Competition
Competition is how lower costs result in lower prices
The housing market is quite competitive. Unlike airlines, or banking, or telecom, there’s innumerable suppliers competing with each other.
Costs set a floor on prices and rents. (“We lose money on every sale, but make it up on volume!” isn’t a good business plan.) There’s a number of levers that municipalities can use to lower costs:
Reduce development charges
Allow more height and density by right, lowering the cost of land per square foot of floor space
Simplify and speed up the approval process, making it less labour-intensive and reducing holding costs
In particular, making it legal to build single-lot apartment buildings by right (as in Montreal) seems like a promising approach. It’s faster to plan and to build a single-lot wood-frame apartment building than it is to build a high-rise. You don’t need to assemble land and navigate the byzantine approval process. The barriers to entry should be much lower, drawing in small builders who would otherwise be tearing down and building single-detached houses.
In order for lower costs to translate into lower prices and rents, instead of just higher profits, you need competition as well, which means lots of supply. If you allow just a handful of these projects, they’ll sell for whatever the current market price is. On the other hand, if you allow them to be built in large numbers, and the profit margins are higher (because cost per square foot is lower), then this will bring down the market price per square foot. The high profit margins means that there’s room for suppliers to lower their price and sell faster, so they don’t get stuck with unsold inventory, while still making a good profit.
You can see this already happening with condos, where there’s a lot of unsold inventory pushing down prices and rents. But not everyone wants to live in a high-rise.
Cooperation between competitors is illegal
Joseph Heath points out in The Efficient Society (2001) that cooperation is surprisingly difficult. Collective action problems (like an arms race) are situations where an individual’s actions result in benefits to them, while the costs are spread over a larger group. It may be obvious that cooperation would result in everyone being better off, but it’s surprisingly difficult to achieve, because from the perspective of the individual, the benefits of not cooperating outweigh the costs.
In the case of price competition, an individual supplier benefits by lowering their price and selling their inventory faster. Even if this results in lower prices and lower profits for everyone else, why should they care?
Competitive markets rely on keeping competitors stuck in a collective action problem.
In fact it’s illegal for competitors to cooperate with each other. Someone on a Facebook group for BC landlords made an AI-assisted post lamenting that renters were convinced rents were declining, and proposing that landlords band together and stop lowering rents. A Redditor took a screenshot and posted it to r/vancouverhousing.
🛑HOW DO WE BREAK THIS VICIOUS CYCLE?🛑
We need a coordinated effort to reset the expectation that rent prices are only moving one way (down). As a large community of landlords, we have the power to influence the market perception locally.
Here is a suggested Action Plan that I am thinking of following myself for next few months to introduce stability and reduce the deal chasing mindset:
1. 🛑 Adopt a Short-Term Waitlist Policy:
Stop immediately dropping your price after a week of no inquiries.
Instead, hold the market price for a fixed minimum period (e.g., 2–3 weeks). If you get inquiries that fall through, tell the next applicant that you have a waiting list of people at the current price. This creates a sense of scarcity and urgency at the market rate.
2.🤝 Synchronize Price Adjustments (if Necessary):
If you must drop the price, do it in small increments ($50, not $200).
Crucially: announce the price drop with a future effective date (e.g., “The rent will drop to $X on the 1st of next month if it is still vacant”). This rewards the tenant who commits now with certainty, rather than rewarding those who wait.
3.⭐ Emphasize Value, Not Discounts:
Focus your ads on premium features, location, and stability—things a tenant loses by waiting.
Offer value-adds like a free utilities for the first month, a small Amazon gift card, or a free early move-in date—these are perks, not permanent rent reductions.
If we collectively educate ourselves on the market and marketing to holding our justifiable market rates and refusing to cave to the expectations of a “Black Friday Deal,” we can re-establish stability and encourage serious, committed tenants to sign leases now.
Attached “A” ad cover creative below. This where many read as “monthly rent is 2000$”
What are your thoughts on this strategy?
Would you be willing to commit to holding your price for a minimum of 3 weeks before any reduction?
I asked them to post this response to the Facebook group:
WARNING:
What you’re proposing is illegal under Section 45 of Canada’s Competition Act. Competitors (in this case, landlords) cannot agree to cooperate with each other to keep prices from falling.
Conspiracies, agreements or arrangements between competitors
45 (1) Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges
(a) to fix, maintain, increase or control the price for the supply of the product;
(b) to allocate sales, territories, customers or markets for the production or supply of the product; or
(c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.
Information from the Competition Bureau:
A cartel forms when two or more parties agree not to compete with one another. A cartel can be created through a simple verbal agreement made by a group of business people over lunch or it could be a highly structured arrangement with strict rules that are monitored and enforced. Cartels can operate in almost any industry and can be local, regional, national, or international.
Under the Competition Act, it is a criminal offence to engage in an illegal agreement. Anyone convicted of participating in bid-rigging, price-fixing, allocating markets, restricting supply, wage-fixing or no-poaching agreements will have a criminal record.
The penalty for violating the illegal agreements provisions includes a fine to be set at the discretion of the court, imprisonment for up to fourteen years, or a combination of both.
In addition, victims have the right to sue perpetrators to recover damages.
When competitors form a cartel to restrict supply (like OPEC), you get the following. (The same thing happens if other restrictions result in less supply, like a slow and difficult approval process.)
The price increases from A to B. The producer surplus (blue) increases, while the consumer surplus (orange) shrinks. You also get deadweight loss (green), which is simply destroyed.
More
Hobbes’ difficult idea. Joseph Heath, December 2014. A more academic version: methodological individualism.