Montreal wants more affordable housing, developers want to make a profit

MONTREAL — The city of Montreal has been sitting on a huge tract of land for six years that could help alleviate a housing shortage, but private developers, whom the city needs to realize its vision for an affordable “eco-neighborhood,” have so far shown little interest.

Montreal has an ambitious plan for the site, a former horse racetrack turned vacant lot more than twice the size of downtown’s Chinatown neighborhood. But Montreal’s ambitions are expensive, says Pierre Boivin, CEO of investment firm Claridge, who co-leads a city-appointed group that is shaping a new real estate development model.

The initial development framework pushed by Mayor Valérie Plante’s administration made it impossible to make a profit, he said. “At the current market price for land and construction costs and regulations regarding social rental housing, the economic model will not hold up.”

As a housing shortage grips the city, critics say Montreal’s affordability goals and lack of a clear plan to expand public infrastructure have hindered real progress at the site, known as the Hippodrome. It is an example of how Canadian cities are struggling to help low-income residents and defend social values ​​while meeting the need to increase housing supply.

Montreal’s plan for the Hippodrome calls for groundbreaking by 2025 for a new carbon-neutral, transit-focused “eco-district.” So far, the Plante administration has awarded only one development contract, a deal with a nonprofit to build a 100 percent affordable housing complex, amounting to up to 250 of the 6,000 units the city plans to build on the site.

A call for proposals to develop a second plot in autumn 2022 received no submissions from industry. The city set a $10 million minimum bid to buy the land and determined that 60 percent of the homes on the site will remain “affordable” — or below the median market price — for 30 years.

That’s simply asking too much, according to the Montreal Economic Institute, a conservative think tank. “When you add in the high cost of the site… and the very low number of market units being built, it is very difficult for developers to make money from it,” said spokesman Renaud Brossard.

So they’re not interested. And the result is that instead of a vibrant district with 6,000 units, we now have a vacant lot with no plan for development.”

Brossard points to the nearby development area known as Le Triangle as a counterexample, where thousands of housing units have risen relatively quickly, he said, because the site is less constrained by city regulations for below-market housing.

Former Montreal city councilor Marvin Rotrand, who represented the district that now includes the Hippodrome for 39 years, also says he doubts the city’s “utopian vision” for a new community will attract developers. He blames the Plante administration for frightening the private sector with lofty targets for affordable housing and failing to develop a public infrastructure plan.

The administration “feels it can dictate promoters, and promoters just let them see their backs,” Rotrand said.

“The reality of the situation is that the city is disconnected. It does not know how to solve these problems.”

And Montreal’s problems are getting bigger. In 2022, the Canadian Housing and Mortgage Corporation recorded the largest annual increase in the average two-bedroom rent in the Montreal area in two decades: 5.4 percent. The share of vacant apartments, which exploded from 1.5 percent in 2019 to a pandemic-fuelled three percent in 2021, fell back to two percent the year later. Nationally, the average vacancy rate of apartments between 1990 and 2021 was 3.2%.

The agency expects rents to continue rising as the number of new apartments in the city and its suburbs does not meet demand. Despite an expected decline in home prices in 2023, a decline in new home construction means the real estate market in the Montreal area is lagging behind the levels needed to “restore affordability,” the CHMC said in its Spring Housing Forecast.

It noted similar trends in Toronto, where officials have also struggled to facilitate city property development. A 2019 plan – dubbed “Housing Now” – to convert community lots into mixed-use, affordable and market-compliant housing complexes failed to deliver units within the first four years, with construction on the first of 21 lots set to begin only in July .

Montreal, meanwhile, insists that affordable housing goals are not the problem at the Hippodrome. But Benoit Dorais, a member of Montreal’s executive committee responsible for housing, admits developers want a more complete plan for the area.

After the failure of the second call for proposals, Montreal convened Boivin’s working group, made up of officials and business leaders, to identify new development conditions that would both attract private developers and meet what the city calls its “social objectives.” . The group is expected to deliver a plan in early 2024.

Dorais said he is confident the group will honor Montreal’s affordable housing goals.

“The group has taken the vision of the City of Montreal for granted,” he said. “The group is not going to tell us that we need less affordable housing. Right now everyone is saying we need a lot of housing, a lot of affordable housing, a lot of social housing.”

Boivin agrees that the city should not lower its affordable housing targets, but said a successful plan would need commitments from governments and the developing community to fund housing grant programs and infrastructure builds.

“We’re going to try really hard to break the mold and create a new model for this problem,” he said. “Otherwise it won’t get resolved.”

This report from The Canadian Press was first published on July 2, 2023.

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This story was produced with the financial support of the Meta and Canadian Press News Fellowship.

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