A Free Market View on Housing in Prince Edward Island

Having lived in Prince Edward Island(PEI) for a little over 15 years, I feel compelled to give my views on the current political discussion around housing. PEI is a unique jurisdiction in the West, government spending is a substantial percentage of overall GDP and has been this way for a long time. This is made possible by direct transfer payments from the federal government directly to the PEI government in what is called equalization payments. There are other indirect transfers that take place though, an example would be when federal departments like the Atlantic Canada Opportunities Agency (ACOA) make investments in PEI. This department is essentially a corporate welfare department offering below market rate loans and other incentives to invest in places like PEI. When you add all the direct and less indirect transfers from the federal government to the PEI government it would not shock me to learn that up to 40% of the economy is made up of government spending. Regardless of what the actual number is, it’s clear that the number is substantially higher than most other jurisdictions in the West. All this government spending has created a bizarre political scene where socialism is by far the dominant ideology, and free-market principles are completely missing from any political debate. The Conservative party in PEI has made it clear they are not conservative, but rather Progressive Conservatives, which seems to mean that at best they are what most other parts of Canada or Europe they would consider a left of center party.

This means that the dominant political ideology in PEI never changes. The parties change like any other place in the West but the march towards a greater centralized economy is never halted, hence the poverty and crises that accompany such centralized economies never go away. The latest crisis being one of housing and affordability. Since there is absolutely nobody in either education, media, social media or anywhere else in PEI that I can see providing a free-market view, I guess this task falls on me even though I have not lived in PEI for quite a few years. 

Housing Is Not a Right

In order to alleviate this housing crisis in PEI, numerous groups are asking for more government involvement via rent controls and public housing. To add strength to their argument, they refer to housing as a right. If people can be convinced that housing is a right, then in theory there is no limit to what the government can do to provide housing which is precisely their aim. Putting limits on government though is precisely the aim of enshrining rights in a constitution such as The Charter. The rights to life, free speech, assembly and many others traditionally recognized by Western states do not require government action, they require government inaction. All these rights stem forth from the right to liberty and a belief that men should be free and government should not design laws that impede their freedoms. Notice how this view on rights requires no action from the government, government must merely abstain, this is a proper view on rights.

Lets now examine the implications of viewing housing as a right.

If housing is a right, what is to be done with the homeless? Apparently government provided housing is the first choice for socialists, but when that is not available, property appropriation appears to be the next step. A few years ago this began with a push to regulate short-term rentals in PEI. Many Islanders invested in properties with an idea to rent them out to tourists during the summer, but according to the socialists, this practice is responsible for a lack of affordability and housing in PEI. This has already lead to a substantial erosion of property rights in PEI(here) with more to come in the future I suspect. Telling a property owner who he is allowed to rent his property to and for how much is a violation on the freedom of that individual. Property rights are real rights and they exist for a reason, it has been a bedrock principle in the West that a man should be free to spend the fruits of his labor as he wishes and enjoy any return he makes from his investments. If we allow the socialists to define housing as a right, this principle will be eroded. They will come up with more laws and regulations to appropriate and control the property of free individuals in PEI, they will treat landlords and investors as little more than pawns to be used in their machinations. Why then should a man risk investing in a property if the government can suddenly seize or control such a property? The answer is he won’t, he will lose faith in society and gradually withdraw from it. As more people do this economic conditions worsen, this is why there is a well established correlation between free societies and prosperity. A right to housing and a right to freedom cannot co-exist together, which is why housing is not a right.

Incentives Matter

The socialists in PEI are also busy denouncing the very idea of profit on Twitter. Scrolling through the #peipoli timeline on Twitter is an interesting exercise in what one might say if their mission was to sound off every bad economic theory under the sun. The most vocal voice on this Twitter space is Mr. Jonathan Greenan, who has quite an extreme view on profiting from housing. According to Mr. Greenan, in PEI there is the existence of a landlord lobby that is actively working to pursue their interests and terrorize the renters of PEI via their “landlordism” and “greed.” To Mr. Greenan, tackling this housing crisis means putting “people before profits.” This all sounds nice, but I am sure we can all agree that political debates should be more than simply spouting off platitudes and self-righteous statements, it should be about examining all the possible consequences of a certain policy.

So let’s examine some of the consequences of eliminating profits for landlords in PEI.

In reality, this is already taking place via rent controls. Just last fall it seems like some type of emergency legislation was passed to freeze rents at 2022 levels. I don’t even know what to write as a response when I read something like that, it’s clearly ridiculous. The West is currently drowning in inflation, if suppliers are facing higher costs, they pass that down to customers. That is as basic of a law on economics as you can find. Obviously if rent increases are frozen when costs are rising, some landlords will begin to lose money on their properties. This might not mean much to folks like Mr. Greenan, but this has devastating consequences long term. In the short-term most landlords will be forced to keep renting while taking the loss, essentially subsidizing tenants. This is because landlords would take even more of a loss if they stopped renting their property or try to sell it off. It’s unjust that landlords should have to bear the burden for this affordability crisis that is in large part the result of decades of bad government policy. If government caused this crisis, surely they should sacrifice too, but of course that is not how politics works. Politicians will in fact receive a 2.75% increase to their salary in 2023. If they truly cared about creating a fair and just society, they would freeze their wages until this crisis was resolved, but we all know that will never happen.

By attempting to remove profits from landowners, men like Mr. Greenan are essentially attempting to create a class of slaves that will work towards his idea of a greater good. This is not a long-term sustainable model, eliminating profits for landlords will cripple supply going forward, individuals will not make investments in property with no expectation of a return, they have a right to survive like anybody else. So if increases to supply are hampered, a rise in homelessness is the natural result. Those who had housing prior to rent controls will enjoy cheaper rents than they otherwise would have, but there will be other groups of people that will be left out of housing due to these new restrictions on supply.

So yes, if your concern is for a stable long-term solution to housing on PEI, then a focus on the profit margins of landlords must be taken into account.

Solutions For Moving Forward

It’s been many years since I focused on Island politics, but I will nevertheless attempt to provide some solutions to fix this housing crisis.

The first must be a general change in the government and people of PEI. Last time I looked, the people of PEI pay the highest taxes in Canada, while receiving the lowest wages. So even when the economy was in a supposed boom, a lot of people on PEI were living on the edge. It was always going to get bad when the economy took a downturn, and it always does. Boom and bust, this is the cycle we created that always repeats— any reasonable person could have seen this coming. Poverty is the main problem in PEI, and unless this issue is tackled, other crises will appear in the future in addition to housing.

To get to the root of the problem, politicians and constituents have to ask themselves a very basic question, what is the best mechanism for creating wealth in a society? I obviously argue for a free market, while socialists will argue for a planned economy where they are in charge.This is the crucial debate that Islanders need to have.

In the short-term there is much more targeted policy that could be implemented. Doing some quick research it appears that lack of skilled labor is a major reason why supply is having a hard time keeping up with demand(here and here). This makes sense, why would a skilled worker stay in PEI and make lower wages only to give more money away to the government? As I wrote above, incentives matter.

So, let’s give skilled workers an incentive to work on PEI. I suggest eliminating all corporate and income taxes for all construction companies for a period of at least five years or longer. This will drastically lower the costs for supplying housing, and with these savings suppliers can then pay higher wages to skilled workers thereby incentivizing them to work on PEI. Tax credits can also be issued to trade workers allowing them to pay less taxes. I don’t have any idea how much tax revenue the PEI government would lose out on, but I am sure they can be offset by spending cuts. If Elon Musk can fire 90% of Twitter employees and still have Twitter running then I am sure we can find millions of easy spending cuts in a 2.8 billion budget.

Implementing a radical plan like this I am sure would effectively kill off this crisis quickly and decisively. The only thing left is for freedom lovers to get out there and argue for their convictions. Government planning has failed and their failures are plain to see. It’s time to trust in free people, not central planners.