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Back page: Let the free market reign

During the 1990s, Alberta was the policy laboratory for the rest of the country, testing out ideas like balanced budgets and tax cuts adopted in other provinces. But today, Alberta’s government has lost its leadership role.

It is a follower now, toying with importing socialist ideas that were once anathema in Canada’s most entrepreneurial province.

The price of housing is on the minds of lots of Albertans, as a flood of job seekers pour in from other provinces, driving up the price of the average home by 13 per cent over the past year, and much more than that in Edmonton and Calgary. But the free market has responded as it should; nearly 50,000 homes were built in the province last year, more than in Quebec, a province with more than double the population. Alberta’s construction permits routinely exceed a billion dollars a month, most of it residential, a number exceeded only by Ontario.

That’s Adam Smith’s “invisible hand” theory at work. No central authority instructed workers from high unemployment areas to migrate to Alberta’s booming oil patch; and no one directed Canada’s developers to build more homes where needed. Both of these opportunistic trends happen to be a natural check on themselves in the long run: higher housing prices attract investment that will eventually lead to lower housing prices. In the meantime, those higher housing prices offset the economic benefits to job seekers moving to Alberta from more affordable provinces, naturally cooling off Alberta’s migration.

But Alberta’s allegedly Conservative government isn’t leaving it alone. The government recently struck a committee to look into the housing “crisis” — if 50,000 new homes a year can be called a crisis. Among its recommendations was a plan to limit annual rent increases to inflation plus two per cent — rent control.

In the end, that recommendation wasn’t adopted by the government — to the dismpay of many MLAs. “The free market is not working very well right now,” explained Neil Brown, a Calgary Tory MLA. But tens of thousands of Canadians think otherwise. They’re not choosing Saskatchewan, a province with nearly as much oil and gas, more wheat, more potash, and more uranium. Alberta’s wealth is not because of its natural resources but precisely because its free market is working so well.

It’s not the construction industry that dodged the rent-control bullet: it’s any newcomer to Alberta hoping that more apartments will be built. In disastrous rent control experiments from Toronto to New York, apartment-seekers are always the first casualty because no-one wants to become a landlord and those who already own apartments have no reason to do more than bare minimum maintenance. Rent control is usually an early domino in urban decay; when the private sector abandons rental apartments, the government moves in, building housing projects that become magnets for crime.

Economics deal with the eternal question of scarcity: man’s desires exceed the amount of resources available. His reach exceeds his grasp. In the free market, scarce apartments are allocated based on who wants them the most — roughly measured by who is willing to pay the most for them. Rent control rations scarce apartments another way: whoever got there first gets to keep them, even if newcomers would pay more. It doesn’t just transfer wealth from landlords to renters; it transfers wealth from people who don’t have apartments to people who already do.

Alberta is still riding out its economic “miracle.” But it actually isn’t a miracle at all; Alberta’s success is the predictable outcome of a low-tax, low-regulation, entrepreneurial economy. Its government should remember that most of its newcomers came to get away from job-killing government regulations, not to have those regulations follow them.

  • delaco32
    i enjoy your article. great job. keep it simple

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