Housing Shortage: Stop Penalizing Investors
As a result of the shortage of affordable housing in Montreal, certain voices have been calling on the government to freeze rents. While the intention behind this request is laudable, as a practical matter, it misses the mark. Such a measure would have negative consequences for low-income households, and would only end up making Montreal’s housing crisis worse.
Let’s recap some basic economic principles. When there’s a shortage of something, it’s because the quantity demanded exceeds the quantity supplied on the market. There is therefore upward pressure on prices to rebalance supply and demand.
The case of housing in Montreal is no exception. If there’s a lack of housing, what’s needed are reforms that will increase investment in rental properties, which is to say, supply. You don’t resolve a shortage by implementing price controls, as these will only exacerbate the problem. By reducing the return on investment for rental properties, supply is further reduced, making the shortage worse.
Investment in rental properties must instead be made more attractive relative to other alternatives. Montreal should introduce measures that make life easier for potential investors and property owners. For example, repeated tax increases in large cities reduce property owners’ already slim profit margins. They need to stop. Hard-to-get construction permits are another example of a measure that worsens the housing shortage.
It’s high time for the Quebec government and the City of Montreal to take concrete action to set up a fiscal and regulatory framework that favours investment, in order to minimize the economic harm related to the housing shortage. Neither requiring entrepreneurs to include social housing in new projects nor limiting evictions in case of non-payment are going to make investing in real estate more interesting.
We need to stop the bleeding by putting an end to measures that penalize investors—and so indirectly, renters too.