Raising the rate of land transfer tax (“Welcome Tax”), adding royalties for building new homes… Sometimes it seems that cities mistake houses for cigarettes.
Posted at 1:43 am. Updated at 5:00 p.m.
However, housing is not a harmful product that should be discouraged by high taxes. On the contrary, we must encourage construction. When real estate is in crisis, it is because there is a lack of housing.
It won’t be easy as July 1st is fast approaching.
The rental market in Quebec has never been tighter in the last 20 years. With the vacancy rate projected to fall to 1.2% in 2023, we are a long way from an equilibrium rate of 3% to 4%. CMHC predicts that this shortage will lead to a 30% increase in rents within three years.
Very difficult to digest for households already struggling to arrive.
Meanwhile, the resale market has never been so prohibitive in a generation. Yes, house prices have fallen slightly, but rising interest rates have pushed payments to the ceiling. According to Desjardins1, the average monthly payment has nearly doubled in two years, from $1,350 to $2,500.
Increasing more than $1,000 a month is a budget killer.
In the greater Montreal area, almost one in five households can no longer meet their basic needs such as housing, clothing or travel, Centraide told us earlier this week. That’s 360,000 families dragging the devil by the tail.
But don’t worry about July 1: “Everything will be fine,” said Prime Minister François Legault in the Blue Salon.
This is not his first jovial statement on the subject of housing. Remember how he got into trouble two years ago when he said you could rent an apartment in Montreal for $500 or $600.
Also remember that the Coalition Avenir Québec (CAQ) sacked Valérie Plante like a pancake when she pointed out that the last provincial budget left too little money for affordable housing.
The Mayor of Montreal is right: we need to build more affordable housing. But that’s not all. Subsidized housing makes up only 5% of the housing stock. We have to look much broader if we want to solve the real estate crisis, which is also affecting the middle class.
This is where things go wrong.
Twenty or so cities such as Brossard, Terrebonne, Mascouche and Trois-Rivières recently introduced license fees that builders have to pay for new buildings.
Quebec gave them the right to do so in 2016 to diversify their income, which is largely based on property taxes. Cities justify that the fee covers the cost of services (e.g. aqueducts, sewers) to be upgraded to accommodate new residents.
In practice, however, there is not necessarily a correlation between the cost of developing these services and the fee, which varies between $4,000 and $6,000 per door, but is sometimes much higher.
All this money is very tempting for cities, who will be tempted to keep increasing royalties to feed their appetite for new revenue. Look at Toronto, where those royalties can be as high as $9,700 for a single home.
According to the CD Howe Institute, these royalties passed on to buyers largely explain the inflated prices observed in Toronto or Vancouver, a phenomenon we certainly do not wish to import here2.
But over-regulation is also to blame. A sad example: the former Blue Bonnets racetrack, a field in the heart of Montreal where 6,000 units could be built. However, the city has set the bar so high for developers that when it first called for tenders, it didn’t receive the slightest bid from the private sector.
Meanwhile, Quebec housing starts have fallen sharply (-23% expected in 2023), with the pace set to pick up significantly. According to CMHC, to balance the market, more than 100,000 homes would have to be built per year for ten years, while we will build around 44,000 homes by 2023.
We’re going into the wall. A clear plan of action! That’s good, French housing minister Élaine Duranceau will have to take care of it very soon.
On the existing housing construction side, there is a need to relax the rules that prevent owners from investing in their building, while also tightening the screw on those who alienate their tenants with renovations. It’s all about balance.
On the build side, we should start by eliminating the brakes that represent royalty. And if we really want to step on the gas, why not set minimum housing targets for each city?
If everyone continues to say, “Not in my backyard,” the housing crisis will only get worse.