Investment firms have become the biggest new homebuyers in the U.S., a trend that could make home ownership more difficult for average families.
The idea of big investors buying single-family homes to rent them out is “in its infancy” in Canada, but it’s worth watching, according to the president of one of the country’s biggest real estate firms. Some advocacy groups fear that families cannot compete with financial managers with billions in assets.
As interest rates rise and property prices fall across much of North America, deep-pocketed investors such as hedge funds, private equity giants and pension managers are looking for stable assets to offset inflation and volatile stock markets, according to market watchers. .
Investors accounted for a record 28 percent of U.S. single-family home sales in the first quarter of 2022, according to a report released in June by the Harvard Joint Center for Housing Studies, up from less than 20 percent a year earlier.
“Investors bought a larger share of America’s homes than ever before,” noted a separate report from real estate firm Redfin.
The trend of financial managers buying single-family homes to rent them out is a “new phenomenon” for the Canadian market, said Christopher Alexander, president of ReMax Canada. He thinks the idea could work here since it’s south of the border, especially given the recent price drops.
“The lower you can buy as an investor, the better chance you have of selling high,” Alexander said in an interview.
“They’re well capitalized, they’re smart and they have the wherewithal to impact the market.”
As middle-class families increasingly struggle to afford homes, analysts say more capital from big firms is expected to pour into the Canadian market, further straining supply and affordability for ordinary people. The lack of hard data on the scale of these investments makes it harder for policymakers to respond to the emerging trend, affordable housing advocates said.
Canadian data missing
The extent of current institutional ownership of Canadian housing is unclear, but analysts believe it is much lower than in the U.S. and has generally been a minor factor in the country’s rapid rise in home prices over the past decade.
The Canadian government does not have clear data on the footprint of large investors in the local housing market. Neither Statistics Canada nor the Canadian Mortgage Housing Corporation (CMHC), federal agencies that track the sector, can say how many homes are owned by investment firms.
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“Statistics Canada does not currently release information on institutional investors and the type of residential properties they own,” a spokesperson for the government organization told CBC News via email.
“CMHC does not collect the data you are looking for,” a spokesperson reiterated.
Identifying purchases by institutional investors is not an easy task, ReMax’s Alexander said, especially since these firms often “don’t put all their purchases in the same name or will register properties to different numbered companies or holding companies.”
“I just don’t know if we’re ready to track a new phenomenon,” he said.
“The Question of Not Knowing”
The subject is politically sensitive. Few other major real estate firms would comment on investor interest in the Canadian housing market.
The Canadian Real Estate Association, the trade organization representing realtors, declined to comment. So did Royal LePage, a major brokerage. Two other real estate agencies, Century 21 and Keller Williams, did not respond to interview requests.
Christopher Alexander, president of ReMax Canada, said he’s not sure if the government is currently set on following the trend in Canada. (Chad Ippolito/The Canadian Press)
Getting a clear picture of the scale of institutional investment is the first step in determining how to respond to it, said Jennifer Barrett, senior planner at the Canadian Urban Institute, a Toronto-based not-for-profit organization.
“I think the question of not knowing in itself is an interesting piece to explore,” she said in an interview. “The federal government needs to get on board with housing finance.”
Although the extent of institutional investment in Canada’s housing market is not clear, individuals who own more than one property own 29 per cent of residences in British Columbia, 41 per cent in Nova Scotia and 31 per cent in Ontario, according to data released by Statistics Canada in April. These owners can be home landlords who own several rental properties or larger investors who register homes under one name.
The industry denies raising prices
Despite the lack of hard data, institutional investors have recently made headlines in Canada.
Core Development Group, a Toronto-based real estate firm, drew ire last year when it announced plans last year to spend $1 billion buying single-family homes in mid-sized Canadian cities. The company did not respond to requests for comment on the status of its investments.
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As the real estate market begins to cool, some home sellers are getting less than they hoped for. The change is being felt even in Canada’s most expensive cities.
Blackstone, which describes itself as the world’s largest alternative investment firm with billions spent on single-family homes in the U.S., opened a real estate office in Toronto in May to expand its $14 billion in Canadian real estate.
“We expect to continue to be very active in the Canadian market, particularly in areas such as logistics, high-end creative and life science offices, studios and multi-family housing,” a company spokesperson told CBC News via email.
“We continue to have no intention of investing in the single-family housing market in Canada.”
Blackstone owns roughly 0.02 percent of U.S. single-family homes, according to company data, which represents roughly 80,000 units.
“Given our ownership levels, we have virtually no ability to influence market rental trends,” Blackstone said in March in an online question-and-answer session responding to criticism. “Rents are going up because there is significantly less supply of housing around the world than there is demand for it.”
US realities
U.S. private equity investors began buying single-family homes after the 2008 subprime crisis and subsequent recession, said Barrett of the Canadian Urban Institute. But the trend hasn’t spread to nearly the same extent in Canada.
Since then, corporate landlords have acquired about 350,000 homes, according to testimony heard June 28 by the U.S. House Financial Services Committee examining affordability challenges and private equity.
In the U.S., institutional investors now own roughly 350,000 homes, according to congressional testimony, and their share is growing. (Graham Roy/The Canadian Press)
By 2030, investors could control as much as 40 percent of the U.S. rental housing market, according to data cited by PERE, an industry magazine.
Besides concerns that deep-pocketed financiers will overtake ordinary people to buy homes, tenants who rent from big investors face a host of problems, said Madeline Bankson, a researcher at the Private Equity Stakeholder Project, a US-based advocacy group.
Poor maintenance, broken air conditioners in the sweltering US South, lack of garbage collection, mold, exorbitant late payment fees and no one to respond when something breaks are among the problems that tenants in houses owned by large investors, inform the lawyers.
“The model is: increase revenue, decrease cost,” Bankson said.
Fears of a ‘perfect storm’
Unlike ordinary people, who typically need a mortgage to buy a home, equity investors typically buy with cash, meaning they are more insulated from rising interest rates than individuals. Blackstone, for example, boasts US$941 billion under management.
ReMax’s Christopher Alexander, who follows Canada’s market closely, worries that a “perfect storm” could be on the horizon after 2024 as population growth continues and supply chain challenges affect new construction plans.
Apart from concerns that investment firms could outbid competing ordinary people to buy homes, tenants who rent from big investors face a host of problems, according to one housing researcher. (Evan Mitsui/CBC)
The appreciation of the U.S. dollar against the Canadian currency also makes Canadian housing more attractive to foreign equity investors, Alexander said.
“They see that we have limited supply and there’s no real solution to that by building; we cannot sustain the pace and they see a good climate for long-term appreciation,” he said.
“Investors are not thinking of raising their families there; it’s much more mathematical and number-focused. If you’re buying a home to live in, it’s emotional.”
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