PEI’s Good, Bad, and Ugly Year for Housing
Despite seeing the country’s lowest vacancy rate and fewer new homes, 2023 also saw good policy implementation. It will make 2024 a better year for housing.
Between the housing starts data released earlier this month and today’s rental market survey data, there is no way to sugarcoat it: 2023 was an awful year for housing on Prince Edward Island. In a year when PEI added the equivalent of 2,400 new households, the province saw fewer than half that number in housing starts. Depending on how you measure it, PEI’s structural housing shortage effectively doubled because of how little housing supply got started this year.
To make matters worse, the Rental Market Survey data revealed today that PEI’s apartment rental vacancy remained the worst in the country (tied with Nova Scotia) and that Charlottetown’s vacancy rate fell to 0.5%. This will contribute more to PEI’s housing woes.
What made this year so terrible for housing supply and affordability? There are a lot of structural barriers to getting new housing built, especially when keeping renters and low-income households in mind. The biggest of these is the impact of land use constraints on housing, but the economic and regulatory environment likely also played a role last year.
Last January, the then-housing minister said PEI was “going to see a significant amount of building starts once the snow’s gone.” The 2023 construction season came and went, but housing construction fell further behind. Unfortunately, the patchwork approach to land use regulation and development control is a big reason why progress on housing has remained frozen.
A CMHC study last year showed that municipal land use practices on Prince Edward Island were among the most restrictive in the country and that the only provinces considered to have worse housing affordability were Quebec, British Columbia, and Ontario. Most of the land on PEI is not covered by a municipal official plan, meaning the province is ostensibly responsible for land use in unincorporated areas and small rural municipalities. Despite countless commissions and reports calling for the implementation of an Island-wide strategy, no such measure exists for more than half of PEI’s land area.
As a result, we see the worst of both worlds — not enough gets built in areas with planning capacity and too much gets built on resource lands (farms, forests, etc.) in rural communities. Between 2022 and 2023, the number of starts in planning municipalities fell dramatically but starts in non-planning areas effectively doubled.
You might think that a developer would aim to build up as much as possible in the absence of local red tape. In reality, development in non-planning areas tends to favour more resource- and land-intensive housing types like single-detached homes. Interestingly, there was an uptick in low-density apartment starts, thanks to a project in the unincorporated area surrounding Miscouche (a municipality just west of Summerside).
This project is in part the reason that, despite housing starts being down overall, rental starts are up slightly in the areas where data are collected. The City of Summerside and its surrounding communities accounted for two-thirds of PEI’s rental starts in 2023.
Summerside appears to be slated to legalize more types of housing thanks to their $5.8 million Housing Accelerator Fund (HAF) agreement with the feds. In particular, the funding Summerside received will help the city “implement zoning changes for increased density such as allowing four units per residential lot as-of-right, reduce barriers for accessory dwelling units, incentivize multi-unit and missing middle development and establish a new east-west growth node.” Summerside has been PEI’s leader in this space, and has not let “heritage preservation” hang-ups get in the way of addressing the city’s debilitating housing crisis.
Beyond land use, there are a few things that have made it an especially rough year for housing on PEI. The big one is that elevated interest rates have impacted every facet of housing. Higher rates result in higher lending costs for materials, meaning that otherwise shovel-ready projects may no longer pencil. If you already own a home but your mortgage rate is up for renewal, your new rate could have you paying 40% more than you would have five years earlier.
High mortgage costs hurt renters as well for two reasons. First, aspiring homeowners will forego trying to get on the property ladder and instead stay in (or return to) undersupplied rental markets, thereby pushing demand up. Second, landlords who are still paying off their mortgages on rental units will try to pass that cost onto their tenants in the form of higher rents.
The latter of those two reasons is why getting rent regulations right should be an important conversation for policymakers and advocates. As Jerusalem Demsas pointed out in a 2021 Vox piece, the goal of rent stabilization policies should be to protect current tenants from displacement. If a regulated rent increase rent is too relaxed (or non-existent), it risks pricing incumbent tenants out of their homes. If a regulated rent increase is too stringent (or outright frozen), it risks seeing rental units taken out of the market and sometimes sold as condominium units. Either way, renters get burned when governments adopt the wrong regulations. When someone’s basic shelter needs are at stake, evidence-based policy must triumph over populism.
In addition to more measured policy interventions, there is a mountain of evidence showing that added supply is one of the best forms of rent stabilization. In jurisdictions where land has been freed up for apartments and rental construction (including pathways for more community housing options), market-rate rents tend to remain stable in inflation-adjusted terms, and fewer incumbent renters get displaced. Even in a housing crisis, new rentals tend to get written off by a small handful of activists as “gentrification.” In reality, communities become gentrified because not enough new housing is being built, rather than too much of it.
Despite the bleak housing news, I strongly believe that there is room for optimism this year. Interest rates are likely to fall at some point in 2024, which will increase the viability of more types of housing (including affordable housing projects). The federal government has introduced GST rebates on new co-op and rental construction, and the provincial government has committed to removing the PST on the latter at these projects.
Summerside’s HAF agreement was the first of several hopefullyimplemented in larger PEI municipalities like Charlottetown and Stratford. Given that the federal government has maintained a strong position on requiring the elimination of exclusionary zoning, it will be interesting to see if the government deviates from this position. Although PEI’s Premier seemed to imply that “Canadian unity” was at stake because its cities were striking deals with the federal government, it is hard to see how anyone would think the provincial government was acting like a unifying force if it were to start interfering with intergovernmental accords like HAF.
These program adjustments and funding agreements could explain in part why permitted dwelling units shot up towards the end of 2023 — especially in apartment approvals. Even in the face of an unfavourable regulatory and economic environment, this uptick could be a sign of builders feeling a little more bullish for the coming year.
In the next year or so, the province is likely to roll out three new strategies that will cover housing, population growth, and land use, respectively. These strategies need to work in tandem by embracing an emphatic YIMBY attitude — saying yes to building more homes and welcoming more neighbours. Otherwise, PEI will not build enough. And what it does manage to build risks eating up critical farmland. The direct consequences of not building more in population centres will be most visible in the elevated cost of living and the strained capacity of essential services like the Community Outreach Centre.
But it goes further: If the three strategies are not coordinated, they may inadvertently undermine the province’s climate objectives, economic potential, and attractiveness to migrants from other countries and provinces.
We are already seeing that last issue play out in real-time. PEI’s immigrant retention rates are the lowest in the country and, for the first time in about a decade, there was a net outflow of Islanders to Alberta in 2023. If PEI does not embrace an attitude in favour of building communities up, then more people will move out and 2024 will look like another rock-bottom year.
