Common Policies and their Effects on Supply
The Role of Rent Control
In the simplest sense, rent control laws put a ceiling on the amount a rental-housing provider can charge. For the most part in Ontario, providers can only raise rent at roughly the rate of inflation every year to keep prices under control and affordable for existing tenants. Some economists argue that rent control makes building new apartments less profitable, and in turn, disincentives developers to build more supply and creates an environment where housing becomes less affordable because of scarcity.
However, the real culprit for scarcity may be zoning. In markets with the most expensive rent, zoning rules tend to restrict the density of new development, which limits the amount of housing or supply that can be built on a plot of land.
What is Inclusionary Zoning
Inclusionary zoning is quickly gaining traction, and a new law is currently being explored by Toronto City Council. In short, inclusionary zoning ensures a share of units in new projects are set aside for families under a given income threshold, usually based on a fraction of the median income in an area. In theory, making the area more affordable and fostering economic diversity in a given area. However, its overall impact on affordability in urban centres is minimal.
With that in mind, inclusionary zoning also helps quell fears of gentrification pushing out lower-income families. A recent study conducted by Columbia University found gentrification rarely displaces residents since the turnover rates within urban neighbourhoods tend to be high to begin with. With that said, both inclusionary zoning and rent control help prevent arbitrary displacement.