Many North American cities struggle with prohibitive housing costs and inadequate supply. Social inequality deepens when only the prosperous can afford to live in desirable neighborhoods. Urbanists and other city observers point to zoning restrictions—especially on up-zoning, which facilitates denser development—and the opposition of “not in my backyard” (NIMBY) residents, who oppose new construction, as major culprits. With its rampant NIMBYism, stunted urban growth, restricted housing supply, and correspondingly sky-high housing prices, coastal California currently stands as a negative exemplar of antidevelopment tendencies. Median housing prices in Los Angeles and San Francisco are among the nation’s highest, well above even those in expensive New York. Large swaths of L.A. and San Francisco are zoned solely for single-family housing, and residents fiercely protect these prerogatives, aided by the state’s long tradition of local referenda—dating back to California’s Environmental Quality Act (CEQA), signed by Governor Ronald Reagan in 1970, which has delayed or stifled housing development.
Restrictive zoning plus NIMBYism makes for a bad combination—in effect, freezing housing supply, and affordability is in large part about supply. The prescription, then, should be simple: allow (or oblige) cities to build more housing units per square mile, free up new land for housing, and ensure that local citizens don’t get in the way. Easier said than done, of course: residents are understandably often wary of new housing and new neighbors, which they can view as a threat to their quality of life and property values. Land and housing are emotional issues in all societies. Promoting greater housing supply is never simple, or even popular.
Lawmakers in the U.S. and elsewhere have sought to liberate housing supply, with mixed success. California’s Housing Accountability Act, sometimes called the Anti-NIMBY Law, has been on the books since 1982. In principle, it prohibits municipalities from rejecting new housing projects for arbitrary reasons. It has not been terribly effective, partly because it did not weaken citizen recourse to referenda, still a big part of California’s political DNA. More recently, the California State Senate proposed a bill that would have preempted local zoning laws around transit corridors to allow for the construction of apartment and condominium complexes. The bill died in committee, denounced as an attack on municipal autonomy. Another bill with similar aims also went down to defeat.
Highly regulated land and housing markets leading to inflated prices are not only an American story. Housing costs in Vancouver and Toronto are among the highest in the developed world. Zoning and NIMBYism are not the sole culprits. Other contributors include rent control (New York) and limits on building height (Washington, D.C.). Even if California eventually succeeds in lifting zoning restrictions on denser, multistory construction, that is no guarantee that enough housing will be built or that the range of housing on offer will be sufficiently diverse to accommodate a broad range of households. An additional ingredient is needed: namely, a fiscal and regulatory environment for housing construction that facilitates market entry and competition—and here, Montreal’s example is striking.
As a city and an urban region, Montreal has systematically registered some of the lowest homeownership and rental-housing prices for successful cities of similar size in North America. The contrast with Montreal’s principal rival, Toronto, is striking. A comparable three-bedroom condo in a comparable central city neighborhood currently goes for almost double the price (purchase or rental) in Toronto. The difference has remained stable over two decades, suggesting factors that go beyond cyclical demand. Metropolitan Toronto’s greater size and higher incomes alone cannot explain the dramatic difference in housing prices—especially considering that the size differential works the other way when it comes to New York and San Francisco, which has housing prices, on average, double those in the Big Apple. Nor does geography explain the high housing prices in Toronto, a city located on a relatively flat plain, facing Lake Ontario, with few physical obstacles to expansion. Indeed, geography as a constraint on supply could be used as an excuse for Montreal, which, like Manhattan, is located on an island (though ten times the physical size of Manhattan).
The corollary of Montreal’s comparatively low housing prices is what economists call a more “elastic” housing market: a market in which supply (via contractors and developers) responds more rapidly to rising demand. Estimates of comparative elasticities across Canadians cities (the relationship between a given percentage increase in housing prices and subsequent percentage increase in housing units) have found that housing supply in Montreal adjusts more smoothly to price increases than in Toronto.
Montreal’s lower prices and more elastic supply point both to a different housing market structure and a different regulatory environment. The city’s housing stock stands out in North America for its strong presence of row houses, duplexes, triplexes, and low-rise apartment blocks—what urbanists call elsewhere the “missing middle.” The middle is certainly missing in Toronto, its market skewed toward the two extremes: single, detached houses and high-rise apartment towers. These two housing components accounted for some 70 percent of housing in Toronto, compared with just 24 percent in Montreal (according to 2016 census figures). Correspondingly, low-rise apartment buildings (under five stories) accounted for some 54 percent of Montreal’s housing stock, compared with 15 percent in Toronto—42 percent and 10 percent, respectively, at the metro-area level. Some 60 percent of Montrealers are renters (versus 47 percent in Toronto), 45 percent at the metro-area level (versus 33 percent in Toronto). In short, the two cities and metros present two very different cityscapes regarding housing.
Montreal’s housing stock is visibly more affordable. The percentage of owner households spending more than 30 percent of their income on shelter costs was 20 percent in Montreal, compared with 27 percent in Toronto (16 percent and 27 percent, respectively, at the metro level). The equivalent figures for renters were 37 percent and 47 percent (city) and 36 percent and 47 percent (metro area). The combination of relatively affordable prices, supply elasticity, and mid-range housing has helped produce a more integrated housing market, contributing to the emergence of mixed-use neighborhoods, the norm in much of the central city, though developments solely zoned for detached single-family homes are not uncommon, being principally located in suburban municipalities.
This is not to say that all is well with Montreal’s housing market. Homelessness exists, for example. But the city has largely escaped the housing crisis that seemingly plagues much of North America.
Montreal also stands out among North American cities in not applying impact charges (development charges, in Canadian parlance) on new housing construction. Such fees are the norm in U.S. cities, especially on the West Coast and in Canadian cities outside Quebec. The philosophy behind them, logically speaking, is reasonable. New housing developments should pay the “true” price of the costs that they inflict on society in terms of infrastructure needs—roads, sewers, sidewalks, lighting, water, transit, parks, and so on—but also, perhaps, for municipal services such as policing, firefighting, public health, and schools. The range of possible services for which developers can be charged is almost endless and varies across jurisdictions in North America. In Illinois, only roads are included; in California, the charges run the gamut from roads to schools.
As a rule, urban planners, environmentalists, and municipal administrators favor impact fees—the first two groups, historically wary of developers, because they see the fees as a means of controlling development; and the third group because the fees are a rich source of revenue. Impact fees have political benefits, since they can be presented as a substitute for local property taxes, a powerful incentive (particularly in California). They have economic rationales as well, as they can be seen as a variant of the “polluter pays” principle. Why should current residents have to share the additional infrastructure and service costs generated by new residents?
Where they’re applied to a broad range of services, however, impact fees can have unforeseen effects—not least on the ability of cities to provide affordable housing and on the efficient functioning of housing markets. Toronto is an instructive example. The city has a proud tradition of innovative urban planning. It was the first city, in 1954, to implement a model of federated, metropolitan governance in North America—and also among the first to introduce impact fees. Toronto’s experiment in metropolitan governance proved generally successful and won international acclaim. The same can’t be said for its use of impact fees. The city (since enlarged by amalgamations) has continued to impose impact fees for a broad range of services, with the charges increasing over time. The last hike in charges was announced in 2018, rising from an average of some $61,000 (Canadian) to $71,000 this year, and to $80,000 in 2020 for new single-family homes. Similar charges are levied on the construction of new apartment buildings, depending on the size and number of units—the current charge totals some $36,000 for apartments with two bedrooms or more. By some measures, various local fees add 20 percent to 25 percent to the unit cost of new construction. These costs are then passed on to homeowners or renters in the form of higher housing prices.
The less visible consequence of impact fees is on the resources, time, and effort required to negotiate and to complete housing projects. The range of charges, for everything from water to transit, can mean that the developer will often need to deal with different agencies—transit authorities, school boards, and others—negotiating fees piece by piece, in addition to negotiating planning regulations with city officials, a bureaucratic steeple run that can take years. Entry into Toronto’s housing market as a builder requires not only deep pockets but also patience, negotiating skills, and technical know-how beyond the means of smaller players. The successive hikes in impact fees in the 1960s, 1970s, and beyond killed off much of Toronto’s remaining class of small building contractors. The predictable result is a market dominated by large property developers.
It’s no accident that Toronto spawned one of the largest property-development companies in the world, Olympia & York, which, during its glory years of the 1980s, built and managed the World Financial Center in New York and Canary Wharf in London. The prevalence of large property developers also explains the popularity in Toronto of high-rise apartment towers, more expensive to build and with longer delivery periods. This leads to another predictable result: “sticky” housing supply that consistently trails demand. Toronto’s high housing prices are, in short, largely a bureaucratic construct, the result of well-intentioned urban-planning regulations that wind up punishing new housing construction.
“Montreal has historically adopted a more liberal and pragmatic approach to urban planning.”
Montreal, by contrast, has historically adopted a more liberal and pragmatic approach to urban planning. Perhaps because, like New York, Montreal is an older city, much of it built up before the arrival of the car, only minor parts of its territory were exclusively zoned for detached single-family housing. Row houses, duplexes, and townhouses were the dominant form of housing from the outset. The city (and region) largely remained true to a philosophy of urban planning wherein the infrastructure costs of new housing developments are shared by all residents, not just newcomers, via local property taxes and provincial taxes. Primary and secondary schools are, for example, almost entirely financed by the province. Quebec’s conservative-leaning government is in the process of eliminating local school taxes altogether, to be replaced by provincial transfers to local school boards.
The result: Montreal levies no impact fees on developers. So-called auxiliary fees are sometimes charged, generally for immediately proximate amenities (such as parks), but according to recent estimates, the total sum of local charges imposed on developers for comparable new housing units is between one-fifth and one-sixth of those in Toronto. Some socially motivated policies may constrain supply, but Montreal has usually applied them with a light hand: an inclusionary-zoning ordinance requiring builders to set aside 15 percent of new apartments for low-income housing has remained largely voluntary, negotiable with the city, and applies only to projects requiring major zoning changes. A form of rent control (a provincial policy), in place for several decades, has been applied lightly, with rent variations monitored by a rental board, to which tenants can address complaints. As one might expect, activists find the board too lenient; landlords, too strict. Rental construction has expanded rapidly in recent years, suggesting that supply remains largely unconstrained.
Thus, Montreal facilitates housing-market entry by smaller and midsize developers and contractors, producing a more elastic and competitive market. Compared with Toronto, recent data show, average approval times for building permits were shorter, the percentage of building projects requiring zoning changes smaller, and the probability of community opposition less in Montreal. Smaller contractors help fuel mid-range housing construction, reinforcing what has become a preferred lifestyle for many. Duplexes and triplexes, with their winding staircases, are part of Montreal’s urban lore—an object of affection, not unlike New York’s brownstones and stoops, both much sought after by today’s gentrifying young professionals. Row houses, low-rise apartment buildings, and other mid-range constructions, besides requiring less stringent building codes, have the added advantage of being less costly to build per unit. Apartment buildings with fewer than five stories don’t require elevators, for example, and can make greater use of wood. All this, in the end, works together to produce a more affordable and more flexible housing stock.
A final piece of the puzzle involves the answer to a question: Why is housing-related NIMBYism largely absent from Montreal’s political landscape? Developers do sometimes face opposition but nothing like the recurrent battles typical elsewhere. One answer is Montreal’s preponderance of renters, generally less motivated to protest. Another is the prevalence of mid-range housing. New incoming housing is not generally perceived as a threat to lifestyles or property values because it does not radically deviate from the existing stock. The potential for NIMBY opposition is also lessened where new housing is built on brownfields—abandoned, rezoned, industrial sites, of which Montreal, an old industrial city, has many.
No less important is Montreal’s approach to public housing. Publicly subsidized housing (with shared federal and provincial funding) accounts for about 10 percent of the rental market. With the notable exception of the city’s first public housing project, built in the 1950s—Habitations Jeanne-Mance, an ugly jumble of jerry-built units, from which the city clearly learned lessons—Montreal’s policy has favored small-scale, geographically dispersed projects. From personal observation, I can testify that most public housing, almost all low-rise, is indistinguishable from surrounding buildings and blends into the neighborhood. Construction is generally of good quality—of some importance, when dealing with public perceptions. The dispersion, small scale, and architectural quality of such housing, a conscious policy choice, clearly help take much of the sting out of potential NIMBYism. The absence of a link between public housing and race—beneficiaries are not necessarily associated with particular ethnic or racial groups—also helps, though for this the city deserves little credit; rather, it is an accident of history and geography.
The weakness of Montreal’s NIMBY lobby is best illustrated by recent legislative changes. In 2017, the Quebec National Assembly passed Bill 122, abrogating the right of citizens to initiate binding referenda on zoning changes. The legislation was backed by the mayors of the province’s two largest cities, Montreal and Quebec City, as well as by the Quebec Union of Municipalities. Bill 122 allowed individual municipalities to decide whether to keep referenda or to introduce alternative mechanisms to address citizen concerns.
The legislation was noteworthy for being easily passed—a sharp contrast with, say, California. Some activists and community groups, unsurprisingly, opposed the bill, submitting numerous proposals to the National Assembly during committee hearings. But there was no popular outcry—no street demonstrations and few editorials, pro or con. This seeming indifference is the counterpart of a generally harmonious housing market. The prevalence of duplexes, triplexes, and other intermediate-size housing matters, especially since owners and tenants often live side by side, or, if not, owners personally know their tenants.
An irony of overpriced housing markets is that they increase popular pressure on the state to subsidize affordable housing, precisely to house those excluded by the state’s failed policies, more often than not canceling out the revenues that impact fees bring in—the cat running after its own tail. Metro Toronto has almost twice the proportion of its population in subsidized housing as Montreal (15 percent, compared with 8 percent), a significant financial drag on the city and the province.
Few would argue with the proposition that totally unregulated land and housing markets are a bad idea. Zoning ordinances exist for a reason. Nobody wants a solid-waste dump or an oil refinery next door. Newcomers should bear the costs that they inflict on others. This reasoning has its limits, though, when applied to housing. Restrictions on new housing supply in the face of growing demand ultimately end up hurting the poorest households. By surcharging new housing construction and new residents with impact fees, society is implicitly saying that expanding housing supply entails a social cost, not a social gain. This is the wrong message. More housing benefits all residents, making housing more affordable for all. Citizens should share the costs of making more housing supply possible. That is an essential takeaway from Montreal.
That said, I don’t see an end soon to the housing crisis in North America’s successful cities. The fiscal lure of impact fees and of ostensibly socially progressive urban-planning regulations is simply too great, especially with growing environmental concerns—warranted, but unfortunately often misdirected. Ontario’s legislature voted in 2005 to establish a “green belt” around the Greater Toronto Area; its size has since expanded.
No city is immune to such measures, and Montreal itself may soon succumb. In November 2017, the city elected a new mayor, Valérie Plante, bringing in an openly left-of-center municipal administration. True to the political philosophy of her party, Projet Montréal, Plante chose not to avail herself of the city’s newly obtained right (fought for by her predecessor) to abrogate local referenda on zoning changes. More to the point, a bylaw with the explicit objective of promoting affordable housing was proposed in the city council in June 2019 that would significantly raise inclusionary-zoning requirements on new housing construction (with more than 50 units), which would henceforth be mandatory and apply across the board. If approved, the bylaw would go into effect in January 2021. As currently written, it would compel developers to set aside 60 percent of new units for social/affordable/family housing (the mix could vary). Predictably enough, community groups applaud it, while the building industry condemns it.
It’s too early to predict the impact of the proposed bylaw on Montreal’s housing supply. Legislating the share of “affordable” housing in planned developments is politically appealing; the indirect impact on housing supply and elasticity is a more elusive concept. The bylaw’s implementation foreshadows a bureaucratic process potentially as onerous as many impact-fee regimes. Whether the dampening effect on supply produces an upward impact on housing prices—thus threatening Montreal’s long success as an affordable-housing market—only time will tell.
Photo: Unlike many North American cities, Montreal doesn’t charge developers’ fees on new construction, which has helped keep housing costs down. (BAKERJARVIS/ISTOCK/GETTY IMAGES)
