For the past two years, experts agree that the Canadian housing market is overheating. This is true especially in Québec, where we have seen staggering demand for single-family units and condos. This has exacerbated rent for tenants and added stress to first home buyers.
Andrés Fontecilla, provincial MP for Laurier-Dorion and Québec Solidaire’s spokesperson for housing issues, has been an outspoken critic of real estate brokers, and believes they are responsible for the overheating housing market.
“They can use some types of practices that make prices rise, such as not divulging the different offers or tell buyers to empty out an apartment to increase its rent. These practices contribute to price increases”, he said.
It’s tempting to look for a convenient scapegoat like real estate brokers. Reality is much more complex.
Real estate brokers are hired by sellers, and their job is to sell homes, at the best possible price for their client. It’s true now, just like it was true when the market was cold. In a buyer’s market, when there is much supply and little demand, it’s unfathomable to imagine bidding wars for homes like we have seen of late.
Supply and Demand
Homes are not immune to the laws of supply and demand. The 2020 pandemic caused a major uptick in demand for housing. This created a seller’s market, putting pressure on first time home buyers.
“If there is a lack of available houses, they will sell easily and fast. Brokers are simply a cog in the machine”, said economic critic Pierre-Yves McSween on his column at 98.5 FM.
If supply is the root of the problem, how many homes need to be built to fill the gap? For rental units, the current vacancy rate is 2.4% across Québec, which is below the standard of 3% to have a healthy rental market. Given there are 890,538 homes across the province, we would need 5,300 additional rental units.
The picture is bleaker for the resale market. There is a severe lack of available houses and condos for sale, which exerts pressure on prices
“In sum, there were between 35,000 and 54,000 properties for sale to rebalance the proportion of homeowners in Québec’s real estate market at the end of 2020. “If we add the deficit of 5,300 rental units to the mix, in total, we estimate that there were 40,000 to 60,000 homes for sales in Québec at the end of 2020”, says Quebec’s Construction and Home Professionals Association (APCHQ), in its most recent report on the real estate overheating.
Limiting Urban Sprawl
Access to homes is at a low point, but lack of supply is only a part of the problem. Another aspect that we need to consider is the type of homes that are being built, and their location.
In an effort to preserve the unique character of certain neighborhoods, cities like Montreal enact regulations that limit the density of future residential projects. Because homes are more scarce in these areas, people move to suburbs, relying on the automobile instead of public transit. This contributes to smog in the city, the destruction of ecosystems in the Census Metropolitan Area, higher costs for public transit infrastructure and lower social cohesion.
By supplying condominiums in central neighborhoods, we can limit urban sprawl and its environmental impact, offer more affordable housing for first time buyers and support small businesses in our neighborhoods.
While the need for homes is urgent, overregulation adds significant delay to projects.
“Delays are often very long before a real estate project has all authorizations it needs to begin. In some cities, it takes years”, says Paul Cardinal, head of the Quebec Mortgage Broker Association’s Economic Service.
With these adverse conditions for a stable housing market, it would be simplistic to point the finger to a single actor, while avoiding to take accountability for the lack of available housing, which experts agree is at the root of the problem.