Investment companies have become the biggest new homebuyers in the United States — a trend that could make homeownership more difficult for average families.
The idea of big investors buying single-family homes to rent out is “in its infancy” in Canada, but worth watching, according to the president of one of the country’s largest real estate firms. Some advocacy groups fear families could compete with fund managers with billions in assets.
As interest rates rise and real estate prices fall across much of North America, deep-pocketed investors such as hedge funds, private equity giants and plan managers pensioners are looking for stable assets to offset inflation and stock market volatility, market watchers say.
In the first quarter of 2022, investors accounted for a record 28% of U.S. single-family home sales, according to a June report from the Harvard Joint Center for Housing Studies, up from less than 20% a year earlier.
“Investors bought a larger share of American homes than ever before,” noted a separate report from real estate firm Redfin.
The trend of fund managers buying and renting single-family homes is “a new phenomenon” for the Canadian market, said Christopher Alexander, president of ReMax Canada. He thinks the idea could take hold here as it has south of the border, especially given recent price drops.
“The lower you can buy as an investor, the more likely you are to sell 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 find it increasingly difficult to buy homes, analysts say more capital from large corporations is expected to enter the Canadian market, putting additional pressure on supply and lending. affordability for average people. A 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.
Lack of Canadian data
The extent of current institutional ownership of Canadian homes is unclear, but analysts believe it is much lower than in the United States and is generally a minor cause of rapidly rising house prices. that this country has experienced over the past decade.
The Canadian government does not have clear data on the footprint of large investors in the domestic housing market. Neither Statistics Canada nor Canada Mortgage and Housing Corporation (CMHC), the federal agencies that track the sector, could say how many homes are owned by investment companies.
“At this time, Statistics Canada does not publish 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,” echoed a spokesperson.
Nailing purchases by institutional investors isn’t an easy task, said ReMax’s Alexander, especially since these companies “don’t put all of their purchases in the same name or register properties with different companies to numbers or holding companies”.
“I just don’t know if we’re set up to follow a new phenomenon,” he said.
“The Question of Not Knowing”
The subject is politically sensitive. Few other major real estate companies would comment on investor interest in the Canadian housing market.
The Canadian Real Estate Association, the trade body representing brokers, declined to comment. Just like Royal LePage, a large brokerage. Two other real estate agencies, Century 21 and Keller Williams, did not respond to interview requests.
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 nonprofit.
“I think the question of not knowing, about itself, is an interesting element to explore,” she said in an interview. “The federal government must address the financialization of housing.”
Although the extent of institutional investment in the Canadian housing market is unclear, people who own more than one property own 29% of homes in British Columbia, 41% in Nova Scotia and 31 % in Ontario, according to figures published by Statistics Canada. in April. These owners can be family owners who own a few rental properties or larger investors who register homes under one name.
Industry denies driving up prices
Despite the lack of hard data, institutional investors have been making headlines in Canada recently.
Core Development Group, a Toronto-based real estate company, sparked anger last year when it announced plans to spend $1 billion buying single-family homes in mid-size Canadian cities. The company did not respond to requests for comment on the status of its investments.
Blackstone, which describes itself as the world’s largest alternative investment firm with billions spent on American single-family homes, opened a real estate office in Toronto in May to develop its $14 billion in Canadian real estate assets.
“We plan to continue to be very active in the Canadian market, particularly in areas such as logistics, creative offices and high-quality life sciences offices, studios and multi-family residences,” said a company spokesperson told CBC News via email.
“We still have no plans to invest in the single-family housing market in Canada.”
Blackstone owns about 0.02% of single-family homes in the United States, according to company data, representing about 25,000 units.
“Given our ownership levels, we have virtually no ability to influence market rent trends,” Blackstone said in March during an online Q&A session responding to criticism. “Rents are going up because there is far less housing supply globally than there is demand.”
Private equity investors in the United States began buying single-family homes after the 2008 subprime mortgage crisis and subsequent recession, said Barrett of the Canadian Urban Institute. But the trend has not spread to nearly the same degree in Canada.
Since then, business owners have acquired about 350,000 homes, according to testimony heard by the US House Financial Services Committee on June 28 on affordability issues and private equity.
By 2030, investors could control up to 40% of the US rental housing market, according to data cited by PERE, a trade journal.
Along with fears that deep-pocketed financiers will compete with ordinary people to buy homes, tenants of big investors have faced a host of problems, said Madeline Bankson, a researcher at the Private Equity Stakeholder Project, an advocacy group based in the USA.
Poor maintenance, broken air conditioners in the sweltering south of the United States, a lack of garbage collection, mold, exorbitant fees for late payments and no one to answer in the event of a breakdown, are among the problems that the tenants of homes owned by large investors have reported to lawyers. .
“The model is: increase revenue, reduce cost,” Bankson said.
Fears of a “perfect storm”
Unlike the average person who typically needs a mortgage to buy a home, stock investors typically buy with cash, which means they are better protected against rising interest rates than the details. Blackstone, for example, has US$941 billion under management.
Christopher Alexander of ReMax, who closely follows the Canadian market, fears a “perfect storm” is looming after 2024 as population growth continues and supply chain challenges hit consumers. plans for new construction.
The rise of the US dollar against the Canadian currency also makes Canadian housing more attractive to foreign investors, Alexander said.
“They see we have a tight supply and there’s no real build solution; we can’t keep up, and they see a good climate for long-term appreciation,” he said. -he declares.
“Investors don’t think about raising their families there; it’s much more mathematical and numbers-driven. If you’re buying a house to live in, it’s emotional.”