Saturday, March 26, 2011

The gap between intent and result

Premier Brad Wall and his government released their budget this week and it is widely acknowledged that it will be by far the best provincial budget in the country.  I would go further to say that with Brad Wall as Premier, SK that this will be a long term trend.

However, Dwain Lingenfelter was quick to point out that 'not everyone was happy' or 'not everyone was helped' by this budget.  The main topic that he is flogging these days is rent control.  Apparently everyone in SK is no longer able to afford housing in the province and we need the government to step in and "control" things.  Well, I hate to break this to Mr. Lingenfelter, but there are a lot of people paying upwards of $400k to $500k for new homes in Regina and Saskatoon these days so there are alot people who can afford housing.  He's basically right in his diagnosis, but totally wrong in the conclusion he draws.  He's correct in that I am one of the people who can't afford housing in Regina.  Or rather, refuses to afford housing in Regina.  I refuse to pay 5-6x my gross salary to someone for a shoddily built home in a crime infested city that gets 6-8 months of winter weather per year.  And I maintain that anyone who does or did, is an idiot.  But I'm not about to go whining to the government to help me pay for housing.

To understand better, let's take Dwain at his word and try to imagine what he would do if we the people of Saskatchewan were suddenly and collectively stricken with advanced mental illness and made him Premier:

The first thing he would do is implement rent control.  Dwain's example that he provided was Winnipeg and BC where he speculated (lied) that rent increases are limited to 1% per year.  So he would limit rent increases to between 1-2% he said.  He didn't mention inflation or any other factors that would be taken into account.  I find that really doubtful.  I doubt that if Dwain in complete control of government, he would do nothing.  I think that he would move to immediately start torturing the rental market with rebates and legislated rent decreases and other really destructive, NDP style, bludgeoning of that area of the economy.  And by the way, Dwain is out to lunch about the limits to rent increases in BC.  Rent increase in BC is a complicated matter.  It's so complicated, they have an entire branch of government assigned to deal with it.  If you read, which Dwain didn't do (and neither did his lackeys), you would see that landlords are allowed to increase rent by the rate of inflation plus 2%.  It is interesting to note that in BC the government (a) thought inflation was 0.3% in 2010 and (b) uses inflation rates from 2009/2010 to set rent prices in 2011.  Now all that pertains to a "residential tenancy" and not a "manufactured home park."  For a manufactured home park... please stay with me here and trust that I am not going to belabour this point too much more, the landlord can raise interest rates by 2%, plus the rate of inflation, plus "a proportional amount".  Now, a proportional amount is defined in a 7 page pdf worksheet that only the owner of a manufactured home park would understand.  So all I know is that those rents could be increased more than 2.3%.  Also, a landlord can do pretty much whatever they want anyway, if (a) tenants don't participate in the insanely complex process to file a complaint or (b) the landlord does following the insanely complex process to file for approval of the increase.  And by the way, any disputes between landlord and tenants will end with an "officer" of the tenancy branch visiting whichever side didn't fill out their insanely complex application correctly.

But you get my point.  If the new government in BC wanted to exit the rent control business, they would probably have to fire 10,000 public employees.  Just the thought of my government creating a large new bureaucracy and getting into the business of setting prices for rent, to borrow a phrase from mayor Pat, makes me sick to my stomach.

So we have proven that Dwain fibbed a bit about BC, so what about MB?  Well, it turns out he wasn't being truthful when he said 1%.  Maybe Dwain just truncated the decimal places off to simplify things.  In reality, the latest edict from the Rental Tenancy Branch in MB is that landlords can increase their rent by 1.5% in 2011 (note, this increase amount, like in BC, is figured with data from 2009/2010).

Oh, hold on a second, you didn't think that was it did you?  Exemptions people!  Landlords can increase rent by as much as they want if they have an exemption!  One such exemption is if the rental suite rents for more than $1120.  Get that?  If your rent is set high enough, you get exemption from rent control!  It doesn't seem logical to me, but I am not as good as Dwain Lingenfelter at suspending reality for long enough to convince myself of these things.  If your building is a part of a "rehabilitation scheme."  I can imagine how many "rehabilitation schemes" suddenly sprang up when that exemption was put into place.  And how many cases of rare scotch flowed into the province!  Newer buildings are also exempt (so the owners have 15 years or so to ensure that their rents are all above the exemption threshold to avoid the rent control.

So what is the point, the real point, behind rent control?  Control.  That's it.  People like Dwain Lingenfelter are not happy unless there is a government bureaucracy involved in every aspect of your life.  I know for a fact that Mr. Lingenfelter doesn't care about the effectiveness of rent control.   The reason I know is because he would neither put in place the metrics to measure its effectiveness nor scrap rent control when it was proven to be a complete failure.

This is what Thomas Sowell refers to when he talks of the vast gap between the intent of public policy and the actual result.  If it were proven beyond a shadow of a doubt that rent control was ineffective and that a newly implemented rent control scheme had failed, Dwain Lingenfelter would still do it.  I'm going to go one step further than Mr. Sowell and say that liberals today don't care about the actual results of their policies and also don't care about the perceived intent.  Their only concern is with government intervention and control.  That is their goal.

I could go into the myriad of reasons why rent control doesn't work, but you can't get a better explanation than what is written here by Thomas Sowell.  It has to do with the fundamental economic principle of prices.  Prices are the primary source of information for a free market.  Taking away price from a market and expecting it to operate properly is akin to removing the gasoline from a car and expecting it to run.  But people like Dwain Lingenfelter insist on taking control over prices (removing them as a signal from a marketplace).

I have some advice for people in Saskatchewan who feel that the government needs to save them from the high cost of housing.  If you are having trouble finding an apartment you can afford, get a roommate.  Instantly, you cut your cost of housing in half.  And if you are popping out children AND can't afford housing, then you need to think hard on some advice my Grandmother gave me when she was alive:  'If you find yourself standing in a hole up to your neck, stop digging.'