REIT between the lines
Lots can be done to address housing financialization — including using a better definition
Residential property investors are often pointed to as the cause of Canada’s housing affordability woes — with little elaboration on what an investor actually is. Recent headlines from news articles and Statistics Canada reports have pointed out that one fifth of Canadian property owners are investors, and that investment properties make up almost a third of all residential properties in some provinces. Without knowing reading more on what fits the bill of a residential property investor, it is understandable to see why these figures are of concern to Canadians.
The recent conversation on property investors has been largely driven by two data releases from the Canada Housing Statistics Program (CHSP), which looked at investor property and ownership totals in Nova Scotia, New Brunswick, Ontario, Manitoba, and British Columbia. A limitation of the CHSP products is that their definition of “investor” is incredibly vague.
For a very thorough look at this concept, I’d recommend reading Jens von Bergmann’s blog post on this topic. But the long and short of the CHSP’s approach is that non-investor owners are basically everyone who owns only one detached home or condo apartment and every non-profit that owns a least one residential property.
Where this starts to become unhelpful for public dissemination is when we look at what actually is (or can be) a residential property in Canada. Based on a tally from the five provinces studied, investment properties only make up around a quarter of the Canadian total. And more than half of all investment properties in Canada are either single-family homes or vacant lots.
Investment properties are also overwhelmingly owned by persons rather than institutions. The institutional investment total would even include social housing properties owned by governments, private companies, and some cooperatives. Given that the public sector owns most of the country’s social housing units, a sizeable share of the desperately needed affordable housing Canada would be defined as an investment by the country’s statistical agency.
Combine dwelling and owner types together and you get a much better context for why some places see such high investor property ownership shares. Nova Scotia’s rate is the highest — driven largely by a high share of investment properties being single family homes and vacant lots owned by persons. Atlantic Canada has a big seasonal cottage population, including a lot of in-province owners who have a second home on the seashore or lake.
But even when you account for things like cottage lots and social housing, many of the remaining investor property types are pretty banal. Virtually every rental in Canada is situated in somesort of investment property, which be as small as a house with a basements to as big as a high rise apartment building.
Policymakers and advocates should pay more attention towards the small number of institutional landlords who own multiple properties. There is evidence to support the claim that real estate investment trusts (REITs) identify housing undersupply as an opportunity for business growth. That is not hearsay — that is explicitly written into investor prospectus documents for big international companies like Blackstone, as well as domestic firms like Killam, CAPREIT, and Minto. And while only around 1% of investment property owners in Canada are institutions that own three properties or more, they are almost entirely located in Ontario and BC.
Housing rights cannot realistically be enforced in political and economic conditions where rental construction is stymied. There are some good steps each order of government can take to address housing financialization and restore affordability.
For starters, the federal government can look at tax-based measures that favour fair-play rules over blanket protectionist bans. Removing the tax exemptions for REITs would only add around $50 million to federal coffers each year, but it would level the playing field with other corporate entities and could be framed as earmarked funding to top-up affordable housing programs like the Rapid Housing Initiative. In a recent Globe and Mail piece, Mike Moffatt and Ken Boessenkool also recommend that Canada “take the tax credit model that the recent federal budget used to incentivize green investment, and apply it to incentivize attainable, purpose-built rental properties in our cities.” This provides an intriguing alternative to the conventional narrative around investor housing.
Provincial governments (and in some cases, municipalities) can use their fiscal and regulatory capacity to dissuade different forms of housing speculation. For example, non-residential property taxes can be increased (or at least offered to municipalities as a tool) to deter absentee ownership and short-term rentals. In communities with a large out-of-province cottage population, these measures can ensure that property owners are making a more direct form of investment into the community by adequately financing services and public infrastructure year-round. While an out-of-province cottager from may not have much say in determining the property tax rate for their seasonal home, they can vote with their feet by either paying up or moving out.
But as was made evident before, a large share of investor properties in Canada are those which are occupied by renters. Like with rent stabilization policies, the regulatory approach relating to property investment should be designed to keep rentals as rentals, and ensure they don’t get sold off in condo markets. Fortunately, the provinces have a lot of tools at their disposal to ensure that a balance is struck, with the opportunity to introduce measures like house-flipping taxes on quick resales, registries to track ownership and rent increases, and partnerships with municipalities to identify and tax non-occupied units. Much like with changes to federal tax exemptions, these tools wouldn’t necessarily be cash cows, but they could act as targeted disincentives while raising earmarked funds for local efforts relating to affordable housing and homelessness.
Local governments can ensure that land use and planning frameworks are more supportive of housing construction, especially rental units. Given housing scarcity is an explicit part of REIT playbooks, ensuring that more housing can be built more quickly is the single most effective way to curb both the financialization and commodification of housing.
But above all, policymakers within all orders of government can improve their framing. The Canada Housing Statistics Program groups big institutional landlords like Blackstone in with granny suite owners and public housing providers. Even the most hawkish opponents of investor financialization can realize that the current data do not help advance their position. In the debate over whether housing is a right or an investment, the current definition means it can realistically be both. Given that the public doesn’t usually understand what residential property investment actually entails, the scope of “investor” owners should be narrowed for future products.
