My spongee game tonight was cancelled due to melting ice, so I guess I'll blog. Lucky you.
I had bought into the idea that the lack of apartments in Winnipeg are an unintended consequence of rent controls. Artificial restrictions on profitability will prevent people from building units, right? Makes sense to me. If you take away the upside then all you're left with is the risk.
Now the Free Press is telling me I'm wrong. My beliefs have been shattered into a million pieces, like the mold spores on the ceiling of my last apartment. Apparently some guy did some report for the government that say that rents controls have nothing to do with it:
The 39-page study, authored by University of Winnipeg economics professor Hugh Grant, also concludes "there is no evidence" that caps on rent have slowed the pace of new apartment construction or spurred a recent spike in condo conversions. Furthermore, the provincial government-commissioned report says there is no proof rent regulations have "unduly restricted" rent rises in Manitoba.Damn you, Hugh Grant! As if all those boring chick flicks weren't painful enough. Now this!!
What do we know about Hugh? Well, he's an economics prof for the U of W. He has written about immigration, he seems to be a well liked teacher, and much like the other Hugh Grant, he gets a chili pepper for hotness:
That's something, I guess.
But still .. should we believe him? The article says that rent controls came into place permanently in 1982. Our vacancy rate looks like this:
Our vacancy rate actually sky-rocketed after rent controls came in. The problems really seemed to begin around 2000. Conclusion: it's all Doer's fault!! There, that was easy.
Or ... we could look into it a little more ...
One of the things that Hugh concludes is that "the rental shortage is largely due to a rapid increase in demand sparked by an aggressive immigration policy". Okay, let's look at immigration:
Manitoba was still losing people to other provinces (pink line), but there was indeed an increase in immigration (deep thought of the day: why do they call it "immigration" instead of "inmigration?") around 2000. I suppose that when people move out of the province, they are generally moving out of their parents' basements, but when people immigrate in, they generally move into apartments instead of parents' basements. Unfortunately I couldn't find any CANSIM data on parents' basements vacancy rates to confirm.
So it looks like immigration may be the culprit, but maybe we should do some statistical analysis just to make sure. Okay .. let's see if I can remember how to do this. Open the crunch-o-matic number cruncher ... put the data here ... feed the thread around the post ... put the bobbin in the hole ... ah, screw it. Here's another graph:
Looks like a smiley face. See, what happened was that vacancy rates actually dropped in the 1990s as immigration dropped. Maybe there is something else at work. What we do know is that apartment construction dropped off the map in the 90s:
... possibly because they began to realize that more often than not rent increases were not keeping up with inflation:
... and eventually our lack of apartments caught up with us as immigration picked up and now we have a vacancy rate of nothing.
If rent controls weren't a factor, then why would the government implement a 20 year exemption on rent controls to encourage new development? I remain unconvinced that rent controls are not the problem. The exemption should help, but as per usual when government regulations meddle in the functioning of a market, the market gets all fucked up and can't reach equilibrium. Hugh Grant should know something about equilibrium. He's an economics prof.