One of the basic principles behind rent control policies is that you're trying to make housing more affordable for some, while at the same time more expensive for others. Economics is the study of choice, and this is a choice, whether it gets talked about or not. Previously, we spoke about a memo from Howard Marks where he describes the impact of rent control in New York City. In economic terms, that impact looks like this:

• Some people who couldn't afford to live in New York City if rents were set by the free market get the opportunity to live in the city (their housing is more affordable)

• Other people who would like to live in New York City and could afford higher rents can't because there are no available apartments (rent controls reduce housing supply)

• And lastly, landlords with unregulated apartments can command higher rents than would be the case if new housing supply were not being discouraged (their housing is more expensive)

Today, let's talk about a recent research paper (June 2025) published in the Journal of Housing Economics called, "Rent control and the supply of affordable housing." What the authors discovered was the following:

• Restrictive rent control reforms are associated with a 10% reduction in the total number of rental units available in a city

• Restrictive rent control reforms led to an increase in the availability of units affordable to extremely low-income households

• This was offset by a decline in the availability of units to other income groups, particularly those at slightly higher affordability thresholds

Once again, we see the economic trade-offs inherent in supply-side interventions like rent control. It's better for some and worse for others. However, governments tend to favor it because it's "free" to them; the costs are borne by landlords and renters at higher affordability thresholds. I'll let all of you comment on whether you think this is good or bad, but regardless, I think it's crucial that we acknowledge the trade-offs being made.

The vast majority of new purpose-built rental housing in Canada relies on CMHC-insured loans to make them financially feasible. In 2024, CMHC estimated that their construction financing programs backed an estimated 88% of new rental starts across the country.

But anyone in the industry will tell you that the terms in which these loans are made available to developers are constantly changing. And I think it's pretty clear that many of the changes being made are intended to push, maybe force, developers into building some percentage of affordable homes as part of their projects.

At the political narrative level, this makes sense: Canada needs more affordable housing. But it's important to remember that homes pegged to below-market rents are not financially feasible to build on their own. So, unless equivalent subsidies are being somehow provided, the remaining market-rate homes will be forced to shoulder the additional costs.

We talk about this a lot on the blog (see inclusionary zoning posts), and I don't see it as an equitable solution. But there's also the problem of it further choking off new housing supply. And my sense is that that's exactly what is happening. It's only getting harder to underwrite new rental housing — certainly in cities like Toronto.

This will have the opposite effect on overall affordability. It also increases the probability that my supply predictions will prove roughly correct. I can't see a world where new rental supply is able to step up and fill the gap being left by new condominiums, a large portion of which was serving as new rental housing.

Toronto is on a path toward a severe housing shortage, and it's very hard for the private sector to do much about it in the current market environment. When that will change remains to be seen.

One of the basic principles behind rent control policies is that you're trying to make housing more affordable for some, while at the same time more expensive for others. Economics is the study of choice, and this is a choice, whether it gets talked about or not. Previously, we spoke about a memo from Howard Marks where he describes the impact of rent control in New York City. In economic terms, that impact looks like this:

• Some people who couldn't afford to live in New York City if rents were set by the free market get the opportunity to live in the city (their housing is more affordable)

• Other people who would like to live in New York City and could afford higher rents can't because there are no available apartments (rent controls reduce housing supply)

• And lastly, landlords with unregulated apartments can command higher rents than would be the case if new housing supply were not being discouraged (their housing is more expensive)

Today, let's talk about a recent research paper (June 2025) published in the Journal of Housing Economics called, "Rent control and the supply of affordable housing." What the authors discovered was the following:

• Restrictive rent control reforms are associated with a 10% reduction in the total number of rental units available in a city

• Restrictive rent control reforms led to an increase in the availability of units affordable to extremely low-income households

• This was offset by a decline in the availability of units to other income groups, particularly those at slightly higher affordability thresholds

Once again, we see the economic trade-offs inherent in supply-side interventions like rent control. It's better for some and worse for others. However, governments tend to favor it because it's "free" to them; the costs are borne by landlords and renters at higher affordability thresholds. I'll let all of you comment on whether you think this is good or bad, but regardless, I think it's crucial that we acknowledge the trade-offs being made.

The vast majority of new purpose-built rental housing in Canada relies on CMHC-insured loans to make them financially feasible. In 2024, CMHC estimated that their construction financing programs backed an estimated 88% of new rental starts across the country.

But anyone in the industry will tell you that the terms in which these loans are made available to developers are constantly changing. And I think it's pretty clear that many of the changes being made are intended to push, maybe force, developers into building some percentage of affordable homes as part of their projects.

At the political narrative level, this makes sense: Canada needs more affordable housing. But it's important to remember that homes pegged to below-market rents are not financially feasible to build on their own. So, unless equivalent subsidies are being somehow provided, the remaining market-rate homes will be forced to shoulder the additional costs.

We talk about this a lot on the blog (see inclusionary zoning posts), and I don't see it as an equitable solution. But there's also the problem of it further choking off new housing supply. And my sense is that that's exactly what is happening. It's only getting harder to underwrite new rental housing — certainly in cities like Toronto.

This will have the opposite effect on overall affordability. It also increases the probability that my supply predictions will prove roughly correct. I can't see a world where new rental supply is able to step up and fill the gap being left by new condominiums, a large portion of which was serving as new rental housing.

Toronto is on a path toward a severe housing shortage, and it's very hard for the private sector to do much about it in the current market environment. When that will change remains to be seen.