Economy

Demystifying the economy | Is the government contributing to inflation with social housing?

Demystifying the economy |  Is the government contributing to inflation with social housing?
Written by on100dayloans

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Francois Vailles

Francois Vailles
The Press

Questions concerning the construction of housing, in particular social housing. How are they financed, ie how much money does the government put in and how much do the tenants pay? Moreover, is it true that the construction of this type of housing helps to slow down inflation? Or on the contrary, does it not contribute to inflation, with the demand for materials, land and workers to build these dwellings1 ?

Martin Fregeau

The construction costs of social housing are closely linked to the residential real estate market as a whole. And this market has been on fire for two years.

For existing properties, the price of houses, condos and plexes in Quebec increased by 18.9% in 2021, after an increase of 16.4% in 2020. And for new housing, the Statistics Canada index for the Quebec estimates the increase at 15.1% in 2021 and 8.2% in 2020.

These marked increases are explained by the strong demand combined with the lack of housing of any type on the market.

There is no doubt that the construction of new housing puts pressure on the price of land, materials and labour, explains Hélène Bégin, economist at Desjardins Group.

But without these new homes, the increase in the price of existing properties would be even greater. It’s a lesser evil.

Hélène Bégin, economist at Desjardins Group

The intervention of the Quebec government in the construction of new social housing therefore contributes to real estate inflation, but on the other hand, doing nothing would be worse.

How does the government intervene? In two ways, basically. First, it subsidizes the construction of the building. The very recent program of the Société d’habitation du Québec, called the Québec Affordable Housing Program, subsidizes non-profit organizations up to a maximum of 80% of costs and private companies up to 50%. Among the conditions, landlords must keep the rent within a certain range for 15 to 35 years.

Then, the government subsidizes poor tenants whose income is below a certain threshold. In Montreal, for example, this threshold is $32,500 for a couple. The subsidy, awarded under the Rent Supplement Program, ensures that the tenant does not pay more than 25% of his income for housing.

1. Reader questions have been reworded for brevity.

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