condos were going for an average of $1,164, other apartments for $1,034.

Signs point to another rental squeeze in Alberta soon. The CMHC reported significant reductions in vacancy rates in Alberta following a few years of a flat market. The provincial vacancy rate dropped from 3.4 per cent in 2011 to 2 per cent in October last year. Calgary’s rate last year was down to 1.3 per cent from 1.9 per cent in 2011; Edmonton’s was down to 2 per cent from 3.4 per cent. Alberta’s two biggest cities also saw rents rise during the same period. The average rent in Calgary for a two-bedroom apartment was up by 5.9 per cent to $1,150, the third highest in major Canadian cities behind Vancouver and Toronto. Average rents in Edmonton were up by 3.8 per cent.

With plunging vacancy rates and rising rents, Calgary Economic Development has some concern about being able to attract skilled people in occupations where there are labour shortages, including tradespeople and nurses, as well as in the perennially high-demand professions such as engineers and geophysicists. “It’s always a concern,” says Susan Thompson, business development manager for the real estate sector. “Maybe people double- or triple-up or crash with some friends.” She declines to comment on rent control, but says Calgary’s first high-rise rental apartment building in decades is currently in the planning stages, which she believes shows the development industry responding to the shortage.

But if the free market fails to create sufficient new rental housing, with the vacancy rate falling, things could get a lot worse for low-income Albertans when the next boom comes—or possibly sooner than that. And no matter how high rents go, Kolkman knows that controls or guidelines won’t come to Alberta easily. “You need to recognize the political reality,” he says. “To most people in the PC government and the Wildrose opposition, the words ‘rent control’ just seem to generate a visceral response.” #

Mike Sadava spent 25 years with the Edmonton Journal, where he covered everything from crime to the legislature.

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