2023-10-09 08:00:00
Rents are rising across the country and wages are not keeping pace. To curb these price increases, governments are promising to build more housing. But is this a sufficient remedy? Here are the keys to understanding rent increases.
Triple construction starts
To regain affordability, the Canada Mortgage and Housing Corporation estimates that 3.5 million additional homes would need to be built by 2030.
The challenge is enormous. To achieve this, construction starts will have to be multiplied by three.
Our opinion is that housing affordability in Canada is mainly linked to the lack of supply, says Kevin Hughes, deputy chief economist at CMHC.
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Undermined by difficult borrowing conditions, real estate construction in the country stagnated in the first half of the year.
Montreal even saw its construction starts cut by nearly 60% compared to the previous year, again according to CMHC figures.
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During the first half of 2023, CMHC recorded the start of construction on 5,927 housing units in the Montreal region, or 927 fewer than on the same date last year. (Archive image)
Photo : Radio-Canada / Martin Thibault
This is nothing to make up for the housing deficit that accumulated over several years when the construction of rental units lagged behind demand which is now reaching record highs.
Demand stronger than ever
Fewer than 10,000 new rental units have been built in Toronto in the last two years. During this time, the population increased by more than 250,000 residents, illustrates Shaun Hildebrand, president of the consulting firm Urbanation.
In the country’s largest city, this gap between population influx and real estate construction puts strong upward pressure on housing prices.
According to figures from Urbanation, monthly rent for an apartment in the Toronto market today reaches nearly $2,900 per month. That’s almost $1,000 more than in January 2021.
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In Mr. Hildebrand’s view, the demand for rental housing is propelled by a catastrophic situation.
We are dealing with record numbers of immigrants and a growing number of non-permanent residents, made up largely of international students and temporary workers. [Ce sont] almost all of them are tenants, he explains.
At the same time, buying a first property has become an unattainable dream for many households who are staying on the rental market longer than before.
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The average sale price of a home in Toronto reached $1.1 million in September, according to the Toronto Regional Real Estate Board. (Archive image)
Photo : Radio-Canada / Evan Mitsui
It is clear that more [de logements] is the obvious solution, believes the economist.
These new housing units must still be able to meet the most pressing needs.
Rental housing abandoned in favor of condominiums
Until the mid-1980s, condominium buildings were virtually non-existent on the Toronto landscape.
But over the years, owners have gotten used to the idea of owning an apartment.
Taking advantage of a model that allows them to quickly make a return on their investment, developers have started to build more of this type of building, to the point of practically no longer building housing dedicated to rental.
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However, buildings dedicated to rental are essential to stabilizing rents, according to Mr. Hildebrand. This type of housing constitutes a permanent rental housing offer, whereas condominiums can frequently change their vocation.
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For many years, condominium buildings have made up the vast majority of apartments built in Toronto. (Archive image)
Photo : Radio-Canada / Evan Mitsui
To stimulate the construction of these buildings, the federal government announced that it would exempt new rental housing from the federal goods and services tax.
While some experts applaud the measure, political economist Ricardo Tranjan believes that the effects of the GST exemption will not be felt for several years. It calls on governments to take measures that will primarily benefit tenants, rather than developers.
We have a very effective way of controlling prices, it’s called rent control, he claims.
Rent control, a controversial measure
Five provinces and one territory already have laws that limit rent increases for certain housing units beyond a threshold set by governments. According to Mr. Tranjan, senior researcher at the Canadian Center for Policy Alternatives, most of them lack teeth.
There are different types of rent control. There are different ways to set them up. We can be very specific. We can be very targeted and achieve good results. But currently, we don’t have this debate in Canada, he laments.
Mr. Hughes of CMHC maintains that capping increases prevents certain real estate projects from seeing the light of day, in addition to discouraging owners from maintaining and renovating existing buildings.
The private sector will need some incentives [afin de surmonter] the challenge that lies before us, argues the economist.
High construction costs
Whether built by the private sector or by non-profit organizations, apartment buildings are increasingly expensive to build.
Since 2017, residential construction costs have increased by more than 70%, according to the Statistics Canada index. The increase is even steeper in Toronto.
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According to Mr. Hildebrand of the firm Urbanation, many rental housing projects are paralyzed by bureaucracy, financing costs and especially construction costs.
Even with rents of nearly $3,000 per month in Toronto, developers are unable to [rentabiliser ces projets]. This is a huge problem which demonstrates that construction costs have become too high, he illustrates.
And when it comes to building housing for the less fortunate, governments need to provide more funding. However, in certain cases they resign themselves to subsidizing housing that is not considered affordable.
Can we believe in a reduction in rents?
Despite the economic situation, some tenants maintain the hope of seeing rents fall.
However, this should not be the objective, according to Mr. Hildebrand.
I don’t think the goal of governments should be to orchestrate lower rents or lower house prices. It should promote a more balanced market, where rents increase according to income, he explains.
This is also the opinion of Mr. Tranjan, who is concerned to see households paying an increasing proportion of their income on their housing. In his eyes, this is the main measure to monitor.
Mr. Hughes, for his part, points out that affordability hinges on several factors. He hopes that one day, families will be able to easily find accommodation within their budget, without compromising on its size or quality.
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