Who is to blame for a housing crisis?

By Hans Brouillette, Director of Public Affairs, Corporation des propriétaires immobiliers du Québec

The vacancy rate was at 1.9% in the Montréal region and 1.2% in Gatineau this past October. This is not the same rate seen 2001-2002, where 0.6% of dwellings were vacant (1 out of 167), but we are getting closer every day.

There are conjunctural factors that explain this, such as low unemployment rate and immigration which favour household formation, thus stimulating housing demand. Also, many retired boomers become tenants again and rent new units. Finally, renters take longer to become buyers due to expensive prices, while the price of being a renter has declined relative to income.

There are also decision-making factors.

The governments

Successive governments are largely responsible for the drop in the vacancy rate, having failed to act during the 2006-2016 decade of calm. In doing so, they have discouraged investment and management of rental properties: 

• Rent fixing criteria, which allow to recover renovation fees in 37 years compared to 8 years in the 80s, kill upgrade plans for aging housing stock.
• Major constraints increase production and renovation costs for rental housing: the obligation to hire a workforce subject to the working conditions set by the Commission de la construction du Québec (Bill R-20) and standards constantly raised by the Régie du bâtiment du Québec.
• The law and the court of the Régie du logement create an imbalance of rights that encourages disempowerment, driving away small landlords who rather not manage problems while suffering irrecoverable losses.
• Illegal tourist accommodation makes housing unavailable, but the government seems more interested in collecting taxes than in curbing offenders.

During the peak of the 2002 housing crisis, Finance Minister Pauline Marois had discussed the possibility of easing rent control and introducing tax measures as a solution: nothing has changed. The Liberal Party, for its part, proposed a reform of the rent fixing criteria: nothing changed after its election in 2003. Mario Dumont's ADQ also suggested deregulation. Meanwhile, Manitoba was already deregulating rents, thus avoiding an even greater crisis.

The cities

The City of Montreal is about to present its bylaw requiring developers to include 20% of affordable housing, 20% of social housing and 20% of family housing in their real estate projects. By forcing to subsidize housing assistance, we have already predicted a 16% cost increase that will impact the affordability of other units. This will slow down projects. In addition, cities do not facilitate the issuance of renovation permits or the conversion of commercial space into housing (which has become more difficult to rent due to online sales, non-residential taxes and the nightmare of parking).

The tenants

Statistics Canada figures show that in 10 years, the net income of tenants has increased by 28% and the rent of a 3 ½ in Montreal by 18%. With a lower rate of effort to devote to rent, more and more tenants are choosing to live alone (51% in Quebec compared to 41% in the rest of Canada). This way of life monopolizes housing. As well, thousands of homes are being removed from the market, being sublet to tourists by tenants who hold several leases.

The owners

Some owners have decided not to rent anymore. In Montreal, nearly 5000 duplexes have disappeared from the property assessment roll in the past 10 years, either converted or rebuilt into condominiums or have become single-family homes. Of the remaining 57,000 duplexes, many have quietly become undivided co-ownerships. In too many cases, the necessary and major repairs could never have been financed by rents.

On the way to a crisis

What resolved the housing crisis of the early 2000s was the vast movement of property ownership, driven by a booming economy and falling interest rates. Hundreds of thousands of dwellings were suddenly available. A crisis is beginning, but the factors that unravelled the 2000-2005 crisis will not recur. Nor can the government afford to subsidize the rapid construction of thousands of social housing units at an average cost of $200,000 per door.

Unless there is an economic crisis, which no one wishes for, only a modernization of the rent fixing rules to promote renting, as well as a loosening of building regulations, can reverse the trend.

It is up to the government to act, and quickly.