2023-09-15 04:00:00
50 years ago, the Swedish economist Assar Lindbeck made a shocking statement. “Rent control appears to be the most effective technique currently known for destroying a city, short of bombing. » Lindbeck was, however, a rather left-wing economist, but he had measured the effects of such a policy.
Rent control is a central cause of the housing crisis we are experiencing in cities. Let me be clear, I am writing this to make people think and awaken the public. I write it because it is a truth that has been known for decades.
Politically risky
I know very well that no government will dare touch this. None will even admit to thinking regarding it.
Because the simple logic is that if you remove rent controls, landlords will go overboard and rents will go up. I admit that acting suddenly in a crisis situation like the one we are experiencing would create a lot of upheaval and unfortunate consequences.
I remain convinced that we must take a moment to ask ourselves what are the fundamental factors that have pushed us into such a mess. There is a shortage of housing and no more is really being built.
Here’s what economic theory says regarding rent control. When you implement it, the effect will be beneficial in the short term for tenants. By limiting the authorized rate of rent increases, the government slows down price increases. The rental stock is already in place, the owners are reducing their profit margin a little, but nothing major. This will last say for the first decade.
During the second decade of rent control, landlords will begin to feel that rental housing is less profitable. We are still far from a crisis, but we will slow down on renovations and some will consider transforming their homes into condos.
Third decade, the market begins to be more unbalanced by the artificial fixing of a price by the State. The rental stock is aging poorly due to a lack of maintenance. Not enough new housing is really being built anymore, and occupancy rates remain low. More and more units are being transformed into condos.
Crisis
After 40, big problems appear. There is a severe shortage of housing. Scarcity puts upward pressure on prices. Owners use all the subterfuges and exceptions of the law to shield their apartments from control mechanisms. What remains cheaper are slums, the result of a shameful lack of maintenance.
That day, those who were initially supposed to be protected, low-income people, became the victims. They often find themselves in great difficulty finding accommodation.
Is my story theory? Tell me that this is not roughly what has happened in Quebec for 40 years. The PQ established the Housing Authority in 1980…
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#main #housing #crisis #big #taboo
