Water Runs Downhill: Toronto Edition

Globe and Mail: More than 1,000 planned purpose-built rental units have instead been converted to condominiums in the Greater Toronto Area since Premier Kathleen Wynne’s government expanded rent control in the spring, according to a new report that warns the region’s rental supply crisis is poised to worsen.

And given how rent control can destroy cities this is a foreboding sign:

The report also warns that 85 per cent of the province’s existing stock of purpose-built rental buildings are more than 35 years old and will require higher levels of investment to maintain.

Comments

I would be happy to see rent control struck down on a national scale, by the Supreme Court or something.

Relatedly, I did not have the heart to criticize these poor guys, but it is just sad. What do they think a high vacancy rate does to rents?

https://twitter.com/LACANetwork/status/911270658839011328

Don't worry about these guys. All pre-printed signs. These guys don't care about a new building. Someone else printed the signs and are paying these guys $8/hr to hold them.

Or one of them borrowed an A3 laser printer and made some signs for the rest. Or they went to a random copy shop. Probably costs less than buying crayons or whatever you're supposed to use to prove you're a real protester.

I hope rent control isn't struck down by the SC. It's quite a stretch of the takings clause to suggest it's a unconstitutional.

Federal pre-emption of local regulation leaves a poor taste in my mouth. Even states doing it for local communities seems questionable.

It’s quite a stretch of the takings clause to suggest it’s a unconstitutional.

The physical entry is palpable, the compensation is wholly inadequate, and the foundational justification expired some time around 1947. Good deal less of a 'stretch' than Roe v. Wade, Obergefell, Wickard v. Filburn, among other 'landmark' decisions.

I think in general the USA should honor "the deal you bought into." Changing the deal (legislatively) after the fact is wrong, and usually is a taking from someone.

A new rent control on old apartments is bad in that way. "Greenfield" rent control would be different, but as above you might see more condos as a result.

It might be the one defense of Prop 13 style legislation, that it honors the original deal, a tax based on the price you paid. An inflation adjustment might be reasonable, but not taxes based on hypothetical future sales.

Taxing granny at a price to make her move might stimulate more efficient land use, but shouldn't price, and her choice to take it or not, matter more?

California could get the best of both by letting taxes above the inflation-adjusted value accrue to a tax lien against the property, that the state cannot foreclose on for the lifetime of the homeowner(s).
The homeowner can stay to the end of their days if they choose, though if only inflation-adjusted taxes are paid, the state may end up owning the property at the end of those days.

First, let's strike down property zoning.

Why? There are externalities incorporated into land uses.

"Coming to the nuisance" as a legal idea is one solution to that problem.

https://dictionary.thelaw.com/coming-to-the-nuisance/

We should allow much more density, but keeping lead smelters from residential neighborhoods might be a good idea.

There are more reasons a less smelter would avoid residential areas than the other way around.

Where would you get your cooling water from? What about industrial level electricity connections? Nearness to contractors certified to work in a plant? Proximity to inputs and rail infrastructure? There is a reason chemical plants cluster together, this type of infrastructure isn't everywhere. And it's especially not in a residential neighborhood. That's before we even get liability incurred. Typically it is the other way around, people build near the plant to get land cheap.

+1, standard theory on why residential cul-de-sacs don't have gasoline stations in un-zoning law Houston. There's also a legal doctrine called "coming to the nuisance" that says a new homeowner cannot sue for the stench associated with a land fill if they buy next to the landfill, as they had ample notice prior to buying of how the neighborhood is. Sadly, I think this excellent legal doctrine is dying out.

Sometime the toxic waste comes to you.

http://articles.latimes.com/1991-05-24/news/mn-2185_1_hazardous-waste-incinerator

airbnb is decimating the supply of long-term rental housing. Is that an example of the "dynamic tech sector"?

I'd be interested in where you got that idea. I have no clue whether you are right or not, but I can't see how airbnb would encroach much on rentals.

You can't see how some landlords would prefer to rent out properties to short-term AirBnbers paying high daily or weekly rates, rather than make less money by renting their properties to long-term residents?

AirBnb can't conjure visitors out of nowhere. If people are staying at AirBnb, that means they're not staying at hotels, executive suites or short-term rentals. That's empty square footage that has to leave the short-term market, and re-enter the long-term market.

How do hotel rooms/executive suites 'enter the long term market'? Airbnb turns long term apartments into short term hotel suites. Hotel rooms can't sub in for a family that wants a permanent apartment to rent.

"Hotel rooms can’t sub in for a family that wants a permanent apartment to rent."

Uhh. It's not uncommon to buy hotel rooms as condos as foreign vacation property. No reason that an empty hotel couldn't condo off a floor or two (except zoning).

Actually that's pretty uncommon for a young couple or family to rent a room in a hotel as their primary living quarters. I'm not saying I oppose AirBnB but it's silly to say landlords repurposing perfectly good apartments as hotel rooms doesn't reduce the supply of apartments in the medium term. In the long term sure, the hotels get converted to apartment buildings. But then, do the new owners rent those apartments out long term, or just AirBnB those?

I suppose eventually there will be a market adjustment, if too many AirBnB rooms become available their price will drop and renting longer term will be attractive again.

"but it’s silly to say landlords repurposing perfectly good apartments as hotel rooms doesn’t reduce the supply of apartments in the medium term. "

Certainly true, but how many apartment managers or landlords want to get into a business of weekly cleaning, furnishing the apt, complete with dishes and silverware? Some will, but I'd guess a pretty small percentage.

James Carr - Renting out for a week is significantly different than a year long lease. It is much more a substitute for hotels than rental property.

I am in Ontario - I have a part of my house that is separate and is rented out. We have been renting to the same couple for 2+ years now. If they leave I would certainly consider AirBnB because then I could choose to rent it for only a portion of the year and keep it for myself in those periods when I have relatives visiting, I want the extra space, etc. It would be one less long-term rental on the market and likely I would have to clean it more but at the same time I would still be able to earn the $1000/mth I currently get with AirBnB'ing it for 8-10 days per month.

This is only the case in markets where there are severe housing restrictions. Lots of people use AirBnB in OKC but no one is complaining except for the hotels and local gov. for not getting it's tax dollars

It is amazing to me the number of people who simultaneously believe that AirBNB is hurting housing while also failing to realize that the same logic which leads to that also leads to the insight that building a lot more fixes the problem.

"And given how rent control can destroy cities this is a foreboding sign
The report also warns that 85 per cent of the province’s existing stock of purpose-built rental buildings are more than 35 years old and will require higher levels of investment to maintain."

Ontario has had rent control for a very long time. All buildings built before 1992 had capped rate increases. 25 years later, they appear to be fine.

At what rate where purpose built rental units converted to condos prior to this new regulation?

I am not a fan of rent control, but this seems like very scant/bad data on which to base a conclusion. I would expect better from an economist.

And what is so bad about owning productive capital assets?

I thought economist wanted government policies to drive increased individual investment by more workers.

Remember: rent control=bad
Property zoning and resulting skyhigh rents=not a topic

Wut? http://marginalrevolution.com/marginalrevolution/2016/04/regulatory-arbitrage-deal-of-the-year.html

Not everyone lives in Palo Alto or Malibu, so, generally not a topic.

So, my not letting you build on my land is bad economic policy?

If I were to buy the lots on each side of your home and build tall fences to open up a junk yard, you would cheer and go to the zoning board with me demanding changes to zoning? OK, if I was building a mall?

Examples of people exercising property rights are Edith Macefield and Vera Coking. We're they evil? Trump seems to have thought Vera was, trying to force her to sell below market value using government power. Evil unelected judges blocked him. Was Vera the reason Trump went bankrupt?

She's a progressive. Businesses are entities that are just there to be looted for your clientele.

Was pretty frustrating to see this response to economy lifting seemingly structural "overinvestment" into housing in TO and Vancouver when I think they could have highly incentivised rental use for second properties and overseas buyers. I've heard someone in Van sold their house to a Chinese buyer and now rents it from them, and none of the checks have ever been cashed.

In related news, the Federal Canadian Liberal government is proposing to increase taxation on private corporations that invest in "passive investments" - like apartment buildings.

In British Columbia there is a general limit on rent increases equal to inflation plus 2% per year. Our new provincial housing minister was on the radio and said she did not understand the formula or where it came from. ¯\_(ツ)_/¯

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