Unintended disaster might arise from ill-advised government intervention

by Ephraim Vecina07 Apr 2017
Stronger government intervention to address outsized home price growth in Canadian cities might have minimal impact at best and undesirable consequences at worst, according to Toronto-based lawyer Ike Awgu.

In a recent contribution for The Huffington Post Canada Blog, Awgu cautioned that greater pressure from federal and provincial governments would only lead to unpredictable—and possibly counterproductive—effects on the health of the housing sector.

“There has been talk of how to solve this latest crisis and it of course revolves around government interference. The only rule I’ve thus far been able to deduce as ubiquitous about government interference is that it always creates an unintended result,” Awgu said.

In particular, government removal of existing restrictions on rent control (as advocated by various lobby groups) will prove disastrous.

“The unintended consequence of any such action would be that fewer investors and builders would create new housing. Further decreasing the supply of rental units in an environment where demand is increasing,” Awgu wrote. “This would be a recipe for a shortage in overall supply and an explosion in the number of low-quality units and landlords willing to create new housing (but only if they cut every corner possible in its construction and management).”

“An ubiquitous price freeze on rents (and that is what a one to three per cent increase per year is tantamount to) would paradoxically lead to less housing and decreased housing quality.”

Improving supply is the only reliable solution to the crisis.

“In time, so long as there is no government interference designed to spare the market from bubbles that grow too large and pop on their own, the system will re-balance and recover. Purchasers will realize that not all homes are worth $100,000 above asking price.”

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