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Is it time for rent control?

Might help in short term, but not in long, say analysts

Counting the cost

The Gazette is looking at how residents are dealing with the rising costs of living in St. Albert. If you have a question on why life is so expensive, email [email protected] so it can be answered in a future story.

Homes aren’t cheap in St. Albert, especially if you rent. Average rents for a two-bedroom apartment in the Edmonton region jumped 6.4 per cent last year (eight per cent nationally), while vacancy rates fell to their lowest in almost a decade, reports the Canadian Mortgage and Housing Corporation.

“Inflation has just knocked the teeth out of everything,” says Bob Maskell, a realtor with some 45 years of experience in St. Albert familiar with the rental market, with the cost of groceries, fuel, and rent all up substantially in the last two years.

The average monthly rent (including utilities) for a single family home in St. Albert two or three years ago was about $2,000, Maskell said. Now, it’s about $3,500. Townhouse rents have similarly jumped to about $1,700 a month from around $1,100.

Maskell and the CMHC attribute this rent spike to high demand and low supply of housing. High interest rates mean high construction costs, and more costs for owners to recover through rents. This also discourages new construction, resulting in less supply. Population growth from migration and stable youth employment have also pushed up rental demand.

“There’s no supply, so investor-owners know they can charge more,” Maskell explained.

Rent controls?

Surging rents have led to calls for rent control legislation in Alberta. Bill 205, tabled by NDP MLA Janice Irwin last December, proposes to cap annual rent increases at two per cent until the end of 2025 and to five per cent (or inflation, whichever is lower) for another two years.

Alberta last had these kinds of rent controls in place from 1976 to 1980. B.C., Manitoba, New Brunswick, Ontario, P.E.I., and Quebec, as have many U.S. states.

Speaking in the legislature, Irwin argued that such controls were needed to address skyrocketing rents and homelessness.

“I’m not telling any of you that rent caps will solve the housing crisis. They won’t, but they are one thing we can do right now to take action, a tangible measure that will help countless Albertans in the immediate.”

In response, Alberta Seniors, Community and Social Services Minister Jason Nixon denounced rent controls, citing studies that found they reduced supply, discouraged maintenance, and drove up future rental rates.

Short-term solution

Rent control’s record is mixed, empirical evidence shows, with studies showing they have negligible to negative effects on affordability in the long term.

A 2020 CMHC study on rent control in Canada found that rent control did not appear to have any conclusive effects on rents or rental supply over several decades, for example.

A study on Alberta’s 1976-1980 rent controls found that they kept rent increases below the national average, but led to higher-than-average increases once controls were removed. The impact of those increases was softened by the province’s decision to gradually phase out rent controls, while the short-term nature of the rent controls counteracted any negative effects on housing starts.

A 2019 study by economist Rebecca Diamond of San Francisco found that rent controls let renters stay in their homes longer but caused rental housing supplies to drop 15 per cent as investors sold renter units to their occupants. This likely led to a roughly five per cent citywide increase in rents later that cost renters about $2.9 billion — roughly the same amount saved by those in rent-controlled units.

A 2015 study co-authored by economist John Gilderbloom (one of the world’s most prolific authors on rent controls) found that rent controls had basically no effect on rental rates, maintenance, property values, or housing construction in New Jersey over 40 years.

In the long term, rent control probably reduces rental supply while also making rents more affordable for those in rent-controlled units and less affordable for everyone else, said UBC finance professor Jack Favilukis in an email. But if your concern is a short-term spike in rents, short-term rent controls could help.

“Generally, I don’t think rent control is the best policy,” Favilukis said, although it can be better than doing nothing.

Favilukis said cities would be better off making it as easy as possible to build new homes, as more supply will reduce rents. Cities could also subsidize low-income tenants to offset high rates.

Maskell said governments need to get more housing built long term to bring rents down to earth. The federal government’s decision to remove the GST from new purpose-built rental housing should help, as would an interest rate cut.

“If interest rates would drop one or two points, you would see a huge [construction] boom,” he said.

Kevin Ma

About the Author: Kevin Ma

Kevin Ma joined the St. Albert Gazette in 2006. He writes about Sturgeon County, education, the environment, agriculture, science and aboriginal affairs. He also contributes features, photographs and video.
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