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Investment firms have become the largest new home buyers in the US — a trend that could make owning a home more difficult for average families.
The idea of big investors buying single-family homes to rent out is “in its infancy” in Canada, but it’s worth looking into, said the president of one of the country’s largest real estate companies. Some interest groups fear that families cannot compete with money managers with billions in assets.
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As interest rates rise and real estate prices fall across much of North America, deep-pocketed investors like hedge funds, private equity giants and pension managers are hunting stable assets to offset inflation and volatile stock markets, market observers said.
In the first quarter of 2022, investors accounted for a record 28 percent of single-family home sales in the U.S., according to a report published in June by the Harvard Joint Center for Housing Studies, compared with less than 20 percent a year earlier.
“Investors bought a greater share of homes in America than ever before,” said a separate report from real estate firm Redfin.
The trend of money managers buying single-family homes to rent is “a new phenomenon” for the Canadian market, said Christopher Alexander, president of ReMax Canada. He thinks the idea could catch on here, given that it’s south of the border, especially given the 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 are well capitalized, they are smart and they have the resources to make an impact in the market.”
As middle-class families struggle to buy homes, analysts say more capital from large companies is expected to enter the Canadian market, further straining supply and affordability for the average person. A lack of hard data on the size of these investments is making it more difficult for policymakers to capitalize on the emerging trend, advocates of affordable housing say.
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 US and generally a minor cause of the rapid rise in home prices that this country has seen over the past decade. seen.
The Canadian government has no clear data on the footprint of major investors in the domestic housing market. Neither Statistics Canada nor the Canadian Mortgage Housing Corporation (CMHC), federal agencies that monitor the sector, can say how many homes are owned by investment firms.
“At this time, Statistics Canada does not publish information about institutional investors and the type of homes they own,” a spokesperson for the government agency told CBC News via email.
“CMHC does not collect the data you are looking for,” echoed a spokesperson.
It is not an easy task to record purchases by institutional investors, said Alexander of ReMax, especially since these companies often “don’t put all their purchases in the same name or register properties with different numbered companies or holding companies.”
“I just don’t know if we’re set up to track down 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 association that represents real estate agents, declined to comment. So was Royal LePage, a major brokerage firm. Two other real estate agencies, Century 21 and Keller Williams, did not respond to interview requests.
Getting a clear picture of the magnitude of institutional investment is the first step in determining how to respond, says Jennifer Barrett, senior 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. “The federal government must tackle the financialization of housing.”
While the magnitude of institutional investment in the Canadian housing market is not clear, individuals who own more than one home own 29 percent of homes in BC, 41 percent in Nova Scotia and 31 percent in Ontario, according to figures released by Statistics Canada. . in April. These owners can be landlords who own a few rental properties or larger investors who register homes under one name.
Industry denies price increases
Despite the lack of hard data, institutional investors recently made headlines in Canada.
Core Development Group, a Toronto-based real estate company, sparked anger last year when it announced plans to spend $1 billion on buying single-family homes in medium-sized Canadian cities. The company did not respond to requests for comment on the state of its investments.
Blackstone, which describes itself as the world’s largest alternative investment company, with billions spent on single-family homes in the US, opened a real estate office in Toronto in May to expand on its $14 billion in Canadian real estate assets.
“We expect to remain very active in the Canadian market, particularly in areas such as logistics, high-end creative and life science offices, studios and multifamily residences,” a company spokesperson told CBC News via email.
“We still have no intention of investing in the single-family housing market in Canada.”
Blackstone owns about 0.02 percent of single-family homes in the US, accounting for about 25,000 units, according to company data.
“Given our ownership levels, we have virtually no influence on rental trends in the market,” Blackstone said in an online Q&A session in March in response to criticism. “Rents are going up because there is significantly less supply of housing worldwide than the demand for it.”
Private equity investors in the US began buying up single-family homes after the 2008 subprime mortgage crisis and subsequent recession, said Barrett of the Canadian Urban Institute. But the trend didn’t catch on in Canada to nearly the same extent.
Since then, corporate landlords have purchased an estimated 350,000 homes, according to testimony heard on June 28 by the U.S. House of Representatives Financial Services Committee on affordability and private equity issues.
By 2030, investors could control as much as 40 percent of the U.S. rental housing market, according to data cited by PERE, a trade journal.
Aside from fears that deep-pocketed financiers are outsmarting ordinary people to buy homes, tenants renting from major investors have faced a whole host of problems, said Madeline Bankson, a researcher with the Private Equity Stakeholder Project. a US-based interest group.
Poor maintenance, broken air conditioners in the sweltering south of the US, a lack of garbage disposal, mold, exorbitant fees for late payments, and no response when something breaks are among the problems tenants in large investor homes have reported to lawyers .
“The model is: increase revenue, decrease costs,” Bankson said.
Fear of a ‘perfect storm’
Unlike average people who usually need a mortgage to buy a home, stock investors typically buy with cash, meaning they are more isolated from rising interest rates than individuals. For example, Blackstone has $941 billion US under management.
ReMax’s Christopher Alexander, who closely monitors the Canadian market, fears a “perfect storm” could be on the horizon after 2024 as population growth continues and supply chain challenges hit plans for new construction.
The rising US dollar compared to the Canadian currency also makes Canadian homes more attractive to foreign investors, Alexander said.
“They see that we have a tight stock and have no real solution for it by building; we can’t keep up with the pace and they see a good climate for long-term valuation,” he said.
“Investors don’t think about raising their families there; it is much more math and numbers oriented. When you buy a house to live in, it is emotional.”
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