The Importance Of Rent Control In Canada

Introduction
Rent control is a government regulated price ceiling that imposes restrictions on the amount landlords can charge tenants for rent, or by the amount the rent can be raised each year (Miller, R., Abbott, B., Fefferman, S., Kessler, R., & Sulyma, T. 2012). Rent control was introduced to prevent landlords from gouging tenants and to ensure that every individual has access to affordable housing. This raises concern of how effective rent control is at promoting equity within its society. In this paper the consequences of imposing rent control in Toronto, Ontario in contrast to Edmonton, Alberta, where rent control does not exist, will be explored.
Population Growth and Effect on New Construction
Toronto has a price ceiling in the form

of rent control, which limits the amount landlords can raise the rent within a year. By imposing the rent control, the profits of landlords are diminished. This is especially true if the amount the government allows for increase in rent is below the amount of inflation for that year. The diminishing profits take away from a landlord’s incentive to maintain current rental units. As well, the enticement for developers to invest in the construction of new housing units is also minimized ( Levitt). Due to the growing population within Toronto and the decline in the amount of new housing available to these citizens, society is faced with a shortage. The shortage of affordable housing contradicts the objective as to why rent control was implemented in the first place. Although Toronto does have a considerably higher population than Edmonton, as you can see from the graph below, Edmonton’s population has increased at a higher rate than Toronto’s has. Between 1991 and 2011, Edmonton’s population has increased a total of 36.3%, whereas Toronto’s only increased 17.9%. Using the same time period previously mentioned, the average growth rate of both Edmonton and Toronto are 1.8% and 0.89% per year consecutively.

Effect on Vacancy Rate
A vacancy rate is the percentage of all units available for rent (Times Internet Limited, 2014).

Therefore, one can conclude low vacancy rates represent the shortage of housing for any city. In Edmonton, we see low vacancy rates when Alberta’s economy is heated and booming which generates an increased demand for the construction of new housing. When the economy levels back out, the vacancy rate increases. This is a normal function for any free market economy. The graph below shows the vacancy rates for Edmonton and Toronto from 1992-2013. In the 22 years, the graph shows Edmonton had a higher vacancy rate then Toronto 16 of those years despite Edmonton’s population growing at a faster rate than that of Toronto’s. In Addition, we can also see Toronto had a vacancy rate 2% or lower 11 of the 22 years depicted (Canada Mortgage and Housing Corporation, 2014a). Toronto’s vacancy rate has stayed consistently lower regardless of how the economy was doing. On the contrary, Edmonton’s vacancy rates fluctuated with the ups and downs of the economy. The lack of new construction of rental units with a growth in population, extremely effects the vacancy rate in Toronto. When comparing both city’s population growth, you would expect to see Edmonton with the lower vacancy rates since it has grown faster, but instead we see the

opposite.

Effect on Price
As previously stated, rent controls purpose is to create affordable housing by keeping the price down. As a result of the laws of supply and demand, it can be concluded that if the price is to low society will be faced with a shortage of affordable housing. Looking at the graph below one see’s the price for the average two bedroom from 1991-2013 in both Edmonton and Toronto. From 1992 to about 2006 the average rent was about 200 dollars more in Toronto compared to Edmonton. From 2006 to 2013 the average prices were quite close despite the population growth rate and vacancy rates for each city. Considering Toronto has about 3.5 times the population of Edmonton, in a free market we would expect since Toronto has a higher quantity demanded that the market clearing price would be higher. When we look at the supply and demand chart for Edmonton and Toronto we again see a shortage in Toronto as the price is below the market clearing price for the amount demanded.

Conclusion
In conclusion, the effects of rent control have all steered Toronto towards a constant shortage of affordable housing.

The restrictions on the amount the rent can be raised have prevented the law of supply and demand to find the market clearing price allowing for the supply of rental units to meet the demand. Edmonton on the other hand, even in times of economic boom has not implemented any form of Rent control. Therefore, allowing the laws of supply and demand to set the price. By doing so one can see when comparing Edmonton’s vacancy rates and population growth have allowed for Edmonton’s supply of rental units to catch up to the demand for rental units. Consequently rent control has done the exact opposite of what it was implemented to do in the first place, instead of trying to make sure everyone has access to affordable housing it has created a shortage for

it.

Bibliography
Canada Mortgage and Housing Corporation. (2014). Rental Market: Rental vacancy rate, Canada, Provinces
and Metropolitan areas, 1992-2013 %. Retrieved from
http://www.cmhc.ca/en/corp/about/cahoob/data/data_004.cfm
Canada Mortgage and Housing Corporation. (2014). Rental Market: Average Tent for Two-Bedroom
Apartments, Canada, Provinces and Metropolitan Areas, 1992-2013$. Retreived from
http://www.cmhc.ca/en/corp/about/cahoob/data/data_004.cfm
Levitt, R. (n.d.). Rent Controls in Ontario. Retrieved from on November 23, 2014 from
http://www.ontariotenants.ca/rent-controls.phtml
Miller, R., Abbott, B., Fefferman, S., Kessler, R., & Sulyma, T. (2012). Economics today: The Micro
View (Third custum ed., p. 454). Toronto, ON: Pearson Learning Solutions.
Times Internet Limited. (2014). The Economic Times: Vacancy Rate. Retrieved from
http://economictimes.indiatimes.com/definition/vacancy-rate