Investment firms are becoming the biggest new buyers of American homes — a trend that could make home ownership more difficult for average families.
The idea of big investors buying single-family homes for rent is “in its infancy” in Canada, but it’s well worth a look, according to the head of one of the country’s largest real estate firms. Some advocacy groups fear that families cannot compete with money managers who have billions of dollars in assets.
With interest rates rising and real estate prices falling across much of North America, wealthy 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.
In the first quarter of 2022, investors generated a record 28 percent of single-family home sales in the United States, according to a report published in June by the Harvard Joint Center for Housing Studies, compared with less than 20 percent a year earlier.
A separate report from real estate firm Redfin noted: “Investors have bought a larger share of America’s homes than ever before.”
Christopher Alexander, president of ReMax Canada, said the trend of money managers to buy single-family homes to rent is a “new phenomenon” for the Canadian market. He thinks the idea could spread here as it is south of the border, especially given the recent price drops.
“The lower the purchase as an investor, the greater the opportunity to sell at a high price,” Alexander said in an interview.
“They are well capitalized, they are smart and they have the means to make an impact in the market.”
As middle-class families increasingly struggle to buy homes, analysts say more capital from large corporations is expected to enter the Canadian market, adding to supply and affordability strain for ordinary people. Affordable housing advocates said the lack of accurate data on the scale of these investments makes it difficult for policymakers to respond to the emerging trend.
Canadian data shortage
The extent of current institutional ownership over Canadian housing is unclear, but analysts believe it is much lower than in the United States and generally a secondary reason for the rapid rise in home prices this country has experienced over the past decade.
The Canadian government does not have clear data on the impact of large investors in the local housing market. Neither Statistics Canada nor the Canadian Real Estate Housing Corporation (CMHC), the federal agencies that track the sector, can determine how many homes are owned by investment firms.
“Currently, Statistics Canada does not publish information on institutional investors, and the type of residential property they own,” a spokesperson for the government organization told CBC News by email.
“CMHC does not collect the data you are looking for,” a spokesperson echoed.
Nailing purchases by institutional investors is not an easy task, said Alexander of ReMax, especially since these companies often “do not place all their purchases in the same name or register properties for numbered companies or holding companies.”
“I don’t know if we are primed to track a new phenomenon,” he said.
“The question of ignorance”
The topic is politically sensitive. Few other major real estate companies will comment on investor interest in the Canadian housing market.
The Canadian Real Estate Association, the trade body representing brokers, 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.
Getting a clear picture of the scale of institutional investment is the first step in determining how to respond to it, said Jennifer Barrett, chief planner at the Canadian Urban Institute, a Toronto-based nonprofit.
“I think the issue of not knowing, in and of itself, is an interesting piece to explore,” she said in an interview. “Federal government needs to tackle housing finance.”
While the scale of institutional investment in the Canadian housing market is unclear, individuals who own more than one property own 29 percent of homes in British Columbia, 41 percent in Nova Scotia and 31 percent in Ontario, according to Statistics Canada figures released in April. These landlords can be mom-and-pop landlords who own two 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 been making headlines lately in Canada.
Core Development Group, a Toronto-based real estate firm, sparked outrage 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.
Blackstone, which bills itself as the world’s largest alternative investment firm, with billions spent on single-family homes in the United States, opened a real estate office in Toronto in May to expand on its $14 billion Canadian real estate assets.
“We expect to continue to be very active in the Canadian market, particularly in areas such as logistics, high-quality creative offices, life sciences offices, studios and multi-family housing,” a company spokesperson told CBC News by email.
“We still do not intend to invest in the single-family housing market in Canada.”
Blackstone owns approximately 0.02 percent of single-family homes in the United States, according to company data, which represents about 80,000 units.
“Given our ownership levels, we have almost no ability to influence rent trends in the market,” Blackstone said in March in an online question and answer session in response to the criticism. “Rents are rising because the supply of housing around the world is far less than the demand for it.”
United States facts
Barrett of the Canadian Urban Institute said US private equity investors started buying single-family homes in the wake of the 2008 subprime mortgage crisis and the recession that followed. But this trend is not nearly as widespread in Canada.
Since then, corporate realtors have acquired an estimated 350,000 homes, according to testimony heard by the US House of Representatives Financial Services Committee on June 28 about affordability challenges and private equity.
By 2030, investors could control up to 40 percent of the US home rental market, according to data cited by industry magazine PERE.
Aside from concerns that wealthy financiers are competing for ordinary people to buy homes, renters from large investors have faced a slew of problems, said Madeleine Bankson, a researcher at the Private Equity Venture, a US-based advocacy group.
Poor maintenance, malfunctioning air conditioners in the sweltering US south, a lack of garbage collection, mold, exorbitant fees for late payments, and no one to respond when things go awry are among the problems that renters in major investor-owned homes have reported to advocates. .
“The model is this: Increase revenue, reduce costs,” Bankson said.
Fears of a ‘perfect storm’
Unlike ordinary people who usually need a mortgage to buy a home, stock investors usually buy with cash, which means they are more insulated from higher interest rates than individuals. Blackstone, for example, has US$941 billion under its management.
Christopher Alexander of ReMax, which tracks the Canadian market closely, fears a “perfect storm” is on the horizon after 2024, with continued population growth and supply chain challenges posing new construction plans.
Alexander said the stronger US dollar relative to the Canadian currency makes Canadian housing more attractive to foreign equity investors.
“They see that we are in short supply and there is no real solution to it through construction; we can’t keep up with that, and they see a good climate for pricing in the long term,” he said.
“Investors don’t think about raising their families there; it’s more about math and numbers. If you’re buying a house to live in, it’s emotional.”