Repost: Rent control and vacancy control in BC
Repost: Rent control and vacancy control in BC
Why I'm wary of vacancy control
[A repost of morehousing.ca/rent-control, with some additional discussion of vacancy control.]
During the last election campaign, someone on Reddit asked:
May I ask your position on rent/vacancy control?
Short answer, I support rent control - I think the benefits outweigh the costs. Canadians place a high value on security. Renters are the foundation of the pro-housing coalition: see Noah Smith.
Longer answer:
First, it's actually the province that sets rent control. (Which makes sense - lots of people live in one municipality and work in another one. So you want to have common rules across Metro Vancouver.)
What would really benefit renters is a high vacancy rate. In a market with a vacancy rate high enough to keep overall rents from rising (about 3% or more), rent control is great - it provides predictability for renters.
Claim: “We don’t need tenant protections, let’s just be like Japan!”
Japan:
-Robust tenant protections
-Good cause eviction
-Tenants guarded against rent spikes
And, yes, Japan still builds a fuck ton of housing.
The best of both worlds is possible.
In a market with a low vacancy rate, where market-clearing rents (the level of rent which matches vacancies with renters) are typically rising, I think we still need rent control, but it only protects existing renters. It doesn't solve the underlying problem, which is that we don't have enough housing to go around.
When housing is scarce, the larger the gap between controlled rents and market rents, the more precarious the situation becomes. Long-time renters are terrified of losing their housing, because they'll end up either paying much higher rents or forced to leave the neighbourhood. (This is particularly bad for families with kids in school.) For anyone trying to find a place to rent, it feels practically impossible: what's available to rent is substandard, tiny, expensive, or all three, and there's still tremendous competition for it.
Unfortunately, when the vacancy rate is low, rent control also tends to aggravate the problem of scarcity. The value of a new rental building is the value of the future rents. (Whenever a new rental building is built, you can think of it as the future renters hiring a builder, since it's their rents that will pay for it; the landlord acts as a middleman.) With rent control, the value of the future rents is lower, there's fewer projects that make economic sense (where the new building, minus construction costs, would be worth a lot more than what's already there), and fewer rental buildings are built.
In Metro Vancouver that's manifested as a 40-year period when no rental buildings were being built - only condo buildings. With rent control, people are willing to pay roughly 50% more for condos than for rentals.
Rental buildings are important because unlike renting a condo or basement suite, they provide security of tenure. In a condo or basement suite, the owner can reclaim the space for personal use with only two months notice. Condos do help to provide more rental housing, but it's not secure.
To offset this impact and get more rental buildings instead of just condos, local governments need to allow rental buildings to be taller than condos (a six-storey rental building is worth more than a four-storey rental building), and/or reduce the development fees that it charges for rental buildings.
In the last few years, with these kinds of incentives in place, there's been a revival of rental projects in the city of Vancouver, with rental buildings accounting for more than half of the homes approved in 2021. So rent controls are compatible with new rental buildings making economic sense, but the city is paying quite a lot in foregone development fees that it could have charged for condos, and the taller rental buildings are provoking more local opposition.
To sum up, there's costs, but I think the benefits outweigh the costs.
Vacancy control (not allowing rents to rise between tenants) lowers future rents even more than rent control, so it makes it even more difficult to build rental housing. It's been used in MIRHPP projects (which allow for taller rental buildings if 20% of the apartments are at permanently below-market rates), but in 2021, city staff reported that no new MIRHPP projects were economically viable, and recommended loosening the vacancy controls. Council rejected the staff recommendation by a 6-5 vote, with the two consistent No votes (Hardwick and Swanson) joined by Carr, Fry, Bligh, and Wiebe. This decision basically halted the MIRHPP program. So I'm wary of calls for more widespread vacancy control.
Crowding isn’t great, but displacement and homelessness are worse
Jens von Bergmann points out a specific way in which vacancy control can aggravate the problem of housing scarcity. A common response to a severe housing shortage is increased crowding, with people doubling up to outbid a single renter who wants more space. Vacancy control prevents this from happening, which basically reduces the capacity of the housing stock.
The main issue is that casual observers often assume households are fixed, and don’t think about allocation mechanisms. The naive idea is that if there was vacancy control, the same households would move into the same units at a lower rent. The reality is quite different though.
To understand what’s going on, we have to remember that households form in response to rents and prices. If rent is too high to afford a unit, people double up and find roommates, or move back in with parents, or find other arrangements to pool their resources. We see these effects quite clearly in the data as “suppressed households”.
Stylized as a simple counterfactual, if Vancouver had Montreal rents then we would have 12% more households as roommate and other complex households split up and kids move out of their parent’s place. Of course we can’t have 12% more households because we don’t have the housing for it, which explains why we don’t have Montreal rents.
Back to vacancy control, this effectively lowers the rent for new leases. Which means people can afford it on their own. And from the landlord perspective, if roommates can’t financially out-compete a single person renting, the landlord will in most cases go with a single tenant or a couple. When there are many candidates, the landlord still needs to decide who will get the unit. The literature says it will generally go to richer people and people the landlord feels will be “good tenants”. In essence, vacated units will go to richer people and smaller households.
From a housing perspective it’s the smaller households that cause the main issue in the short term. When people can’t double up there literally is no place for them to go. This will hit lower income and disadvantaged people the most, and the effects come in very fast, within a year or two.
More
Housing in Vancouver is scarce and therefore expensive: with vacancy rates near zero, prices and rents have to rise to unbearable levels to force people to leave. Conversely, when vacancies are high, rents fall even in expensive cities:
Shane Phillips discusses the costs and benefits of rent control in The Affordable City, including this paper by Diamond, McQuade, and Qian. In the end he favours rent control (which is unusual among economists). On Twitter: “I support well-designed rent control laws, but I also agree with the aphorism, ‘the best rent control is housing abundance.’ One big reason is it aligns incentives: Landlords with long-term rent-controlled tenants want them to leave; when housing is abundant, landlords want tenants to stay.”
First United eviction survey. A majority of evictions appear to be for landlord’s personal use; a Reddit thread with people’s personal experiences of bad-faith evictions. TRAC provides legal information and advice to renters facing eviction.
Before 2019, the allowable annual rent increase was inflation plus 2%. In 2019 the BC NDP government changed it to inflation plus zero, with landlords able to apply for rent increases based on capital spending. (To me it seems like a mistake to tighten rent control, and then require the province to micromanage whether capital spending is justified or not.)
When Covid hit, the province froze rents for 2021. For 2022, it allowed a rent increase of 1.5% (well below inflation); for 2023, 2%; for 2024, 3.5%; for 2025, 3%. This kind of explicitly political decision-making seems like a no-win situation for the provincial government: it’s a bad idea to hold rent increases below inflation (ultimately it’s the stream of future rental income that pays for the construction and operation of a new rental building), but when inflation is high, it also seems politically impossible for the provincial government to allow rents to rise by that much.
Organizations pushing for vacancy control include the BC Greens and the BCGEU. The BCGEU published a report by Daniela Aiello purporting to show that vacancy control would be a good policy for BC. As a layperson, my interpretation of the Aiello report is that it's basically wishful thinking by a critical geographer who's skeptical of economics (which she calls "orthodox economics") - her Twitter bio calls for the abolition of property and rent. Mo Amir disagrees.
