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Despite ample evidence that rent controls often fail, such measures continue to crop up in elections.
Published 03 September 2024 • 4 minutes reading time
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Democratic presidential candidate and U.S. Vice President Kamala Harris speaks during a campaign rally at IBEW Local Union #5 on September 2, 2024 in Pittsburgh, Pennsylvania. Photo by Michael M. Santiago/Getty Images
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By Murtaza Haider and Stephen Moranis
Close election campaigns often lead to questionable economic policies. In the hotly contested US presidential election, Democrats have addressed housing problems in key swing states by promising to create more affordable housing. But some of their proposals, such as rent caps, risk exacerbating the very problem they are trying to solve.
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As in Canada, housing prices and rents in the US have risen more than incomes. Another notable similarity between the two countries is the severe housing shortage. Some US estimates put the shortage at three million homes. Kamala Harris, the Democratic presidential candidate, has unveiled a series of measures as part of her housing plan, some aimed at accelerating supply and others at containing prices and rents.
Housing policies on both sides of the 49th parallel are remarkably similar. Cash grants and tax credits for first-time homebuyers, tax incentives for developers to build affordable housing, and the provision of surplus federal land for housing projects are just a few examples of the nearly identical incentives being implemented in the United States and Canada to address housing affordability.
Harris' plan also includes a 5 percent cap on rent increases, a concept she adopted from President Joe Biden during his re-election campaign. Although there is a wealth of empirical evidence that rent controls often fail and can even exacerbate affordability problems for those who don't live in rent-controlled housing, such measures often resurface during close elections. The plan targets large landlords who own more than 50 units.
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Biden's rent cap proposal requires congressional approval, and experts say it's unlikely to pass. But even if it doesn't, the mere introduction of the plan signals the administration's intent and suggests that such measures could eventually be implemented under politically favorable circumstances.
Rent caps have been an issue for Harris since at least 2019. As Vox reported, Harris tweeted her support for Oregon after the state passed a statewide rent control measure. As a senator, she also sponsored legislation promising tax relief for households burdened by excessive housing costs.
Housing affordability is a growing concern for many Americans. According to the Pew Research Center, in 2021, half of Americans said housing was a significant problem, up 10 percentage points from just three years earlier. Young Americans are particularly affected: 70 percent believe younger generations face greater challenges in purchasing a home than their parents. Not surprisingly, housing is becoming a major issue in the presidential election.
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The severity of housing problems requires a thoughtful and effective policy response that provides immediate relief and sustainable long-term solutions. However, in politically charged environments, public policy often falls victim to political expediency, resulting in the implementation of measures that may be more popular than practical. — One such measure is rent control.
The evidence against rent control is extensive and well-documented. In August, Konstantin A. Kholodilin, a senior researcher at the German Institute for Economic Research, published what he called “the most comprehensive review of the literature on rent control over the period 1967-2024.”
Kholodilin examined 206 studies on the topic and concluded that while rent control can benefit those already living in rent-regulated housing, it often leads to a number of unintended consequences, including suppressing the supply of new housing, reducing labor mobility, and raising rents in unregulated markets, ultimately exacerbating the housing crisis rather than alleviating it.
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The political climate in Canada is heated as opposition leader Pierre Poilievre pushes the government's coalition partners to defect, potentially setting the stage for a federal election. If a mandate is dropped, populist measures could quickly emerge.
Recently, the Liberal government in Ottawa unveiled a plan to sell or lease 56 federally owned parcels of land to developers to create affordable housing. While increasing the supply of affordable housing is a well-supported strategy, evidence suggests it is only part of the solution. Lowering exorbitant municipal development fees and speeding up slow permitting processes would significantly boost the construction of homes that Canadians can afford.
Canada's housing policy must be based on evidence and sound research. It must also commit to providing safe and affordable housing for those who currently cannot afford housing. This means governments must invest more in non-market, social housing.
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However, imposing rent controls on the private market shifts the burden from governments to private companies. History shows that such measures provide limited benefits and tend to cause more problems in the long run. With elections approaching next year, Canadians should be on the lookout for questionable policy proposals.
Murtaza Haider is associate dean of graduate programs and director of the Urban Analytics Institute at the Ted Rogers School of Management at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. You can reach them through the Haider-Moranis Bulletin website: www.hmbulletin.com.
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