Though surrounded by endless expanses of land, northern mining towns in Quebec are running out of permissible space to build much-needed housing and other property types required for growing cities.

It's a problem expected to intensify as the region faces an influx of anticipated workers from a major new contract with U.S. manufacturer Tesla and an increase in mining for materials used to make batteries for electric vehicles.

Tesla announced a deal last month to buy spodumene concentrate, a source of lithium and important raw material needed for electric vehicle batteries, from the Sayona Mine 560 kilometres northwest of Montreal. Local leaders expect Tesla's deal with Piedmont Lithium, based in Belmont, North Carolina, and part owner of the Sayona Mine, and other area mining operations to bring a significant number of workers to Northern Quebec, home to one of North America's largest natural supplies of spodumene.

Local authorities say the towns closest to the mines are already bursting at the seams and their attempts to greenlight further housing development have been handcuffed by provincial government regulations that can take years to process.

Martin Ferron, mayor of Malartic, a town of 3,500 residents located 30 kilometres from the Sayona Mine, said the lengthy delays by the provincial government to build more housing "makes no sense" and the municipality cannot keep up with the constant demand for housing from mining employees.

"The regulations might be legitimate and we have good meetings with different ministers to accelerate the process but the delays are long, it takes years and years,” Ferron said in a phone interview with CoStar News.

As a result, when Malartic homeowners rent their homes to workers, who live up to five per room, it leads to complaints from neighboring residents.

The Quebec government owns about 95% of the land within the municipal boundaries of Malartic, which became a municipality in 1939. Traditionally, Malartic town officials would purchase the heavily forested lots on the outskirts of the city whenever they needed to expand.

But a recently enacted policy from Quebec’s ministry of natural resources has banned such sales, and municipalities are now only permitted to rent — not purchase — provincially owned land, making it difficult for mining towns to expand. Malartic officials are planning to meet with Quebec’s natural resources minister as well as the urban affairs minister over the next few months in an attempt to remove the roadblocks, said Gerald Laprise, Malartic's general manager.

Rachel Cossette, director general of the nearby town of La Motte with 500 residents, echoed the frustrations, noting that provincial zoning regulations make it impossible to build in the area. While some people approve of "the new mining, excited to know that they can find work without leaving the region," she said, "some others oppose it for environmental concerns.”

Some environmental authorities have expressed fears that deep digging in the area could disturb water tables and cause rivers and lakes to dry up, as well as harm the quality of the air.

Tesla had initially planned to source the lithium materials it is getting in Quebec from Piedmont Lithium's mineral operations in North Carolina but pivoted away from that plan following U.S. regulatory delays, according to Piedmont Lithium.

Tesla's amended deal with Piedmont Lithium is expected to start with the first commercial shipments using spodumene from the Sayona Mine in Quebec in the third quarter.

There were nearly 300 employees, including contractors, on-site working to restart the mine at the end of January despite daytime temperatures that average about 16 degrees Fahrenheit, or negative 9 degrees Celsius, up from 100 workers in November, according to a company statement. Once production starts in March, there will be 250 employees working at the mine, company officials told CoStar News.

The Tesla deal is a sign of an expected ramp up of battery manufacturing operations in the region as part of Quebec's strategy to exploit and transform critical and strategic minerals in the province to manufacture battery components, such as anodes and cathodes, said Sylvain Carrier, a representative of Quebec's Ministry of Natural Resources and Forests, in a note to CoStar News.

"The agreement between Piedmont and Tesla represents for Sayona a first milestone in the realization of its Quebec strategy, which could ultimately lead to the exploitation of several deposits and the processing in Quebec of the concentrate produced," Carrier said.

The Sayona Mine had previously been owned by Chinese battery maker CATL, which shut the facility after running into financial difficulty following a decline in the price of lithium between 2017 and 2020. Sayona Mining Ltd., based in Australia, and Piedmont Lithium purchased the mine in 2021.

Battery manufacturing operations have been increasing to meet anticipated demand in North America from the expected transition to electric vehicles. In the United States, electric vehicle sales nearly doubled from 2021 to 2022, while Canada is targeting 60% of all vehicle sales to be electric by 2030, according to Sayona Mining Ltd. That growing demand for lithium has led to a massive rise in prices over the past year.

Locally sourced lithium from Quebec puts the province in a "highly strategic position as a clean and green, economical and stable supplier of this vital battery mineral,” said Brett Lynch, managing director of Sayona Mining Ltd., in a statement.

Canada rose to the No. 2 spot on a 2022 ranking of the countries with the best lithium-ion battery supply chains based on 45 metrics, according to Bloomberg NEF. China ranked No. 1 and the U.S. came in at No. 3. China currently hosts 75% of all battery cell manufacturing capacity and 90% of anode and electrolyte production, according to Bloomberg NEF.

In the United States, President Biden's Inflation Reduction Act that passed last year includes steps to help encourage domestic sourcing of raw materials, particularly on processing minerals sourced from free trade agreement countries including Canada. U.S. consumers buying an electric vehicle can receive a $7,500 tax credit if it’s made in North America and if critical minerals aren’t sourced from a foreign entity of concern, notably China and Russia.

For Piedmont Lithium's deal with Tesla, the company will supply the electric car maker with 125,000 metric tons of spodumene concentrate per year from the Quebec mine until the end of 2025, according to the statement from Piedmont Lithium. The contract includes an option to renew for another three years. Pricing will be determined by market prices at the time of each shipment, according to the statement.

“This agreement helps to ensure that these critical resources from Quebec remain in North America and support the mission of the Inflation Reduction Act to bolster the U.S. supply chain, the clean energy economy, and global decarbonization,” said Piedmont Lithium President and CEO Keith Phillips in the statement.

Meanwhile, Piedmont Lithium is nearing the final stages of the permitting process in North Carolina for its "world-class, fully integrated lithium hydroxide operation," said Patrick Brindle, Piedmont Lithium's chief operating officer, in a statement to CoStar News.

"Upon receipt of the state mining permit, we plan to continue our work with the Gaston County staff to prepare for the next steps in the County process to advance to the construction phase of the project," Brindle said.