Let the market do its job.

Dedication: This paper is dedicated to my father Professor (emeritus) R.A.L Carter, an avowed free

market economist and supporter of professor Friedmann

There are 2 predominant economic models: free market and left wind socialist model with the former relying on the free-market capitalism to determine the means of production, the prices and supplies of goods and services whereas the socialist model places the emphasis on centralized government-led planning determining prices and supply in the economy.

Figure 1: the seminal work by Milton Fridmann

Economic performance in a free-market economy can sometimes have disappointing results. Two examples are obvious; firstly, the current housing shortage in some parts of Canada and secondly, the cost and supply of fuel in the 1970’s. However, the remedy by governments did, if repeated, have disastrous results. In the 1970’s, in an effort to combat the exorbitant price of fuel that had been created by the Organization of Petroleum Exporting Countries (OPEC), which cut supply  thus increasing the price of fuel but this also caused long line-ups at the fuel pumps.

As a result of the current high cost of housing in some Canadian cities (both rental and homes for purchase), the government has made mention of applying price control on housing. There are vital lessons to be learned from the oil crisis of the 1970’s! If government follows through with price controls on housing and those prices fail to cover the Operations  and maintenance costs (O and M),  then the construction industry will likely respond similarly.

As it's oil and gas colleagues did in the 1970’s, by limiting the supply of housing! The best thing any governments can do is limit the bureaucratic “red tape” that interferes with the performance of the market!  The speed of regulatory approvals and their consistency is the answer to the efficient production of housing at reasonable costs to the consumer! If the market is able to perform unhindered and consumers are “free to choose”, an answer to the problem will be apparent.

Figure 2: the Nobel prize economist from the university of Chicago, Milton Friedmann  

Bibliography

“Free to Choose” by doctor Milton Friedman (1980)