Rent controls: a help or a hinder?
February 28, 2008 | 01:00 AM
Cyril Cook
As some of the parties call for rent controls I thought I would tell a story about a middle-aged couple I know.
Only last year they purchased a condo as an investment vehicle to rent out. With the housing markets chugging along nicely it was a solid plan, but of course like any plan it will inevitably have some pitfalls.
After a prolonged search for a suitable condo, one was found that needed some repairs to the bathroom and of course a new coat of paint to give it a little facelift. Finding a renter was relatively painless, what with the province wide housing crunch. There were, however, lots of added responsibilities in looking after the renter’s problems, like changing the locks because the ex-boyfriend didn’t give back the key for the place, or fixing the dripping water taps. Normal stuff one would expect.
Not unexpected, but aggravating nonetheless, are the consistently late rental payments that end up putting needless financial strain on their own lives. After all, there is still a mortgage that is due whether they get paid or not.
Having rent controls would damage the little extra income this endeavour provides them, and would likely leave this couple little choice but to sell the condo and all the hassles that go along with it. This would eliminate another rental property from the market. Multiply that by several hundreds or thousands of people in a similar situation and in the end you would have an even worse rental crunch.
Comments: (5)
From Dennis' post above:
"...no one has built an apartment building in this City for over 20 years. You can thank BC's rent controls for that.."
A majority of the new construction happening in Alberta over the past few years has been condos for sale and not apartments for rent. This is one of the major problems and it has nothing to do with rent controls... Exactly as you say; As a business person what would you rather do with your money? Build an apartment and wait for it to pay it's self off over the next 20 or so years (while you deal with tenants) ..... OR ..... build the same thing, sell the units and make all your money in the first year (without ever having to fix a leaky faucet)?
The truth is that there is very little reason for someone to invest money in building rental accommodations - rent controls or not. It has to do with R.O.I. ... Return On Investment. The reason no one has built apartments in B.C. in 20 years is because the ROI takes too long.
Secondary suites are a good idea in some places. It of course provides rental property but it also provides a source of income for people who might not otherwise be able to afford their own home.
Posted March 3, 2008 03:36 PM
Dennis, if the fact Kamloops has not had rental properties built in 20 years is because of the provinces rent controls, how do you explain Calgary. When I moved last year, there had not been a multi-dwelling rental building built in almost the 20 years. With out rent controls to blame.
Posted March 3, 2008 10:42 AM
Rent controls would not affect people that are charging reasonable rents that reflect their expenses (which your friends sound like they are doing). Who it would affect are the corporations/people who jacked up their rents by hundreds of dollars with no corresponding increase in their expenses. Here in Edmonton some people's rent was increased over $500 in one month. The government's response was to have the taxpayers of Alberta support these opportunistic landlords.
Being a landlord is not for everyone. If there is such a demand for rental property
perhaps your friends could find a more reliable tenant, or they might consider a "rent to own" plan if they want to get out of the landlord business.
Posted March 1, 2008 10:30 AM
If you want to reduce the current stock of rental housing, I can't think of a better way than rent controls. Once you put that artificial cap on rents, it removes the incentive for more people to build rental accommodation. That's what we're seeing here in Kamloops - housing prices went up 75% from 2004-2007, and as a result a lot of people who owned rental properties sold them because they couldn't raise their rents high enough in comparison to property values. When you can make as much or more money by selling your rental house and putting the money in a GIC, why deal with crappy tenants and leaky faucets? And I'll bet most of the purchasers were buying to live in those houses, so the tenants had to move. In Kamloops we have a crisis of low vacancy rates. With the exception of the University, no one has built an apartment building in this City for over 20 years. You can thank BC's rent controls for that.
Tax treatment of rental income is also a concern. If you are a company that develops multi-unit buildings to sell as condos, the profits from the sale of those condos are considered active business income and are taxed at 34% (Federal and BC taxes combined). If you decide to keep the building and rent the units out, rental income is considered investment income and is taxed at 47%, unless you have enough properties to keep six full-time employees on your payroll to look after the buildings, in which case it is considered active income. Why would anyone build to rent under these circumstances?
One solution we're considering to increase the rental stock in Kamloops is to allow more secondary suites in houses - that might be the only way out.
Posted March 1, 2008 06:09 AM
What does this story have to do with rent controls? This couple has a bad tenant, and should evict her or not renew her lease and get someone else. Rent controls would not effect this couple unless they tried to jack the rent. Mine went from 680$ for a small one bedroom with no balcony to 925$ in one year. Thats where rent controls come in. A tenant who doesnt pay on time has nothing to do with it.
Posted February 29, 2008 07:39 PM