The housing crisis is not an abstraction for the thousands of households looking for affordable housing. The CEO of Centraide of Greater Montreal has just launched a cry from the heart1 with a hundred co-signers. The needs are pressing, especially to help vulnerable populations.
However, increasing the share of subsidized housing in Montreal’s housing stock from 5% to 7%, as recommended by Centraide, as desirable as that may be, will not stop the coming crisis.
All parts are aligned for the perfect storm. On the demand side, inevitable increases, not only in Montreal, but in all cities in Quebec, fueled in particular by immigration.
On the supply side, it will find it increasingly difficult to keep up because of high financing and construction costs and labor shortages, but also because of policies that work in the opposite direction of stimulating the economy. ‘offer. The inevitable result: rising prices. We haven’t seen anything yet.
The Quebec advantage
To understand what lies ahead, let’s put our “crisis” into context. In housing too, Quebec is a distinct society. Quebec is more successful than the rest of Canada in keeping prices down. The share of tenant households that devotes more than 30% of income to housing is 28% in Montreal (at the last census) compared to 41% for Toronto, or 21% in Drummondville compared to 43% for Peterborough, cities of comparable sizes. In addition, this percentage has dropped in all cities in Quebec between 2016 and 2021, dropping from 30% to 24% in Quebec. In other words, rents have grown more slowly than income, a tendency to protect.
Let’s look at the rent/price relationship, which I examined for 135 Canadian cities. Unsurprisingly, the level of rents is closely correlated to the price of houses (r = 0.81). However, Quebec cities systematically post rents below the amount predicted by the value of the houses. Quebec households enjoy a double advantage: real estate is cheaper there and rents are also independently lower, a result largely attributable to the TAL (administrative housing tribunal, the former Régie), a Quebec innovation which, obviously plays its role of moderating rent increases.
lose the advantage
Quebec is also distinguished by its social approach to urban infrastructure, funded by all taxpayers and not by specific charges. It is this advantage that Quebec may soon lose. Quebec cities can now, as in Ontario, impose royalties on developers whose function, in principle, is to finance infrastructure (sewers, streets, schools, etc.) associated with residential projects. The logic is, a priori, impeccable: make new residents pay (because the cost will necessarily be passed on to them) for the infrastructure needs they have created. Here is also a new source of income for cities that urgently need it. Can we blame the cities for jumping on this opening?
However, the impact of royalties on housing construction can already be guessed from the Ontario experience. First, because they are required at entry, royalties can discourage small entrepreneurs/developers, leading to an oligopolistic, more rigid market in Ontario. Second, the cost will necessarily be passed on to the consumer, another upward impact on prices.
We are still far in Quebec from Ontario royalties which can reach $80,000 per door (in Toronto, for a two-bedroom apartment). But it’s a slippery slope. The royalties are far too attractive as a source of income, all the easier to extend as the calculation of the real link with the infrastructures is not an exact science, leaving a large margin of maneuver to the cities.
There is no turning back for Ontario’s cities as royalties have become much-needed sources of revenue, but taken alongside less affordable housing.
In all of this, we must not lose sight of the communicating vessels between social housing and the market. It is the sclerosis of the market supply that propels prices and ultimately generates the need for social housing. Toronto, a less fluid market, has proportionally more tenants in social housing: 13.3% compared to 7.8% in Montreal.
Any new construction, even without social housing, has a salutary effect on affordability, leaving fewer households to put pressure on the market.
How to encourage cities to stimulate housing construction? The miracle recipe does not exist. But at least they should not harm, even unintentionally, the construction. Taking away their right to block new construction altogether (this is the case, I think, in Japan) is unthinkable here. Our municipalities value their right to plan their territories. Cap royalties, okay; but then the municipalities will have to be compensated. But above all, to protect Quebec’s heritage of collective financing of urban infrastructures (a condition for a reactive real estate market), Quebec must make a firm commitment in favor of housing construction, as part of the new national policy on architecture and land development, accompanied by financial means to facilitate the development of land for residential purposes.