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Rent controls cause rental unit shortage
Nov 05, 2010
WinnipegREALTORS® will be releasing a major report on the impact of rental issues on the local housing market before year-end.  
Rental housing has become a more pressing concern due to the success of the Manitoba Provincial Nominee Program. Record numbers of new immigrants are arriving in Manitoba requiring rental accommodations, but such units are in short supply.
The lastest Statistics Canada survey showed Winnipeg’s apartment vacancy rate was only one per cent, Steinbach’s 1.2 per cent and Brandon’s was only 0.2 per cent. With these extremely tight rental markets, where are these new immigrants going to live?  What about employers trying to attract new recruits? Is there enough movement from the rental market into homeownership to free up scarce rental units? 
These are just some of the questions WinnipegREALTORS® will try to address in its upcoming rental housing report. 
The last report by organized real estate was in 2004, which was prepared by the political action committee of the Manitoba Real Estate Association. The 2004 report is cited below.  Changes to note in the last six years are the rent control price level has risen from $975 to $1,120, the moratorium on rent controls for new construction in 2005 went to 20 years and vacancy decontrol is possible for rental properties of three units or less. But what was said in 2004 still applies to today’s rental housing market.
Rental shortage
Urban centres throughout Manitoba are experiencing a difficult shortage of affordable housing. Families on fixed or low incomes are faced with decrepit housing stock in the price range they can afford. The Manitoba Real Estate Association believes the situation has been created through three decades of rent controls in Manitoba and that it is time to review the rent control system. MREA’s solution is to allow a window of opportunity in which voluntarily vacated rental units are allowed to float to market rates and then be re-controlled when re-occupied.
While a review of rent controls politically is a hot potato, ensuring decent housing for the very people controls were meant to protect is a far more pressing concern. Many rental units have been taken out of the market through conversion to more profitable condominiums or have suffered neglect and have become uninhabitable. The deferred maintenance on an aging housing stock means that overall conditions are deteriorating. The present tight supply situation restricts choice for the low-income segments of the population, keeping them locked into poor condition housing.
Economic agendas are affected by a low rental supply. Positive immigration trends are hampered because there is nowhere for these individuals to live. Companies trying to expand are hindered in bringing in qualified management or a workforce. Downtown renewal is a key objective that is not moving forward as quickly as it might because rejuvenation requires people and people need somewhere to live.
Any relief in the rental market is going to come through increases in supply. New construction is expensive and risky when controlled units offer similar accommodation at lower rates. 
The 15-year (now 20-year) moratorium on controls for new units gives investors an opportunity to cover costs but not on a long-term basis when the competing market averages of older buildings are much lower. The exemption on units priced over $975 (now $1,120) likewise is only an issue in upper-income circles. This does not assist anyone in need of affordable housing.
Letting existing units float to market will provide a stronger economic support for new construction. Current favourable interest rates offer an opportunity to finance new construction and produce units with less risk than at any other time since controls have been instituted. Yet, new construction remains at a minimal level. The underlying price support from the existing market needs to be in place before new construction will get started at the required rate.
Some may argue that rent increase applications above the one-per-cent guideline are being approved and that the system is working as it should. However, the buildings receiving the improvements are not in the 
affordable category. Even if they were in that category prior to the upgrade, they often are not after. 
Landlords are letting the low-end properties run down because the supply is so tight they are not forced to upgrade. Quality of life is dropping for those forced by their income level to remain in those properties.
Capital expenditures whether in new construction or renovations, will improve the quality of the rental stock but will not make it cheaper to rent. An increase in supply will produce the competitive situation needed to initiate physical improvements in rental buildings. Increasing the rental supply will improve the situation for the bulk of tenants. Providing affordable housing units will still require subsidization from the public purse. Renovation grants or partnership programs aimed at supporting low-income families has to be part of the housing agenda. Collaborative efforts between private and public sectors will be the means to improving the quality of life in affordable housing. 
Reviewing rent controls and allowing rental rates to float to a market level will encourage increases in supply and thereby improve housing overall.