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By Murtaza Haider and Stephen Moranis

Tight election races often give rise to questionable economic policies. In the fiercely contested U.S. presidential election, the Democrats have addressed housing concerns in key swing states by promising to improve housing affordability. However, some of their proposals, such as rent caps, risk exacerbating the very problem they aim to solve.

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As in Canada, housing prices and rents in the United States have outpaced income growth. Another notable similarity between the two countries is the severe lack of housing supply, with some U.S. estimates indicating a shortfall of three million homes. Kamala Harris, the Democratic presidential nominee, has unveilled a buffet of interventions as part of her housing plan, with some focused on accelerating supply and others on curbing prices and rents.

The housing strategies on both sides of the 49th parallel appear remarkably similar. Cash benefits and tax credits for first-time homebuyers, tax incentives for builders to construct affordable housing, and the provision of federal surplus land for residential development are just a few examples of the nearly identical incentives deployed in the U.S. and Canada to tackle housing affordability.

Harris’s plan also includes capping rent increases at five per cent, a concept she adopted from President Joe Biden during his re-election campaign. Despite a wealth of empirical evidence showing that rent controls often fail and can even exacerbate affordability issues for those not living in rent-controlled units, such measures frequently resurface during closely contested races. The plan targets large landlords who own more than 50 residential dwellings.

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The Biden proposal for rent caps required congressional approval, and experts believe it is unlikely to pass through Congress. However, even if it doesn’t, the plan’s mere introduction signals the government’s intent, suggesting that such measures could eventually be implemented in politically favourable circumstances.

Rent caps have resonated with Harris since at least 2019. As reported by Vox, Harris tweeted her support for Oregon after the state enacted a statewide rent control measure. As a Senator, she also backed legislation that promised tax relief for households burdened by excessive shelter costs.

Housing affordability has been a growing concern for many Americans. According to the Pew Research Center, by 2021, half of Americans cited housing as a significant problem, a 10 percentage point increase from just three years earlier. Young Americans are particularly affected, with 70 per cent believing that younger generations face greater challenges in buying a home than their parents. Unsurprisingly, housing is becoming a prominent issue in the presidential elections.

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The severity of housing challenges demands a thoughtful and effective policy response that provides immediate relief and sustainable long-term solutions. Yet, in politically charged environments, public policy often falls prey to political expediency, resulting in implementing measures that may be more popular than practical — rent control being one such intervention.

The evidence against rent control is extensive and well-documented. In August, Konstantin A. Kholodilin, a senior researcher at the German Institute for Economic Research, published what he described as the “most comprehensive review of the rent control literature encompassing the period between 1967 and 2024.”

Kholodilin examined 206 studies on the subject, and his review found that while rent control can benefit those already living in rent-regulated units, it often leads to a range of unintended consequences. These include stifling new housing supply, reducing labour mobility, and pushing up rents in unregulated markets, ultimately making the housing crisis worse rather than better.

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Canada is experiencing a heated political climate as Pierre Poilievre, leader of the opposition, pushes government coalition partners to break ranks, potentially setting the stage for a federal election. In the event a writ is dropped, populist measures could quickly emerge.

Recently, the Liberal government in Ottawa unveiled a plan to sell or lease 56 federally owned properties to developers for constructing affordable housing. While increasing the supply of affordable housing is a well-supported strategy, evidence shows that it is only part of the solution. Reducing exorbitant municipal development charges and speeding up sluggish approval timelines would significantly boost the construction of homes that Canadians can afford.

Canada’s housing policy must be driven by evidence and sound research. It must also be committed to providing safe, secure, and affordable shelter for those currently priced out of the market. This means governments need to invest more in non-market, social housing.

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However, introducing rent controls in the private market shifts the burden from governments to private enterprises. History shows that such policies offer limited benefits and tend to create more problems over the long term. As Canada heads to the polls in the coming year, Canadians should keep an eye out for dubious policy proposals.

Murtaza Haider is the associate dean of graduate programs and the director of Urban Analytics Institute at the Ted Rogers School of Management, Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.

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