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14 July 2010July 14, 2010

Facts regarding the so-called housing shortage

www.iedm.org, p. Web

Facts regarding the so-called housing shortage
Article published exclusively on MEI's website.

Each year in early July, large numbers of people in Quebec move to a new address. According to certain groups, including IRIS, the Quebec rental market is in a state of imbalance, with demand exceeding supply and with prices high and rising quickly, making housing unaffordable. Is this perception accurate?

Not really. It is true that, on July 1, the City of Montreal helped out 31 families that had not found housing, but the number of cases of this type has been falling sharply in the last few years. In addition, at 2.5%, the vacancy rate for housing puts Quebec just slightly below the Canadian average of 3.1%. Montreal’s rate of 2.8% is better than the rates in other large Canadian cities (2.2% in Vancouver and 2.7% in Toronto) and is now more than quadruple what it was a decade ago, when it fluctuated at around 0.6%. Nor should we forget that a vacancy rate of 2.8% in Montreal means more than 12,000 vacant apartments. We need to be clear about this: Quebec does not currently face a housing shortage.

As for the average price, Quebec truly stands out. While the price of a private two-bedroom apartment averages $680 a month in Montreal and $650 a month in the province, the average is $1,134 in Toronto, $1,082 in Calgary and $1,150 in Vancouver. The Canadian average, including Quebec, is $823 a month. We should note that Canada’s lowest rents, according to the CMHC, are found in three cities in Quebec: Saguenay, Trois-Rivières and Sherbrooke.

Under these conditions, should governments be investing massively in the construction of social housing? Waiting lists for social housing cannot be seen as an indication of a shortage: demand is always high for a subsidized product. For example, if the government offered 10,000 lettuces at 25 cents each, there would be waiting lists that would not correspond to any real need. Moreover, it costs much more to house low-income people in social housing than in private housing. For example, the average subsidy per social housing unit in southern Quebec was $516 a month in 2008. If we add the contribution from tenants, this exceeds the average monthly rent for a private two-bedroom unit in Quebec ($650 in April 2010) by several hundred dollars. From a taxpayer’s standpoint, it would make more sense for the government to assist poorer tenants directly by paying part of their private rent rather than investing in bricks and mortar. We could assist nearly three times more tenants this way without the government having to spend more.

In fact, Quebecers are quite fortunate that, despite inept government actions, the rental market is so close to being balanced. The high cost of building rental units (with the proliferation of building standards and the hyper-regulation of the labour market in the construction sector), rent controls, rental board rules that systematically favour tenants over owners, and continually rising property taxes all make investing in building rental properties rather unappealing. Quebecers who have saved money are not crazy: they don’t invest in bricks and mortar but turn instead to mutual funds and other financial products.

To conclude, if we believe there is a need to assist low-income people, social housing is not the way to go. Rather, it destroys the private market in affordable housing, encourages a cycle of dependency among tenants and ensures that taxpayers who pay full price for their rent or their house pay higher taxes to provide less assistance to the underprivileged. The best choice is still to revitalize the private rental sector. Private rentals must be made more worthwhile by reducing construction costs and by modifying the rental board’s current operating rules.

Germain Belzile is Director of Research at the Montreal Economic Institute. Pierre Desrochers is Associate Researcher at the Montreal Economic Institute.


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