Increase in the rate of property transfer taxes (“welcome tax”), addition of royalties on the construction of new housing… It sometimes seems that cities confuse houses with cigarettes.
However, housing is not a harmful product that should be discouraged with large taxes. On the contrary, we must encourage construction. If real estate is in crisis, it is because there is a severe lack of housing.
It won’t be easy with the 1er July approaching.
The rental market has never been so tight in 20 years in Quebec. With a vacancy rate that should drop to 1.2% in 2023, we are far from an equilibrium rate of 3 to 4%. CMHC predicts that this scarcity will cause rents to jump 30% within three years.
Very hard to swallow for households that are already struggling to arrive.
Meanwhile, the resale market has never been so unaffordable in a generation. Yes, house prices have fallen slightly, but rising interest rates have pushed payments up to the ceiling. In two years, the average monthly payment has almost doubled, from $1,350 to $2,500, according to Desjardins1.
An increase of more than $1,000 per month is a budget killer.
In Greater Montreal, nearly one in five households can no longer meet their basic needs, such as housing, clothing or travel, Centraide told us at the start of the week. That’s 360,000 families dragging the devil by the tail.
But don’t worry about the 1er July: “It’s going to be fine”, launched the Prime Minister François Legault, at the Blue Salon.
This is not his first jovial statement about housing. Two years ago, remember how he got into a mess saying that you could rent an apartment for $500 or $600 in Montreal.
Also remember that the Coalition avenir Québec (CAQ) fired Valérie Plante like a pancake when she pointed out that the last provincial budget provided too little money for affordable housing.
The Mayor of Montreal is right: we need to build more affordable housing. But not only that. Subsidized housing represents only 5% of the housing stock. We have to look much broader if we want to solve the housing crisis, which also affects the middle class.
This is where it goes wrong.
Recently, about twenty cities such as Brossard, Terrebonne, Mascouche or Trois-Rivières have introduced royalties that builders must pay for new buildings.
Quebec gave them the right to do so in 2016 in order to diversify their income, which is largely based on property taxes. The cities justify themselves by saying that the fee covers the price of services (eg aqueducts, sewers) to be developed to accommodate new residents.
But in practice, there is not necessarily a link between the cost of developing these services and the fee, which fluctuates between $4,000 and $6,000 per door, but sometimes climbs much higher.
All this money is very tempting for the cities, which will be tempted to constantly increase royalties in order to satisfy their appetite for new income. Just look in Toronto, where these royalties can reach $9,700 for a single house.
According to the CD Howe Institute, these royalties that are passed on to buyers largely explain the excessive prices that we observe in Toronto or Vancouver, a phenomenon that we do not want to import here.2.
But over-regulation is also to blame. A sad example: the former Blue Bonnets racecourse, a field in the heart of Montreal where 6,000 units could be erected. However, the City has set the bar so high for developers that a first call for tenders did not elicit the slightest bid from the private sector.
Meanwhile, housing starts are down sharply in Quebec (-23% expected in 2023), when the pace should be increased considerably. To balance the market, it would be necessary to build more than 100,000 dwellings per year, for 10 years, according to the CMHC, while we will end 2023 around 44,000.
We’re going into the wall. Strongly an action plan! That’s good, the Minister of Housing France-Élaine Duranceau must see to it very soon.
On the side of existing housing, it is necessary to relax the rules which discourage owners from investing in their building, while tightening the screw on those who throw their tenant at the door with renovations. It’s all about balance.
On the construction side, we should start by removing the brakes that are royalties. And if we really want to weigh on the accelerator, why not set minimum housing construction targets for each city?
If everyone continues to say “not in my backyard”, the housing crisis will only get worse.