10 Factors That Affect Housing Affordability Beyond Landlord’s Control

Montreal, June 28, 2021 – Even though the average net income of tenants is increasing faster than rents, and these rents are increasing at a slower rate in Quebec than in Canada, CORPIQ believes that solutions exist to improve housing affordability.

For months, activist groups and elected officials have been summarizing housing affordability issues in terms of rents, which they believe should be controlled more tightly. This simplistic reasoning demonstrates their disconnect from the realities of housing.

As for the observation of the rate of the tenants' budget devoted to rent, this indicator alone is no longer sufficient to measure affordability. For its part, the inflation rate in general is a misleading benchmark against which to compare the development of rents.

More and more rents include services or appliances that tenants used to pay for separately. There has also been record construction of rental units in recent years and their rents are more expensive. This increases the average rent.

CORPIQ invites public authorities to take a closer look at housing costs, which condition prices and contribute to scarcity. This would help determine whether the regulatory constraints they impose, and the realities of the market are in line with the tenant’s household ability to pay, especially those with low incomes.

Here are ten factors that affect housing costs, and therefore affordability:

1.           Choose a home that suits your needs and means

Canadians and Quebecers rank 2nd among industrialized countries in terms of the number of rooms per person in their homes, just behind the Netherlands. Also, Quebec is the only province where most renters prefer to live alone (51% according to the 2016 Census).

2.           Improve energy efficiency

Three out of four tenants pay their energy consumption directly to the supplier. Therefore, there is no gain to the landlord by improving the energy efficiency of the dwelling. By shortening the amortization period (taxation, rent indexation) for this type of work, landlords, tenants, and governments would benefit from it. In addition, tenants have benefited from the small increase in the price of electricity and natural gas.

3.           Be flexible about where you live

As with landlords who must move to the suburbs to buy a less expensive property, tenants who want to keep their rent costs down would benefit from being flexible by agreeing to move to another borough or city. Building prices have risen sharply over the past twenty years and are reflected in mortgage and tax bills. It is becoming impossible to keep rents low in popular areas.

4.           Encourage renovation to reduce claims

The Quebec government's rent-setting criteria discourage preventive renovation, while the average age of rental buildings is 50 years. Claims are therefore more frequent. Their costs are then transferred to insurance premiums and then to rents, where these premiums now represent more than 5% ($40 on an $800 rent).

5.           Contain municipal tax inflation

While cities claim to be raising their tax bills in line with inflation, the reality is that cities are comparing themselves to the anticipated rate of inflation, not the actual rate. Over the past dozen years in Montreal, taxes have risen almost twice as fast as the cost of living. Municipal and school taxes represent on average 15% of the rent, so $120 on an $800 rent.

6.           Make municipal regulations more flexible to encourage densification

Residential densification reduces the cost of housing; however, the many urban planning regulations, which are more restrictive in some cities, contribute to inflating the sale price or rent of new buildings. Also, when cities restrict the ability to add units to existing buildings or land, they increase scarcity and affect costs.

7.           Offset regulatory requirements for building safety

Fire safety, mandatory inspections, accessibility standards for people with reduced mobility, lead pipe requirements, asbestos removal, etc., are all justified, but they contribute to the relentless growth of housing costs. The Quebec government, the cities, and the tenants should expect that these costs will be passed onto the tenants. Low-income households should be compensated for this inflation.

8.           Ease the law on labour in construction (law R-20)

A tenant pays much more in rent for renovations to their home than a landlord would pay for the same work. In fact, the owner of a rental unit must pay labor costs totaling about $82 on average, based on the collective agreement. For his or her own home, the landlord can use a general contractor who hires workers for much less.

9.           The Effects of the Pandemic

For several reasons, the pandemic has accelerated the growth in property prices, causing a shift to the rental market, which in turn drives up rents.

10.         REM, tramway, and other projects

Structural transportation projects such as the Réseau électrique métropolitain (REM) or the tramway will revitalize urban regions. Just as when a large company moves into a neighbourhood, these changes are inevitably accompanied by an increase in housing costs and prices.

CORPIQ hopes that the authorities will take more interest in these issues, because when interest rates rise significantly, a major financial crisis will afflict landlords and consequently their tenants.