An economic assessment of rent controls: The Ontario experience

Abstract

Rent controls have existed in Ontario since 1975. Although controls have undergone numerous changes, the basic approach has remained a modified cost-pass-through system with provision for the elimination of financial loss and for a return of new capital expenditures, and, prior to 1986, an exemption for new construction. This paper analyzes the economic consequences of the first twelve years of controls. The major effects have been to reduce rents on pre-1976 units but to increase rents on newly constructed post-1975 units, to reduce new construction, to accelerate deterioration and conversion of the existing rental stock, to generate a severe rental housing shortage, to create an environment for “key money,” to inefficiently and inequitably redistribute income, and to significantly exacerbate government budgetary deficits by reducing tax revenues and inducing increased government housing expenditures.