Earlier this year, the Fraser
stitute in Vancouver published
lengthy study, Rent Control-A
pular Paradox, in an attempt to
idermine rent control legislation
this province. We asked Emil
arnason, director of the Trade
nion Research Bureau, to study
le book and to analyze its
idence and conclusions. He
‘epared the following article.

anding bargain.

Rents have risen less than half as
St as living costs and less than
e-eighth as much as_ personal
omes.

The cost of home ownership is
ly twice as high as in 1961.
‘The average Canadian family
Spends only one-sixth of its income
housing. ’
The very poor — the lowest in-
me households — occupy more
using space per person than
yone else except millionaires.”
The above statements were not
“invented by the author of this
article. Nor are they reproduced
om a satirical essay. They are
uoted precisely, from a recent
ok published over the joint
gnatures of world-renowned
‘onomists Friedrich von Hayek,
Milton Friedman, George J.
igler and-Michael Walker in a
ok entitled Rent Control — A
opular Paradox.

Moreover, their statements do
Ot refer to the city of Moscow
here they happen to be true) nor
the planet Mars. They are
stensibly in all seriousness,
the 1975 housing

The book in question is published
y the Fraser Institute, which
dvertises. itself as ‘‘an in-
ependent Canadian economic and
cial research and educational
Zanization’”’. Although the In-
litute is located in Vancouver, its
Oard of advisors includes such
conomic troglodytes as Armen
cChian (‘‘We do not speak of
employment — jobs are always
aSily available’’) ‘Harry Johnson,

With the recently-published
ook, the Institute has launched a
paign to convince the public
at rent controls are unnecessary,
deed harmful, because we

Housing in Canada is an out- |

the University of Toronto Political
Economy ‘department, who sums
up the argument as follows:

“The absence of. a general
housing crises is obvious from
the quality of the housing stock,
the availability of housing, the
affordability of housing in
terms of the proportion of in-
come required to obtain it, and
the capacity of the residential
construction industry.”

The above quoted paragraph is”

not by Leacock, and it is not satire.
It is intended to be taken seriously.

The authors of Rent Control — A
Popular Paradox did not invent
their statistics. Most of the facts
they cite are quoted from govern-
ment sources, usually Statistics

Canada. It is therefore worth the

while to inquire into the question
how Statistics Canada arrives at
data so outrageously at variance
with readily observable everyday
experience. i .

When Statistics Canada first

- They are assuming a rational,

The economic theory un-
derlying the Fraser Institute
book and all the articles of its
contributors, is good old-
fashioned _eighteenth-century
free enterprise economics.

perfectly functioning market
which never. did, and certainly
does not now exist.

ready possess an abundance of
igh quality housing which would
Available to all at reasonable
rices if only the unfettered
ration of the free market were
Tmitted to establish a scale of
Mees that would prevent low
hcome groups (assisted by well-
Neaning, but misguided govern-
Ment agencies) from  ap-
Opriating more than their fair

e.
The Institute has stated its case
¢h impressive array of con-
ibutions by Walker, Friedman,
gler, Gunnar Myrdal, Hayek
d others. All are well argued in
ter Ms of late eighteenth century
nomic principles. But even this
nding array of economists
been outdone in stating the nub

‘ence Smith, co-chairman of

aM matter by Professor |

published its conclusion, that in
Vancouver, rents had risen by 37
percent from 1961 to 1974, I wrote to
them inquiring as to whether they

had misplaced a decimal point in

stating the percentage increase
(meaning that it should have been

* 370 percent), or in calculating the

index (meaning that it should have
been 1370). I was honoured by a
reply from Sylvia Ostry herself,
former director of Statistics
Canada, who assured me that the
37 percent figure was arrived at by
methods which were “theoretically
sound and statistically accurate.
Dr. Ostry then went on to
describe the construction of the
tal index:
oak of the monthly labour force
household survey - - - The sam-
pling encounters, in any given
month, tenant households where

~ community

“The rent survey is.

os

rents paid have changed and where
rents paid have not
changed .. . Thus, the Vancouver
rent index is computed by com-
bining the 7:7 percent rise in rents
for 6.7 percent of the sample with
the 93.3 percent of the sample
showing no rent change in that
month, to yield an increase for the
Vancouver rent index in July 1974
of one half of one percent”. ~
Let us illustrate, by an example,
how such a method will produce
the vast understatement of rent
increases which is obvious in the
Statistics Canada Index. Think of a
comprising two
‘apartment blocks on adjoining lots,
identical except that one was built

in 1960 and the other in 1970. The ~

1960 block was built at a cost of
$8,000 per suite with mortgage
money at 7 percent, thus per-
mitting profitable rental at $100
per suite, while the 1970 block cost
$16,000 per suite with mortgage
money at 10 percent, thus

requiring a rental of $250 per suite.

Once built, the costs of both
apartments (caretaking, main-
tenance, etc.) rise at, say 21/2
percent a year, and rents are
adjusted accordingly. Then we
‘have the following picture:

Block1 . Block 2
TOGO TENE eo $100 :
1970rent......... $128 —«- $250
19a TenL $141 $276

In the above example, Statistics

- Canada would have taken into

account the change in rent of each
unit, once it was built, but ignored
the really major change, i.e. the
increase from $100 for a suite built
in 1960 to $250 for one built in 1970.
‘That increase — amounting to $150
— conforms to everyone’s actual
experience. But Statistics Canada
only considers the increase in rents
in Block-1 (from $100 in 1960 to $141

in 1974) or in Block 2 (from $250 in ~

1970 to $276 in 1974) and computes
its statistics accordingly. That’s
how it arrives at 41 percent in-

-erease while the actual increase is
-over 100 percent. :

It isnot so easy to account for the
Fraser Institute’s assertion (based
on Statistics Canada) that the cost
of home ownership has increased
only 127 percent since 1961. The
Greater Vancouver Real Estate
Board is under the impression that

- the average price of multiple sales

rose from approximately $12,000 in
1961 to about $57,000 in 1974, or
about 375 percent. How do you
work down from there to an in-

crease in cost of 127 percent? On

this there are no clues except a
hypothetical illustration on page
34, where Michael Walker _ in-
dicates how he thinks home
ownership costs should be
calculated.

- Inthe example he assumes that a
house worth $10,000 in 1961 would
have a market value of $20,000 in
1971. He then proceeds to calculate
the ‘“‘imputed rent’, i.e. the in-
terest the homeowner would
receive if he invested his money for

ent control — fact and fiction

Put a ceiling on rents, they say,
and it becomes unprofitable to
build rental housing. As a result, a
shortage of housing develops. The
poor are then unable to obtain
housing at all, while the rich have
no trouble because they can afford
to bribe landlords.

Worse than that. By keeping .

rents too low, you bring about a
‘maldistribution of the existing
stock of housing. Families stop
doubling up. Young people leave
home earlier than they otherwise
would, making unnecessary
demands on housing. All of this is
illustrated by the statistics
showing the lowest income
families occupying more housing
‘than their wealthier compatriots.
Ina free market, rents would rise
sufficiently :to balance supply with
demand, and automatically the
housing shortage would disappear.

Supposing that to be true, what
the Fraser Institute is really
saying is that if the cost of housing
were high enough to drive the poor
back into basements and hovels
where they belong, there would be
‘abundant housing for the rest of us.

Alas, they are assuming a
rational, perfectly functioning
market. which never did,
certainly does not now exist. There

is, infact, ample evidence in their —

own book to show that the market
does not work that way.

Consider their assertion that the
very poor use more housing space
per person than the very rich. To
the extent that such is the case, it
can only be because the poor in-
clude large numbers of elderly
couples whose children have

reached maturity about the same

time as the mortgage is paid off, so

that the couple find themselves
occupying the amount of space

and —

Xx

What the Fraser Institute is

of housing were high enough to
drive ‘the poor back into
basements and hovels where
they really belong, there would
be abundant housing for the rest
of us. It must be seen as part of
the unrelenting attack of the
moneyed interests against the’
working class.

really saying is that if the cost

income instead of owning the
house. In doing so, he assumes a 7
percent interest rate in both 1961
and 1971, ignoring the steep rise in
interest during those ten years.
Are Statistics Canada’s methods
that primitive? How else can one
explain “such belligerently stub-
born nonsense as the Statistics

“Canada housing cost index?

Statistics Canada, in fact, shows
mortgage interest costs rising less
than the prices of houses, a

‘mathematical impossibility in a

period of rising interest rates.
Nor is it possible to account, in

_any sensible way, for the assertion

by the Fraser Institute and
Professor Smith that housing today
accounts for only 18 percent of
family income. With an average
family income of $12,000, this
would mean that an average
family could obtain  ac-

‘commodation for $180 per month.
At present day interest rates that

payment would cover only the
interest — ignoring taxes and
upkeep — on a house worth $20,000
— and where would one find a
house worth only $20,000 in Canada
today — any house, in any area?
The notion is preposterous.

The economic theory underlying

the Fraser Institute book ar all of -
the articles of its contributors, is

good old-fashioned free enterprise
economics.

originally acquired for the whole

family.

Now if the Institute were correct
home
ownership costs have risen four __

in maintaining that

times as much as rents,\it would

obviously pay such couples to sell —

the family home and rent an
apartment, thereby increasing the

available supply of housing. This

does not happen, on the one hand,
because whatever the rental index

may show, people do not succeedin

finding ~cheap' rental  ac-
‘commodation, and on the other,
because experience has_ taught

people that what may seem a_

bargain at the moment will soon be
cancelled out by inflation.

The Fraser Institute study and
Professor Smith’s enthusiastic —

echo must be seen as part of the

unrelenting attack of the moneyed

interests against the working
class. With the increasing

organization of workers into trade —
unions to defend their rights and _
their wages on the industrial front,
it becomes important to the —
holders of wealth to maintain other —
avenues for exploitation. The |
of course, is for the
workers to organize themselves as
consumers, first of all as tenants,
and so use their political and
economic strength to curb ex-—
ploitation on this front, as well. —

answer,

PACIFIC TRIBUNE—DECEMBER 19, 1975—Page 3