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Time to stop blaming investors for Canada's housing crisis

In today’s Konfidis Insights, we profile a recent columnist article from The Toronto Sun: Time to stop blaming investors for Canada's housing crisis. We also provide Konfidis insights, commentary, and data support related to this topic herein.

Time to stop blaming investors for Canada's housing crisis, select article highlights:

Following several decades of a can’t-stop-won’t-stop bull run on housing prices, consensus seems to be divided on whether housing must be viewed first and foremost as homes for people, or if that belief has been undermined by the inescapable fact that over the last several generations housing has functioned as an incredible wealth-building commodity.

While it certainly felt at times like everyone and their mother was snapping up investment properties during the pandemic frenzy, a recent report by the Canadian Housing Statistics Program reveals that investors indeed played a significant role in the price acceleration we witnessed. It turns out that more than 40% of condos in Ontario are now investment properties, comprising about half of the condos built between 2016 and 2020. Furthermore, their findings revealed one in five property owners to be investors, defined as an owner who owns at least one residential property not used as their primary place of residence.

Housing advocates are quick to point out that in this age of chronic and debilitating supply insufficiency and outrageous unaffordability, allowing investors to drive up prices as they gobble up housing that could, would, and should be homes for Canadians is unconscionable. But how might one reconcile that take with the reality that Canada basically stopped incentivizing the construction of purpose-built rental housing back in the 70s? Our population has ballooned yet new rental housing has stagnated.

Not all Canadians are in a position to own their own home. Not all even wish to own their home. For a whole host of reasons, renting can often be more suitable. While the religion of home ownership dominates in this country, the ethos is markedly different elsewhere, particularly in many European countries where government-funded purpose-built rental housing is plentiful. The result is stability for tenants, who never need to worry about having their home sold out from under them or rents abruptly skyrocketing.

Konfidis Thought: This is an important theme that is seldom discussed. As detailed in a recent Konfidis Insights Article - Is Canada becoming a nation of renters?, there have never been so many renters in Canada. According to the 2021 Census, almost 5 million households rented the home they lived in last year—up from 4.1 million a decade earlier. And while owner households still dominate the Canadian landscape by a ratio of two-to-one, renters accounted for most of the growth over the past 10 years. Rentership increased by 876,000 households (or 22%) compared to a rise of 770,000 (8%) in owner households. The percentage of households renting is even higher in Konfidis’ target Ontario markets such as London, Kingston, and Kitchener-Cambridge-Waterloo, each with renter populations greater than 35% and increasing.

This is very much the result of our government abdicating its responsibility to ensure sufficient housing supply, instead relying on the free markets to close the gaps. The result is now a clear commodification of housing supply that has created an impossible situation. Yet these investors it’s become cool to disparage are quite literally providing Canadians the housing our government hasn’t. It is very clear our leaders know how vital the role an individual investor plays in ensuring supply, which is why in 2018 rent control was deregulated to ensure profitability and viability. If it wasn’t profitable for investors to own rental properties, investors would take their capital elsewhere and supply would diminish. We need them.

Konfidis Insights: Residential Construction Investment Declines, Especially for Single-Family

At Konfidis, we focus on the data to bolster long-term investment theses. Herein we analyze the total investment in residential construction since 2010 for single and multiple dwelling projects. An assessment of the data reflects a sharp drop in total construction investment since 2021. In December 2022 across Ontario, there was $1.4B in single dwelling construction and $1.3B in multiple dwelling construction, down from a monthly peak of $2.1B and $1.8B respectively in March 2021. Through the data we also see a stark reversal in the amount of multiple dwelling construction investment compared to the declining trend for single dwellings.

A similar, and perhaps more pronounces trend is evident in Toronto.

Konfidis Conclusion: A compelling background for SFR investment

The continued trend of reduced investment for residential real estate is in stark contrast to the accelerating demand for housing brought on by sustained immigration levels, especially when considering the market for single-family homes in Ontario’s secondary markets.

With this backdrop, Konfidis continues to see a very compelling landscape for single-family rental ownership in Ontario’s secondary markets as the long-term supply and demand fundamentals that support strong home price appreciation and inflation protection.

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