Groups are asking why they pay the same rate as private property owners when their housing “isn’t built to be resold or to make a profit.”
Faced with a shortage of affordable housing, Montreal has been offering inducements to build to an old ally — the non-profit sector — by streamlining permit requirements and fast-tracking their projects. Some boroughs are even waiving permit fees for non-profit buildings.
Why, then, is Montreal over-taxing them?
Non-profits include housing co-operatives and community housing corporations. They say they’re choking on soaring municipal tax bills, which are calculated on speculation-driven property assessments that don’t factor in their non-profit status and modest rental income and which charge them the same tax rate paid by owners of luxury residential properties. And it isn’t just in Montreal.
“The non-profit housing project isn’t built for speculation; it isn’t built to be resold or to make a profit,” said André Castonguay, executive director of the Réseau québécois des OSBL d’habitation (RQOH), which represents 1,400 non-profit housing corporations across Quebec.
“But we pay the same tax rate as the private property owner, even if non-profit housing isn’t on the market.”
Associations of non-profit owners say that if cities really want to stimulate the construction of affordable housing, they need to re-examine their tax treatment of the non-profits organizations that provide it.
“There’s an issue of recognizing our social mission,” said Patrick Préville, executive director of the Fédération de l’habitation coopérative du Québec (FHCQ), which represents 1,300 of the province’s housing co-operatives.
The main difference between a housing co-operative and a non-profit housing corporation is in how each is governed. A co-operative is governed by its members, who are tenants of their respective apartments but collectively own the building, while non-profit housing is owned by the corporation and managed by a board of directors that may include tenants and members of the community. In both cases, rents are generally below market.
Non-profits offering permanent housing aren’t asking to be exempted from taxes, Préville and Castonguay say, but they are seeking changes to municipal property assessment and taxation.
“Why are we pushing harder today for our demand? Because municipal taxes represent for many co-ops around one-third of their expenses,” Préville said.
Edith Cyr, executive director of Bâtir son quartier, a technical resource group that has helped co-operatives and non-profit organizations build more than 15,000 community dwellings in the Montreal region since 1994, says it was a matter of pride for non-profits to pay full property taxes on their buildings when they started in the 1970s and ’80s.
“We wanted to,” Cyr said. “We wanted our projects to be a source of revenue for cities to make it attractive.”
But in the current context, with high property taxes combining with inflation and higher construction costs and interest rates, she said, municipalities relying on non-profits to build more affordable housing to meet urgent needs should be working with them to lower project costs.
Taxes are an obvious place to reduce costs, she added.
For homeowners and landlords, higher property assessment might bring higher municipal taxes, but it also gives them the opportunity to borrow more money against their property and get a higher return when they sell.
Not so for non-profits, which can’t sell their buildings except in rare cases. In fact, Quebec further tightened the legal restrictions in 2022.
Moreover, non-profits can’t pass along their property tax increases to tenants through rent increases like for-profit landlords. That’s because of the non-profits’ mission to guarantee long-term affordability and because the rules attached to provincial construction subsidies forbid them to raise rents above the median, Cyr said.
And under the Quebec government’s funding rules, non-profits receiving government subsidies and long-term loans to fund construction are barred for 35 years from tapping into the equity in their building. That means they can’t get a bank mortgage when the roof leaks. Also, higher municipal taxes leave less cash available for building maintenance and repairs.
“We’re careful to not be too greedy,” Castonguay said.
“If taxes were lowered to seven or eight per cent of an organization’s operating costs for a building, it would already be a good thing and would help a lot.”
Recent legislation passed by Premier François Legault’s Coalition Avenir Québec government doesn’t do enough, critics say.
Bill 31, sanctioned in February, allows non-profit organizations that offer post-secondary student accommodation to apply for an exemption from paying property and business taxes. But that measure isn’t available to non-profits that house other people in need.
Meanwhile, Bill 39, which was sanctioned in December, opens the possibility to municipalities to offer tax credits to different types of non-profit housing owners.
The law says a municipality can provide aid, including in the form of a tax credit, to transitional accommodations for people in need, to social and affordable housing for students and to assist the “proper functioning of an organization that manages social and affordable housing.”
“There’s lots of uncertainty” with Bill 39, Préville said. A municipality can decide whether it wants to offer a tax credit, and how big it will be, he said. “Is it 25 per cent? Fifty per cent? One per cent?” he said. “It’s not clear.”
A tax credit could serve as a temporary measure for non-profits until the province amends the taxation act to permit variable tax rates, Préville said. “We absolutely need a differentiated tax rate.”
Préville said his organization has had “good” discussions with Mayor Valérie Plante’s administration about the idea of a differentiated tax rate for non-profits.
However, the administration declined to comment and the city didn’t disclose its position when The Gazette asked more than a week ago.
“The city is currently studying all the new … urban planning powers granted under Bill 31, as well as the powers obtained via Bill 39,” the city said through spokesperson Sara-Eve Tremblay.
“The city’s commitment to a more affordable Montreal remains our priority and this is where we dedicate all of our efforts, in order to offer lasting solutions. Our intentions in this direction will be known in the near future.”
Municipalities in Quebec are understandably devoted to collecting their property taxes given that it’s their principle source of revenue, Castonguay said. Quebec will probably need to compensate municipalities for lost revenue if they vary the tax rates, he said. But it’s a smaller price to pay than not seeing non-profit housing built, he added.
“You have to see social and community housing development as an investment that will lower other costs,” Castonguay said. “It’s difficult to quantify the costs you avoid — health and social services, public security — by giving people a roof.”