B.C.’s real estate ‘speculation tax’ will reserve homes for the ultra rich

B.C.’s real estate ‘speculation tax’ will reserve homes for the ultra rich
17/03/2018 , by , in INTERNATIONAL

If Canadians want a case study on how governments make a problem worse, cast an eye at British Columbia and housing. The provincial government, both under the previous Liberals and now the NDP, have continually kept or enacted policy, such as rent control and now a speculation tax, that exacerbates a tight rental market and high real estate prices.

Supply problems and slum promotion: The problem of rent control

British Columbia has long had rent control. That policy always discourages the construction of rental units as it limits the return on investment, which, in turn, squeezes supply, even condominiums bought by potential individual landlords. Such controls also produce slums as landlords have little incentive to fix up or improve units beyond the bare legal minimum. This ultimately harms renters by producing artificial shortages and a degraded housing stock.

In addition to that problem, while rent control acts to limit price increases on the upside, it also has an anti-market effect that prevents prices from falling dramatically on the downside.  Consider Alberta, where rental prices have come down since the 2014 oil price crash, and relative bargains can be had. The price drops would be more modest if rental prices had been controlled.

Consider that this position—rent control is negative—is taken even by economists who would not categorize themselves as “free market” but warn about its horrific effects on the housing market. Nobel Prize winner Gunnar Myrdal, active and instrumental in left-wing political parties in Sweden in the twentieth century, often pointed out rent control was counter-productive policy. Another left-wing Swedish economist Assar Lindbeck concurred. Lindbeck once famously said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing it.”

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