The growing role of financial firms and institutional investors in multifamily rental housing has been criticized for eroding affordability in Canada and elsewhere, leading many to ask governments to limit or restrict their abilities to buy properties.
A new report by the Office of the Federal Housing Advocate that explores this “financialization” of housing and its impact on lower-income racialized communities in Toronto is critical of the “entry of financial firms and institutional investors seeking to convert multifamily real estate into a financial vehicle to generate wealth.”
The report suggests institutional investors have contributed to increasing rents, the eviction of non-paying tenants and forcing paying tenants to leave for renovations that housing advocates consider a cover that landlords use so that they can find higher-paying tenants.
Securing shelter for the most vulnerable in society is critical for social justice and the collective welfare of all. Providing affordable shelter for low-income households and social housing for those who cannot bear the cheapest market rent is the state’s and society’s collective commitment.
But providing multifamily housing is a capital-intensive enterprise. Constructing a new, purpose-built rental housing structure costs millions of dollars. Its maintenance and ownership over extended periods require significant investments.
All of which begs a few questions: if large investors are prevented from investing in multifamily rental housing, who is going to pick up the tab? The share of multifamily housing owned by institutional investors has increased, but has this increase automatically led to adverse housing outcomes for all? Without the huge investments needed to build new purpose-built rental housing, would there have been the recent resurgence in rental supply?
Recent Statistics Canada data presents a relatively optimistic picture for affordable housing. The number of households in 2021 experiencing core housing needs — that is, those facing affordability challenges, crowding or living in structurally compromised dwellings — has declined since 2016, according to 2021 census data. Also, a noticeably smaller share of the population experienced affordability challenges in 2021 than in 2016.
Lowest-income earners reported the most significant improvement in housing outcomes, the data shows. Statistics Canada speculates that housing outcomes of lower-income households improved, partly because of government support programs during the pandemic.
Despite the increased investments in purpose-built rental housing by institutional investors, the experience during the pandemic suggests government programs and safety nets can improve housing outcomes irrespective of the size and structure of the landlords.
Food is as essential as housing for well-being, so multifamily purpose-built rental housing is a business similar to grocery stores. But you don’t see campaigns to convince large retailers to fix the price of a loaf of bread or carton of milk, so why target private landlords to provide non-market housing to those who cannot afford market rents?
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Many provincial governments have implemented various versions of rent controls over the years while also offloading the provision of affordable and social housing responsibilities to private landlords.
No society or economy can function if lower-income wage earners cannot afford shelter. With rising housing prices and rents and extremely low rental vacancy rates, many families cannot meet their shelter needs without compromising spending on other essentials, such as food and clothing. Many are priced out of their cities and forced to commute unacceptably long distances on inconvenient transport systems. This must change.
At the same time, we must also help governments realize that forcing private landlords to bear the costs of affordable rental housing will not solve the problem. Just as governments don’t force ceiling prices on home sellers, they should refrain from putting arbitrary restrictions on landlords.
The way forward is for the government to facilitate the increased supply of both market and non-market rental housing. The three tiers of governments are endowed with the resources to be part of the solution by making Crown land in and near urban centres available for affordable and, more importantly, social housing, reducing or eliminating development charges for those who build affordable housing, and streamlining the approval process so that the private sector can expedite the supply of affordable housing.
Blocking investment in rental construction or subsequent maintenance and naïvely hoping that the governments will pick up the tab will only worsen matters for struggling families.
Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.