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

For six years, the City of Montreal has been sitting on a vast piece of land that could help relieve a housing shortage, but private developers, whom the city needs to realize its vision for an affordable “eco neighbourhood,” have so far expressed little interest.

Montreal has an ambitious plan for the site, a former horse racing track turned into a vacant wasteland more than twice the size of the Chinatown neighbourhood downtown. But Montreal’s ambitions are expensive, says Pierre Boivin, CEO of investment firm Claridge, who co-leads a city-appointed group drafting a new development model for the property.

The initial development framework pushed by the administration of Mayor Valérie Plante made it impossible to turn a profit, he said. “At the current market price for land and construction costs and regulations around subsidized housing, the economic model doesn’t stand.”

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

Montreal’s plan for the Hippodrome calls for a 2025 groundbreaking on a new carbon-neutral, transit-oriented “eco neighbourhood.” So far, the Plante administration has awarded only one development contract, a deal with a non-profit organization to construct a 100-per-cent affordable housing complex, representing up to 250 of the 6,000 units the city wants to build at the site.

A fall 2022 call for offers to develop a second parcel received no submissions from the business community. The city set a minimum bid of $10 million to purchase the land and stipulated that 60 per cent of housing units on the site remain “affordable” — or below the median market rate — for 30 years.

That’s simply too much to ask, according to the Montreal Economic Institute, a conservative think tank. “When you’re adding the high cost for the terrain … and the very low number of market units being built, it’s very hard for developers to find a way to make money off of it,” spokesperson Renaud Brossard said.

“So they’re not interested. And the result has been that instead of having a vibrant district with 6,000 units, what we have now is a vacant plot of land with no plan for development.”

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

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

The administration “feels that it can dictate to promoters, and promoters are just showing them their backs,” Rotrand said.

“The reality of the situation is that the city is disconnected. It doesn’t know how to solve these problems.”

And Montreal’s problems are growing. In 2022, the Canadian Housing and Mortgage Corporation recorded the Montreal area’s biggest annual increase in average two-bedroom rent in two decades: 5.4 per cent. The proportion of vacant apartments, which ballooned from 1.5 per cent in 2019 to a pandemic-fuelled three per cent in 2021, fell back down to two per cent the year later. Nationally, the average apartment vacancy rate was 3.2% between 1990 and 2021.

The agency expects rents to continue to increase as the number of new apartments in the city and its suburbs fails to meet demand. Despite an anticipated drop in home prices in 2023, a decline in new housing construction means the Montreal-area real-estate market is falling behind the levels it needs to “restore affordability,” the CHMC said in its spring housing forecast.

It noted similar trends in Toronto, where officials have also struggled to facilitate the development of city-owned land. A 2019 plan — called “Housing Now”— to turn public lots into mixed affordable and market-rate housing complexes has failed to deliver units within its first four years, with construction on the first of 21 plots only slated to begin this July.

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

Following the failure of the second call for offers, Montreal convened Boivin’s working group, comprised of public officials and business leaders, to identify new development conditions that would both attract private developers and satisfy what the city calls its “social objectives.” The group is expected to deliver a plan by the beginning of 2024.

Dorais said he’s certain the group will honour Montreal’s affordable housing goals.

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

Boivin agrees the city shouldn’t lower its affordable housing targets, but said a successful plan will need commitments from governments and the development community to fund housing subsidy programs and an infrastructure build-out.

“We’re gonna try real hard to break the mould and create a new model for this problem,” he said. “Otherwise it’s not gonna get resolved.”