High rents are a common topic in Canadian media; hardly a week goes by without news stories about fast-rising rents and financially struggling tenants. There is also continued media coverage of government announcements and political promises related to housing affordability. Most of these stories fail to discuss the obvious response to high rents: effective rent control.
In recent years, high inflation has become another much-debated topic. In the mid-1970s, the federal government’s anti-inflation measures included pressuring provinces to enact rent controls to slow the escalating cost of living.1 Yet today, there’s little to no discussion about rent controls.
That we talk so much about skyrocketing rents and so little about rent control should be cause for surprise. But this problem is not unique to Canada. The rent-control debate is largely absent in countries where rent increases are outpacing inflation, like the United States, Australia, and the United Kingdom.2
This consistent disregard is so puzzling that academic research is now looking at the deliberate production of ignorance about rent controls. Urban geographer Tom Slater of Columbia University stated: “The hegemonic view—that rent controls anywhere are always harmful, even to those they are introduced to protect—offers a fascinating yet disturbing example of the triumph of ideology and propaganda over evidence.”3
Common claims against rent control
The most common claims against rent control can be grouped into three categories: 1. abstract economic arguments; 2. claims based on out-of-date research; and 3. fear mongering from the real estate industry. We explain each in turn and provide direct responses to them.
1. Abstract economic argument: Rent controls distort markets, and that’s always bad
Many of today’s economists were trained to believe price controls of any kind are always bad because they “distort” markets. To these economists, markets are always good—they are a powerful force that balances the good and the bad and achieves equilibrium. Even without having ever studied rent control, many economists will argue that rent control suppresses supply because investors have fewer incentives to build rental units, and fewer units in the market will hurt tenants—the very people rent control aims to protect.
Response: The problem with this argument is that it grossly simplifies the many economic factors that influence investment decisions. Even with rent control, real estate investments remain profitable as demand for housing is constantly growing. Governments often sweeten the deal for developers with financial and tax incentives. In many cases, land speculation makes real estate investments immensely profitable, even before a shovel touches the ground. Interest rate policies also have a direct impact on the decision to invest in housing or anything else. Finally, it’s important to note that second-generation rent controls don’t limit initial rents; landlords set whatever price they deem necessary to make a profit.
2. Claims based on old research: In the past, rent control made the situation worse
Some claims against rent control are based on the analysis of rent freezes. It is true that studies of rent freezes implemented during and between the world wars found negative impacts on the quantity and quality of housing available for rent. Some studies found a negative correlation between rent freezes and rental construction. In some cases, small landlords decided to take their units off the market.4
Response: This is comparing apples and oranges. Today’s rent controls are not rent freezes, and the current economic context is very different. Back then, governments enacted rent freezes as emergency measures; nobody knew how long freezes would be in place or whether they would be enacted again after being lifted. Uncertainty has a negative impact on investment. Back then, governments were focused on the war, and housing received little attention until the war ended.
Nowadays, developers count on many financial and tax incentives to build housing. Today’s rent controls allow rents to keep pace with inflation and, in some provinces, rent control rules rarely change, creating predictability in the rental sector. Rent freezes, if implemented, would likely be for a set time period and in an economic context where governments provide incentives for new construction. Using findings about a different regulatory regime implemented in extraordinary times to criticize today’s rent control is disingenuous.
3. Fear mongering from the real estate industry: Rent control kills housing supply
The real estate industry wants the sky to be the limit when it comes to profit. If an opportunity to hike up rents presents itself, landlords want to be able to take it. Key opportunities in this sector include housing shortages, gentrification, and forced migration flows (due to pandemics, natural disasters, cliimate change, and wars). If workers win a battle for wage increases or social assistance rates go up, many landlords will also want a piece of that. Rent regulation prevents price gouging; for that reason, the real estate industry will always hate rent control.
The most common charge the industry makes against rent control is that it will kill supply. This is not an argument so much as a threat.
In today’s housing debate, the dominant explanation for fast-rising rents and house prices is that we lack housing. If we build more housing, the argument goes, our problems will go away. This view is flawed in several ways, but is by far the dominant view in Canada.5 In this context, the industry’s threat that it may not build as much housing if rent control is strengthened is powerful. It also makes it harder for politicians to defend controls for fear that they will be accused of standing in the way of the construction of housing.
Response: In any space where rent control is being debated, real estate industry reps have one job to do: kill the conversation. They are paid to defend the interests of developers and landlords, and they will say whatever it takes to make the conversation go away. They will cite simplistic economic explanations and outdated research, sound confident, and even mock people for not understanding the basics of economics. It’s all hot air. Anyone debating these folks should (i) name their obvious conflict of interest, and (ii) point to the actual evidence.
The actual evidence
While abstract arguments and rants against rent control are easily found on the internet, serious studies based on rigorous empirical analysis are less common and harder to find. Here are the most recent and relevant analyses of real-world data:
National-scale analyses
In 2020, the Canada Mortgage and Housing Corporation (CMHC)—the government body with the best housing data—carefully analyzed the impact of rental controls on construction, which researchers call “rent starts.” The study compared cities with and without rent controls. Since the CMHC has a wealth of data, it used a time series going all the way back to 1971— almost 50 years of data. The key finding of this study: “There was no significant evidence that rental starts were lower in rent control markets than in no rent control markets.”6
This analysis corroborated the findings of a national-level study the CMHC commissioned in 1994. The authors of the study— five economics professors— described it as “the first attempt to apply econometric techniques…to test hypotheses dealing with the effects of rent controls” in Canada. One of seven tested hypotheses looked at whether rent controls make rent starts less responsive to market conditions. The study found this was not the case: “The responsiveness of rental-unit housing starts to levels of vacancy rates and rents is unaffected by [rent] regulations.”7
Against the second most common charge against rent control—that it leads to disrepair— the study found: “There is no evidence that rent controls increase the proportion of occupied rental dwellings that are in need of major repairs.”8
Provincially focused analyses
In 2011, the Government of Manitoba commissioned economics professor Hugh Grant to examine the province’s rent regulation. In his report, Grant explained: “Well-worn myths about rent regulations—that they reduce the quantity and quality of rental accommodation—derive from a simple textbook model of ‘rent controls’ applied to first-generation programs that existed in the 1950s.” Instead, Grant argued for empirical analysis of present-day policies. His own empirical work found that, “There is no evidence that Manitoba’s rent regulation program has a negative impact on the supply of rental accommodation.”9
In 2001, the Société d’habitation du Québec published a study comparing Quebec’s rent regulations to those of other provinces between 1950 and 2000. The study concluded that Quebec managed to achieve its goal of providing quality rental housing at fair prices while minimizing potential negative effects. Despite having relatively stronger and more stable rent control than Ontario and British Columbia, “Quebec’s rental housing stock has been better at keeping pace with potential market growth than in the other two provinces.”10 In the examined period, the vacancy rate in Montreal was consistently higher than in Toronto and Vancouver and often above three per cent, which housing analysts consider a healthy rate.
In 1982, another CMHC-commissioned study looked at Alberta’s short-lived rent control (1977-80). The study presented one conclusion and one abstract argument. The data showed: “New housing starts do not appear to have slowed due to rent control by itself.”11 The abstract argument was that “when rent controls are in effect for a long period of time, the effects on the residential rental market are usually negative.”12 The evidence gathered since this study was published supports the data-based conclusion—not the abstract argument.
In 2018, the Federation of Metro Tenants’ Associations (FMTA) produced a report on rent control in Ontario, which opens with a clever observation:
During the 1969-1974 pre-rent control period for which we have data, there were on average 32,704 unassisted rental starts per year, or about 30 per cent of total [housing] production. From 2009 to 2016, a period without any rent controls [on new units], Ontario averaged 5,147 new rental unit starts, or a mere 10 per cent of total supply. If rent controls were the primary factor inhibiting new construction today, then surely we’d expect to see the opposite.13
To explain this puzzle, the author of the study, independent researcher Phillip Mendonça-Vieira, looked into the rise of condominiums and the end of real estate tax shelters. First authorized in 1969, condominiums became the preferred option for developers because most units are sold before construction begins, allowing investors to cash in quickly. In comparison, rental buildings don’t generate revenue until the building is finished and units are rented; the financing costs are higher as a result.
Mendonça-Vieira also explains that changes in the taxation of capital gains in 1972 made rental buildings a less attractive investment, whereas the increase of sale taxes on construction in 1991 made rental less attractive than condos as developers can pass the tax on to buyers but not renters. The study effectively debunked an early, hasty analysis of rent control in Ontario that used little data and many abstract arguments that blame rent control for all the province’s housing woes.14 Mendonça-Vieira demonstrated that other factors impacted rental starts in the province and noted that it is misleading to claim rent control kills supply without considering the effect of these other important policies.
Recent international studies
In 2023, in the United States, 32 economics professors signed a letter to the country’s housing authority requesting that it pay more attention to rent controls. In the letter, the authors compare charges against rent control with debunked arguments against minimum wages. “Similarly to the minimum wage debate, the economics 101 model that predicts rent regulations will have negative effects on the housing sector is being proven wrong by empirical studies that better analyze real world dynamics.” The authors zoom in on the claim about negative impacts on rental starts, clarifying that “There is substantial empirical evidence that rent regulation policies do not limit new construction, nor the overall supply of housing.” 15
In 2023, the International Journal of Housing Policy published a historical analysis that confirmed the crucial distinction between rent freezes and present-day rent controls. Reviewers described the study as “a high-quality econometric analysis” based on a “remarkable data set covering sixteen developed countries over a period of more than a hundred years.”16 It found that security of tenancy and rent price regulation have a negative impact on new construction only “in their strict form of rent freezes.” It also found that “shifting from zero to full control, decreases new construction by six per 100,000 inhabitants, which is a sizeable magnitude when accumulated over several years, but also not a complete construction stopper.”17 The study found no significant correlation between second-generation rent controls and new construction.
Recent rigorous research has examined second-generation rent controls in Canada and abroad and has not found the negative effects that opponents of rent control so confidently claim. Unfortunately, data alone will not silence cheap shots and self-interested arguments against rent controls.
There is surely more than one way to design rent controls to balance benefits and risks, and a thoughtful debate is long due. But people who categorically oppose all rent control policies are ideologically laden, deeply invested, and full of hot air.
