‘It’s wrong on all possible levels’: Critics slam development group buying $1-billion in single-family houses for rentals
|Toronto Star 14 Jun 2021 at 19:15|
A Toronto-based condo developer’s plan to buy $1 billion worth of single-family homes and use them as rental properties has sparked outrage from critics who say it’s an example of how corporations can profit from the country’s housing crisis.
Core Development Group, which develops and manages a wide range of real estate projects across Canada, said it plans to build a far-reaching single-family home rental business that will consist of 4,000 rental units in Ontario, Quebec, B.C. and Atlantic Canada.
The plan, first reported by the Globe and Mail, will target eight cities in Ontario — including Hamilton, London, Kingston, St. Catharines, Barrie, Peterborough, Cambridge and Guelph — before expanding outside Ontario by 2026.
Critics say the strategy mimics similar moves by American corporations in the aftermath of the 2008 financial crisis that bought swaths of housing stock and rented units to tenants while keeping the equity.
It’s called the ‘financialization’ of housing — where corporations and financial markets treat housing as a vehicle for wealth and investment rather than a social necessity, often to the detriment of individual homebuyers, says John Pasalis, president of Realosophy Realty.
“It’s hard enough for first-time homebuyers to get into the market. Now, they’re competing with billion-dollar investors who are just buying properties to rent them out, in a market where we’re not building enough single-family homes to begin with,” said Pasalis.
Real estate prices have soared during the pandemic, driven in part by low interest rates and rising demand. Toronto home prices in May, to $1.11 million, while smaller cities and rural areas have seen increases as high as 50 per cent in one year.
Housing advocates have pointed to a critical lack of supply in single-family dwellings, forcing homebuyers to fight over the limited stock available while prices inflate. This problem is exacerbated, they say, by corporations that reduce the remaining supply by buying up homes and converting them to rentals.
“It’s wrong on all possible levels. It takes more properties out of our inventory, and can only do harm to an already-tight supply,” said Ron Butler, a mortgage broker with Butler Mortgage.
In an interview with the Star, Core founder Corey Hawtin defended the plans to purchase single-family homes, saying that the company is buying far less than one per cent of the homes that trade in the Ontario market on a yearly basis.
“I really, deeply sympathize with people aspiring to own homes across Canada but simply can’t afford to do so,” said Hawtin. “We’re trying to provide an environment where our tenants — that’s young families, students, divorcees — can rent a place and get an experience within a neighbourhood that they can’t afford to buy in.”
Hawtins said the company is not participating in bidding wars for the homes they purchase, and that most of them are already rental homes.
“There’s a compounding percentage of the population that are renters. And whether they are renters because they can’t afford to buy or because that’s the lifestyle they choose, the rental marketplace is exponentially growing on a demand basis. And it will for the foreseeable future,” he said.
The move is not unprecedented in Canada, though it is unusual. Wealthy investors typically profit from the housing market by buying apartment buildings and renting individual units to tenants. Core Development’s model, alternatively, is to focus on single-family homes as rental options.
According to Martine August, a professor at the University of Waterloo, investment companies — or, more specifically, Real Estate Investment Trusts (REITs) — have consolidated a significant chunk of Canada’s apartment homes over the past three decades. The largest 25 companies in real estate held roughly 330,000 units in apartment buildings last year, comprising nearly 20 per cent of Canada’s private, purpose-built stock of rental apartments.
The companies profit from these investments largely through rent increases, thus affecting rental affordability, said August.
“They’re doing this because they’re trying to extract maximum profits for their shareholders. And the way they do this is not by providing affordable housing but by capitalizing on low-vacancy rates and high housing costs, as well as the fact that many renters can’t get into the housing market,” said August.
News of Core’s plans reached the Ontario and federal governments on Monday, prompting politicians from across party lines to criticize the government’s housing policies.
“How can first-time home buyers compete with a $1-billion dollar developer for a home? They can’t. The housing market is unfair,” wrote Jessica Bell, NDP MPP for University-Rosedale, on Twitter.
A spokesperson for Ottawa’s Ministry of Families, Children and Social Development said the government is “aware of the situation” and “monitoring it closely.”