A recurring Canadian news story in recent years has been the falling affordability of housing. The pandemic and the massive injection of money into the economy have amplified this trend. Since 2020, house prices in Montreal have increased by 16%, the highest annual increase since 1987. Because of these price increases, many are saying that the status quo is not sustainable.
Yet the solutions generally put forth would only exacerbate the problem instead of improving it. Economically speaking, the problem stems from an insufficient supply of housing. Solutions like the 20/20/20 policy adopted by the City of Montreal will only slow the construction of new housing. Basically, this policy forces developers to include 20% affordable housing, 20% social housing, and 20% family housing in their projects. Developers find themselves having to compensate for their losses by, among other things, increasing the prices of the remaining 40% of units, which pushes already soaring prices in Montreal even higher.
If municipalities want to tackle the overheated real estate market, the most effective and least expensive solution for families is to increase the housing supply. Currently, many municipal rules discourage entrepreneurs from building more. The first thing to do is therefore to challenge the various zoning rules and urban planning standards that restrict new construction and densification. A good example is the regulation that arbitrarily limits the height of buildings in Montreal to the height of Mount Royal.
It is only by setting up a regulatory framework conducive to new residential construction projects that the housing shortage will subside. Municipalities have to realize that their arbitrary regulations are hurting their residents, and that the only way to remedy the housing shortage in a sustainable way is to facilitate entrepreneurship in the real estate construction sector.