CHIA Podcast #019 The health of Quebec's rental properties

HOW HEALTHY IS OUR RENTAL HOUSING? What is its history? How old are they? Whether it's a house, a triplex, a quintuplex or a high-rise, who manages and maintains these buildings, and do they have the means? How do we compare with neighboring Ontario? How do we compare with other countries where the proportion of renters is higher than in Quebec?

Marc-André Plante, M.A.P., Director of Public Affairs and Government Relations for the Corporation des propriétaires immobiliers du Québec - CORPIQ, and former Mayor of the City of Terrebonne 2017-2021, gives us a general overview of our housing challenges, and some possible solutions to help achieve a better balance between owners and tenants.

The 19th episode of the Real Talk with CHIA podcast was broadcast on April 5, 2023 and is replayed on our Youtube channel, here is its translated transcript:

-Hello everyone, I'm Chiayi Tung, your host for Franc-Parler avec Chia. I'm pleased to invite Marc-André Plante, Director of Public Affairs and Government Relations at CORPIQ, to come and talk to us about the challenges we face as a society in terms of housing.

Marc-André Plante It's a pleasure to be with you today.

-Yes, me too, me too! As we know, there are many challenges in the housing sector, and as we also know, you're a retired politician. You spent your life, very much involved in the lives of citizens, defending and protecting our residents. So thank you. So, certainly you have a really deep background to share with us all kinds of subjects. So what I thought today was worthwhile was a more general and factual portrait of the health of our rental stock. What do you think?

-You know, in Quebec, we have 1.5 million rental units. That's excluding condos and condominiums. This is really traditional rental. You know, when we compare ourselves with the rest of Canada, there's a much higher proportion of renters here in Quebec. That's over 40% of the population in Quebec. And even though in the rest of Canada, the proportion is increasing, here in Quebec, it's historic. There have always been more renters, nearly 2 out of 5, so it's quite a high proportion. We have a rental housing stock that is, first and foremost, historic. Many of our homes were built before 1980, so 60% of them. So, as I often say, we have a stock that needs looking after, that needs love!

-Before going into the age and generality of these rental buildings, I'd like to know what the proportions of these public and private buildings are.

-Right now, purely privately owned, that's about 90% of rental units in Quebec that are privately owned. The other 10% is, of course, low-income housing, under municipal housing offices, and there are housing cooperatives. There are also non-profit housing projects. So that's about 10%. It's a slightly lower proportion, for example, than in Ontario. But when I say a little less, I mean a few percentage points. But overall, the private sector still accounts for almost 90%.

-I'd also like to know the proportions of building sizes. Because at the end of the day, people might think that property owners are very rich. But not necessarily, because in addition to high-rise buildings with over a hundred units, there are also rental houses, duplexes and triplexes. Am I right?

-Not only are we right, but we're also very different from the rest of Canada. 37% of Quebec homeowners have fiveplexes or less. So, 5 doors or less. So, these are people who necessarily have another job. And often, they're owner-occupiers, but not always. Sometimes it's their savings, their pension funds. Sometimes they've inherited a building from their parents, which they continue to manage with tenants. But the vast majority, I say 37%, that's Quebec, but in Ontario it's 7%. So here in Quebec, we have a lot of small buildings, plexes in quotation marks, built of wood, with soundproofing that's not always as good as in the new concrete buildings, very different from the rest of Canada, where we tend to have density, several floors, elevators. Here in Quebec, the layout is very different indeed.

-Yes, absolutely, and I think that's one of the reasons CORPIQ exists. Could you talk briefly about CORPIQ's mission?

-The Corporation des Propriétaires Immobiliers du Québec, CORPIQ, has been around since the early 80s. Since the creation of the Tribunal administratif du Logement. We're a non-profit association. We belong to all homeowners who are members. And so, there is a democratic will. So the association doesn't belong to Marc-André Plante, it belongs to its members. And our mission is to reflect and represent rental owners in their day-to-day management issues. Landlords and managers too. But I'd also like us to take an increasingly customer-centric approach, i.e., to our tenants. Because, you know, when you manage an industry, you have customers, and here in Quebec they are the tenants in our industry. So we're really taking the approach that we have to find a balance. Balance in a market, balance for the owner. A stimulating environment. So that's really our mission as an organization. We have to represent all owners: small, medium, large, large corporations. So that's really our goal.

-Excellent. Can you tell us how many members you currently represent?

-We represent 30,000 members and managers. So, it can be owners and managers who are their representatives. Obviously, we have large owners: the largest in Quebec has 4,500 units. But we also have people who live in duplexes, with just one tenant. And our goal is to support them, because the laws in Quebec are relatively complex. You have to know all the issues, the environment and how to proceed. There really is a great deal of legislative oversight in Quebec. So we're here to train, educate and support landlords in all the challenges of property management in the rental sector.

-I find your tools very, very useful. They're available online. So, thank you very much. So, back to our buildings, our rental stock. Here, we understand that 10% is public and 90% private. So, the vast majority of buildings were built some time ago. Apart from recent buildings, what is the current state of these buildings that were built some time ago?

-It's clear that the rental stock has a maintenance deficit. We won't hide the fact that, back in 2016, and annualized since then, we were estimating a deficit in excess of tens of billions by 2023. There are several main reasons for this. Firstly, public policies in the rental sector have been developed, although not necessarily always, to encourage upstream renovation. And so, investment continues. And so, with a stock where over 60% was built before 1980, we're in our fortieth year plus. Well, these are the buildings where the big jobs are. And unfortunately, the rules of the game haven't necessarily emphasized the importance of maintenance and reflecting these costs in rental prices. As a result, many landlords have often aimed to keep their properties in good repair. But as I always say, when you under-invest in the maintenance of your rental stock, sooner or later it catches up with you. And it's also due to calculation methods, rent setting and annual adjustments, which don't really reflect the commitment we should have to maintaining the stock.

-Absolutely. Just to compare with condominium management, for example.

-Same example.

-Every condominium corporation is required by law to maintain the financial and physical health of its buildings. And to do this, everyone contributes to a fund. And that fund is a contingency fund. And to really maintain the health of condominiums. And in rental properties, it's every man for himself.

-That's right, and the contingency fund doesn't necessarily exist. But in fact, if the owner has one, it's because he needs to be sure that his investment will pay for itself in certain years. But right now, depreciation policies for major renovations can take 40 or 50 years. So you redo a kitchen and amortize it over 30, 40 or 50 years.

-But we all agree that a kitchen is out of fashion after 10 years, and then you have to start all over again!

-I always tell my wife the good news: we're redoing the kitchen today, but we're going to finance it over 40 years. She'll say: we'll see it again by then! That's why I say it's absolutely essential that the investment matches the lifespan. And unfortunately, at the moment, we're encouraging the worst behavior. Behavior that says, we're going to, excuse the expression, we're going to spat. We're going to keep it correct, safe. But I think that what tenants want is a renewed, healthy environment for good housing. And for that, there has to be an equation between the price I'm going to pay and the price I can ask for. Unfortunately, it seems that in Quebec, they're overly protective of the lowest price, but this contributes to maintaining housing that's sometimes in poorer condition. And that's what we need to change as a culture, as a way of doing things.

-Absolutely, and speaking of that culture, I know a thing or two about it, because as a real estate broker specializing in multi-family transactions, I can often accompany customers on apartment visits. And it's not always, always rosy. The condition of the buildings and the quality of the tenants aren't always up to scratch. This is precisely because landlords are unable to recoup their substantial investments in kitchens, bathrooms, roofs, structures, foundations and facades. There's so much to do, so much maintenance to do. But given that, financially speaking, it's not worth it because we can't contribute to it in a certain way, through the very low rents. So, in the end, it's the tenants who suffer, living in rather patchy environments.

-Exactly. In fact, the reality is that we're really in a discouraging economic climate. So, for an owner, the problem is that we don't encourage long-term ownership. In other words, when we renovate a building, we unfortunately see a lot of people on the market saying: well, I'm going to renovate and then I'm going to resell. I'm going to take the profit right away. Personally, I think we need to encourage behavior upstream. We renovate on an ongoing basis, but we hold on to our property for the long term. We make a commitment, we create a relationship with our tenants. A relationship of trust. And to do that, you have to set the rules of the game so that the investment in real estate is worthwhile for the owner. At the same time, let me be clear: we also need to strike a balance in the marketplace. A balance that ensures that the rights of both rental property owners and tenants are equally balanced. We also need to avoid situations where, for example, I'm going to repossess your home because I want to make more money out of it for no good reason, and so on. I think the system that's been created in Quebec is one where everyone has rights and can assert them in a balanced way. What we need to avoid is a situation in which these laws privilege the worst behaviors. The person who abandons his building because he sees no point in maintaining it. Until, one day, we say to ourselves, do we destroy it and rebuild it from scratch?

-It's really sad.

-It doesn't have to come to that. We have to take continuous action. And that's what CORPIQ is working on, really bringing in rules of the game and laws, frameworks that value long-term ownership, so that the person who invests as a landlord develops a good relationship with his tenants.

-Ah yes, absolutely, finding the right balance.

-Exactly.

-For both. One of the cultural shocks I had when I arrived 25-26 years ago from Taiwan to Quebec. After all, I'm a native of Taipei, which is the capital of Taiwan. And you know the common practice in Taiwan is that there are also many, many tenants. Why, because the buildings are relatively expensive. So, you know, a little 500 square feet is easily 1.5 million. So, very few people have access to home ownership, so we have many, many renters. On the other hand, in Taiwan, what's the practice for this landlord-tenant relationship? When you sign up as a tenant, i.e. to take over a property, you give a three-month security deposit to show the landlord that I'm a responsible person and I'm prepared to invest that amount to guarantee that I'll maintain the property in its current condition. And at the end of the day, the deposit is returned because I become a stakeholder in the health of the building.

-For a number of years now, CORPIQ has been making representations, notably for the security deposit. But as you know, case law has recognized that tenants can propose a security deposit to their landlords. Right now, for example, if you have pets and the landlord is worried or doesn't want to take them in, the tenant could come along and say, "Look, I'm offering you a security deposit as a gesture of good faith. Obviously, case law states that this must be voluntary on the part of the tenant. And it's not the same for all tenants. Obviously, I think we need to go a little further, and I like the fact that you say you've arrived in Quebec. You made the choice as a newcomer, as a tenant. And I'm going to talk about it because I think it's important. You know that in the first five years of an immigrant's arrival in Quebec, 83% are renters. So, immigration means renting in Quebec, especially in the first few years. One of the major difficulties, especially in an extremely tight market, as we can see: very low vacancy rates, well many new arrivals have difficulty establishing a credit rating, they have no credit history. They don't necessarily have an endorser, or a roommate to help them, especially students. They have no history of other owners who can recommend them. And often for these newcomers, or even foreign students, the security deposit is a way of providing security for the landlord. And I think that our laws are going to have to evolve, because some tenants have life obstacles. I'm thinking, for example, of a man getting divorced. A bad patch in his life. Then he has a child, then he wants joint custody, he wants to take responsibility but he recently went bankrupt. Then, things aren't going well in his life, but he wants to get back on his feet; find himself a job, etc., etc. But now he's got to put himself in a class of his own to find a place to live. And in that case, it's harder to get credit. Personally, I think we need to evolve in some situations in Quebec. The security deposit is a way of minimizing the risks for the landlord and also making the tenant responsible, in the sense that I'm taking a property and I'm going to give it back in the same condition. It works in several legislations. And it's one of the legislative changes we'd like to see in Quebec. And I think that for many immigrants, it would make it easier to find housing, because unfortunately, when you arrive in this country, you don't know the laws, you're disoriented. We leave our country in conditions that aren't always easy. And housing is our first neighborhood, our first attachment to the host country. And the more this environment meets our needs, the better we'll be able to integrate and participate in community and economic life.

-That's it, that's it. I very, very, very much agree with you because I've been through it all. I was lucky enough to arrive at the University of Montreal. Then I lived in the Virgin Tower, so I was very well received. But I can't imagine, for example, that immigrants arriving with a whole family absolutely have to find a neighborhood, identify an area and a home that will meet several criteria. Where to put the children? In which school? It's a lot of headaches. And if, on top of that, they have trouble convincing the landlord to rent to them.

-You can't blame the landlord, because you know, he often has his mortgage at the end of the month. Because there's always a domino effect.

-Absolutely.

-A risk effect. A tenant who doesn't pay, who defaults. This has financial consequences, which for the past year, with rising interest rates, landlords have really had no room to maneuver. 

-There really isn't.
And so, risk-taking must be minimized. I often tell tenants to offer a small amount, even if it's a small amount. I often say a small amount, it's symbolic, but you're sending out a message that you'll be a responsible tenant. That you're willing to help preserve this environment. And so, in a way, the landlord isn't interested in the amount of money, it's the commitment. And what he's looking for is people who are responsible. In fact, it's not the money, it's the level of responsibility that's important.

-It's the level of trust.

-Exactly. Exactly.

-Exactly so.

-But that's the way it is in life and in everything.

-Absolutely. It's just that at the moment, we see that we're facing some challenges in terms of regulations, because it seems that these regulations exist to protect both parties. But they're not up to date, according to today's reality. So they need updating, just as our buildings, which are in a state of disrepair, also need updating.

-In Quebec, we basically have the same laws as we did 40 years ago. 

-It's not the same context.
It's just the calculation of rent increases, the rent-setting formula, it's based on calculation methods from the early 80s when interest rates were at 20%. So it's another world, another reality. So, we've come to the conclusion that we're in favor of a major reform of the housing sector. The objective here is not to make homeowners extremely rich, and then abuse them... No homeowner thinks like that. It's about finding the best balance, but above all it's about focusing on the right behaviours: in particular, maintenance. Then, as I always say, the investor, the owner, wants to make a bit of money, it's normal, it's his pension fund, so he wants it to progress. But he doesn't necessarily want to do it by taking advantage of others. So there has to be a balance, and that's what we need to find in the system. Governments must also assume their responsibilities with regard to more vulnerable clienteles, with more affordable social housing. And that's not necessarily the job of private landlords, because it's not their job.

-En plus de toutes les rénovations majeures ou des entretiens réguliers, j’ai aussi passé hier toute la journée dans une conférence sur le ESG. Donc, le ESG existe depuis un certain nombre d’années. C’est juste que là pour les gros propriétaires d’immeubles, il va falloir commencer à déclarer, et puis, de respecter un certain encadrement à partir du 1er janvier 2024. Alors est-ce que vous prévoyez, chez CORPIQ, un certain impact ?

-À ce moment-ci, on surveille ça de près. Évidemment, on est toujours for anxieux par rapport à ces changements-là. Le défi qu’on a toujours, c’est qu’au Québec, on a 300 000 propriétaires. Donc, les propriétaires sont pas tous assidus des changements ou des évolutions et de l’actualisation des lois. En ça c’est un défi. Et c’est pour ça qu’on milite même auprès du gouvernement éventuellement pour qu’il y ait des ressources financières, destinées à de la formation de l’accompagnement, de l’appui aux propriétaires, parce que lorsqu’on apporte des modifications ou des objectifs à atteindre comme vous venez de le nommer, ben, ça se fait pas par magie.

-Non ! Je prévois beaucoup de chaos dans ce changement !

-Exactement ! Donc, c’est pour ça qu’il faut agir en amont, c’est par l’accompagnement. Et moi, j’aurais envie de dire qu’on peut bien se donner des dates, des objectifs, ceci ou cela. Mais il faut se donner un cadre de mise en œuvre de ces politiques et de ces changements. Et ça, là-dessus, on a tendance à minimiser l’importance, là-dessus. Alors moi, j’aurais tendance à dire, oui, je suis inquiet parce qu’on ne consacre peut-être pas les énergies à l’accompagnement des propriétaires, à cet effet.

-Il y a toujours plusieurs façons de voir la même chose. En parlant de ESG et spécifiquement, en parlant de « E » ; Environnement, donc actuellement, il y a aussi le programme de APH Select qui vient donner un coup de main aux propriétaires d’immeubles locatifs. Justement aussi, ils font des changements, des améliorations pour la condition énergétique. Ça peut donner aussi un bon impact dans le rendement financier et aussi énergétique. Et aussi la qualité de vie des locataires.

-Moi, je veux d’abord saluer la Société Canadienne d’Hypothèques et de Logement innove toujours avec des nouveaux programmes. APH Select en étant un bel exemple, récemment. Beaucoup de constructeurs, de propriétaires vont les utiliser. Et ils fixent des objectifs qui concordent avec les priorités de la société québécoise et canadienne, donc développement durable, l’environnement. Ce que je trouve intéressant, c’est que dans la lutte pour le changement climatique, dans cet objectif de mobiliser l’efficience énergétique, les bénéfices, ils sont pour tout le monde. D’abord pour la société, on le savait déjà. Mais comme propriétaire, c’est un investissement qui est important. C’est une mise en valeur, c’est un engagement qui est grand. Mais aussi pour les locataires, il y a un bénéfice. Parce que 75% des locataires paient les frais de chauffage. Alors, quand on travaille à remettre à niveau nos logements, surtout avec des objectifs au niveau de l’efficience énergétique, ben c’est aussi le portefeuille du locataire qui en bénéficie. Or, ce sont des stratégies qui sont gagnantes. Mais pour ça il faut multiplier les mesures, il faut multiplier l’aide directement aux propriétaires, parce qu’en même temps, on diminue l’impact sur le prix du loyer et des charges parallèles comme l’énergie. On est dans une solution gagnante pour tout le monde.

-It all sounds so... All I'm hearing is big thinking! But how do we get there?

-You have to multiply these programs. Because often the budget envelopes aren't always sufficient, are limited. But we can't just make this shift for the sake of our children and future societies. There are gains for everyone. And so, in my opinion, we're going to have to, in particular, the City of Montreal has set objectives to that effect. But our concern is that the budget envelopes may not be sufficient. And in our opinion, we should set priorities. For example, we could start with buildings constructed before 1980. In 2-3 years' time, we'll go for those built in 1985 and under. Then, 90's. You see, we'll go gradually, and we'll get to where there's an area of significant gain. Public policies need to be more aggressive on these elements. So, we're making the representations and then, we hope that people are listening today, and then, will perhaps remember the importance of this kind of proposal.

-Absolutely, absolutely, and that's why I'm doing this program for Franc-Parler with my guests. Thank you very much for stopping by, and to conclude, I'd like to know what your wish is for our society and for the generation to come?

-I think my greatest wish, first of all in housing, is for everyone to be able to live comfortably in the best possible environment. Right now, we're at a crossroads in the housing sector. So what I want is for everyone to be at the same table. Whether we're public or private, whatever our mission, we have a duty to deliver and offer housing for everyone. Of course, that comes with all kinds of challenges. But as long as people work together, collaborate towards the same goal, as a company, we're going to be pretty successful in the future. So I get up every morning and tell myself that I'm contributing to that goal!

-Absolutely, thank you very much!

-So there you go.

-Yes, so it's in communication that we find solutions and actions, isn't it? Thank you for listening to us! Until next time.

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