Rent control in Canada and why it’s time for serious debate

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By Ricardo Trangan

With high rents making headlines every week, we expect a lively debate about the most direct way to reduce the problem: rent control.

Only five provinces control rent increases, with regulations full of exemptions and loopholes. However, the prevailing view is that we do not need to debate this issue because the verdict has already been made: all rent controls are always bad.

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This is not true.

A serious discussion of how to make rent control effective while mitigating potential downsides would benefit tenants and the many sectors of the economy for which high rents are bad for businesses. Such a debate occurs in other countries.

In France, President Emmanuel Macron opposed controls enacted by his predecessor but then… I decided to keep them. In the United States, President Joe Biden proposed Rent control The plan sparked praise and criticism. In England, new Labor Prime Minister Keir Starmer is facing an internal confrontation pressure To work on this issue.

To start this much-needed discussion in Canada, we need to establish some basic facts.

First, there are many types of rent regulation, which interact with other housing measures, fiscal and monetary policies, and the general economic context.

Rent freezes, enacted in the first half of the 20th century (called first generation rent controls), slowed construction, and the research is clear on this. But context is important. Governments used rent freezes during economic depressions and wars, usually without an end date, creating a lot of uncertainty. At the same time, fiscal and monetary policy prioritized the war effort, making housing one of many secondary concerns.

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In contrast, current rent regulations (called second-generation rent controls) allow rents to keep up with inflation. In some counties, rent regulations rarely change, creating predictability that one study has linked to higher housing start rates. We also have the federal government and some provincial governments that incentivize construction and provide a relatively stable economic environment.

In 2020, the Canadian Mortgage and Housing Corporation (CMHC) carefully analyzed the impact of rent controls enacted after 1971. The key finding of this study: “There was no significant evidence that rent starts were lower in rent control markets compared to no controls On rents. Markets.”

In 2023, the International Journal of Housing Policy published a landmark analysis that found that rent control negatively affected construction “in its strict form of rent freezes.” More importantly for current discussions, the study found no statistically significant relationship between second-generation rent control and housing starts.

Other studies looking at second-generation rent controls often provide mixed results, calling on policymakers to weigh the pros and cons of different policies depending on the context.

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This is what we must do.

Instead, findings on rent freezes are often used to kill conversations about rent regulation altogether.

The second fact we must point out is that the federal government can act to regulate rents.

Most of the controls in place today date back to 1975, when Ottawa imposed these controls as part of an anti-inflation plan. You succeeded. When inflation reached 12.5 percent in 1981, rent inflation was 6.4 percent. In contrast, in the recent high inflation period, out-of-control rents pushed inflation higher.

The federal government could force provinces back, for example, by making infrastructure funding conditional on strong rent regulation. It can also impose a cap on rent increases, such as a criminal interest rate that limits the amount lenders can charge. It can be done.

The third fact is that rent controls benefit tenants and businesses.

Employers have historically disliked high rents because they put upward pressure on wages. High rents also force workers to live far from work, which increases commutes and reduces job satisfaction and productivity.

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High street businesses sell less when renter households spend more on housing. Their rents are not regulated either.

The absence of rent control also significantly reduces the risks of real estate investment, making it the best game in town, with relatively low risks and high returns. Why do banks return to financing productive economic activity when all everyone wants is a piece of the real estate wealth?

While the main battle is between landlords and tenants, there is much more at stake.

The crux of the question is whether governments should allow the economic cost of high rents to spill over into other sectors of the economy or find smart ways to regulate rent increases.

Isn’t that worth discussing?

Ricardo Tranjan, Ph.D., is a senior research fellow in housing and social policy at the Canadian Center for Policy Alternatives and author of The Tenant Class.

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