The commonly held but mistaken belief that supply is a silver bullet causes us to overlook the full range of applicable solutions, making it much less likely that...
Yes, Urich! And there are very clear reasons why. We have government of corporate interests and a society crippled by corporate ideology. For a fuller description I recommend you getting a copy of John Ralston Saul's The Unconscious Civilization.
I agree with Kareem that the financialization of housing is a big factor driving demand. When I was younger I wouldn’t have dreamed of owning another house - a 3 season cottage maybe but another single family home never crossed my mind. But I work with many younger people (30-45yrs age group) and I’m shocked by the number of them who own ‘investment’ properties. These folks are not real estate agents or contractors who flip homes, they’re nurses, technicians and receptionists etc. They have leveraged their own house to purchase another house (sometimes more) and rent it out or Airbnb it.
This is a cultural shift - the idea that building wealth could be in the real estate sector rather than diligent saving and investing in stocks and bonds. I believe that when prices began to take off 7 or 8 years ago and interest rates were low it sparked an entrepreneurial real estate boom.
As long as house price values were far outpacing income growth and investment returns the entrepreneurial incentive to invest in housing remained powerful.
Maybe we could incentivize people to invest their home equity equity in a matching public pension plan instead of real estate. People are trying to get ahead and real estate seemed to be the way. Maybe finding alternative ways for savers and investors to get ahead would be better?
But if housing has been financialized, it seems to me it has to be de-financialized. Whatever incentives exist for average Canadians to own multiple properties will need to be tempered. Meaningful rent controls could help (for eg if an apartment is vacated the rent isn’t ‘reset to market levels’, it is rented for what a similar apartment rents for in the same building or neighbourhood). More controls on Airbnb, taxes specifically on real estate investors and tax breaks for those with a single primary residence. More tax breaks for multigenerational homes.
I would also like to see real estate agent fees tempered as well. Fees should not be set to a percentage of sale price. It benefits agents too much when house prices escalate. They have a vested interest in higher home prices which skews the buy/sell market as well. They should be paid a set fee based on skill and experience not based on current home prices.
Lots of issues here. But house supply is only one small part of this complex problem. The house price escalation has run amok and unchecked for quite awhile so it’s going to be difficult to get things back on track.
But I like the discussion - at least we’re seriously talking about this issue!
It's very interesting to hear your expeirence Mary! It's amazing that in such a short time, you saw the idea of owning an investment property go from being a dream to a reality for many everyday people.
You make such great point that there has been a great cultural/mentality shift when it comes to building wealth. I've been thinking recently that our housing affordability issues are as much a psychological problem than anything else!
Agree with you on the need for the de-financialize of housing, and I like your ideas on how we might go about doing this. Also you make some great points about the real estate incentive structure.
I love your comments! Very thoughtful Mary. I agree. We need to "sour the milk" a bit. We don't want to throw away the whole bottle but we need to ween people off of this "houses as an investment" addiction. People should be investing in companies, green energy. Stock markets, bonds -- so many options. Housing has become to attractive because it is a basic need so the market is already baked in. "You need it so we can raise prices as high as we want." What do you call that?
It's the job of the government-we the people-to make policies that ensure affordable homes are available. Just building more houses-just leaving public housing policies to developers to decide what gets built and the market to make profit maximizing decisions regarding rents and home values is having the government abdicate it primary purpose- to set limits- make rules- take measures that ensure society works for the common good. Otherwise, we have no society other than what the market can bare. Obviously, the market can bare a whole lot of homeless people.
Is it my imagination or are governments intensely afraid to get involved in housing? I mean, it seems like even the nightmare that is climate change is an easier beast to slay than homelessness. Please comment.
Thanks Urich. I completely concur with what you said - “People should be investing in companies, green energy. Stock markets, bonds—“ You’re so right about this. We’ve been hearing so much about Canada’s dropping productivity, that our GDP:worker ratio is dropping and dropping. Many commentators have noted that Canadians under invest in companies within Canada. Canadian companies underspend on research and underinvest to grow and expand. We have trillions of dollars tied up in real estate where it sits there doing nothing for the economy and our country. I believe we need to incentivize Canadians to invest in Canadian businesses, in research and development, in green energy. We could de-incentivize investment in real estate and incentivize investment in Canadian stocks and bonds. How? Public sector workers have pension plans where contributions are matched by the employer (the employer being government = taxpayer). Create a pension plan system that provides matching funds when you contribute or at least a significant financial incentive to participate. It would need to be more attractive than leveraging your home to by another home. Humans are naturally greedy, they want to improve their lot in the world and provide security for their kin. Greed is normal, so we need to figure out how to leverage that tendency to create industry and wealth for all. But it would require government action on multiple fronts - on the incentivizing and disincentivizing sides of the equation.
Whoa, whoa, whoa, hold on. It's not just population growth that matters. You also need to consider growth in per-capita demand: how much space does each person want? morehousing.ca/demand-growth
There's been a huge surge in per-capita demand. When Covid hit, suddenly you had more people working or studying from home and needing more space. Researchers in the US, the UK, and Australia have all studied this impact.
- US: "In an interesting new paper, John Mondragon and Johannes Wieland argue that 'the shift to remote work explains over one half of the 23.8 percent national house price increase over this period.'"
- UK: "Research published by the Bank of England suggests that shifts in people's wants — such as the desire for a home office, or a house rather than a flat — explained half of the growth in British house prices during the pandemic."
- Australia: "In many countries, including Australia, the average household size has shrunk, suggesting that people are less willing to house-share."
First quote is Matthew Yglesias, second and third quotes are from the Economist.
Besides Covid, you also get per-capita demand growth based on income growth (as people's incomes rise they want more space) and demographics (Millennials are a large generation and they're looking to move out on their own).
I'd describe the housing shortage as high demand colliding with inelastic supply (specifically, a slow, discretionary, revenue-maximizing municipal approval process). The municipal approval process is one of the key bottlenecks we need to fix. Both the BC government and the federal government are focused on it. morehousing.ca/diagnosis
Hi Russil - thanks for your thoughtful comment, and interesting research excerpts.
I think we are on the same page about the general causes of our unaffordable housing: demand outpacing supply. We're not denying that we need more supply (we did note that "building more supply is absolutely important" in the article) and I'm sure that fixing the municipal approval process would help to make this additional supply happen.
I also agree with you that the amount of space each person wants certainly played a role in driving up prices during covid. But prices were rising long before covid, right? I think there is something more going on here...
Growth in demand per-capita is rising not just in terms of space per person, but also in terms of the number of dwellings each person wants to own.
Hi, Kareem. The original post cites a number of sources saying that supply isn't the key issue, because housing growth is outpacing population growth. I think this is a significant conceptual mistake.
Fundamentally, if we don't have enough housing for people to live in (as illustrated by vacancy rates near zero in places like Vancouver and Halifax), then trying to redistribute housing between investors/renters and homeowners isn't going to solve the problem. The problem can only be solved by building more housing. morehousing.ca/cmhc-report-2022
I think it's also useful to break down investor demand into two parts:
(1) Institutional ownership of purpose-built rental housing. This is a low-risk, low-return investment. Vacancy rates are low, so there isn't much downside, but there also isn't much upside - it's not like investing in Microsoft or Nvidia. Typically held by pension funds and REITs.
(2) Individually owned rentals, like condos. This is a very different business. Typically the investor would put down a 20% down payment and borrow the rest. In places like Toronto and Vancouver, it's difficult to get "positive cash flow": because investors expect prices to go up over time, they're willing to bid up prices so much that the rent doesn't cover their expenses. Their strategy is what Wall Street Bets would call "hodl": to hang on as long as possible, putting money in every month and watching prices go up, and then make money when they sell.
This is much more speculative and risky (especially compared to something like the Canadian Couch Potato). You're making a leveraged bet that prices will go up. I think Generation Squeeze's push to encourage people to look for other ways to save and invest for retirement is a good idea, because people are likely taking on more risk than they realize.
But in terms of the diagnosis of what's causing the housing shortage, it seems strange to say that it's investor demand. In fact it seems exactly backwards. When we're trying to add to the housing stock by building more housing, having investors who want to buy housing and rent it out is a good thing. Investors who buy presale condos are helping to finance the construction, for example.
I'm not sure why "investors will buy it" is an argument against building more housing in places like Toronto and Vancouver. After all, there's lots of people who rent. Rents and prices reflect scarcity: it's very difficult to get permission to build more housing in Toronto and Vancouver, so we end up with a mismatch between housing and jobs. So rents have to rise to unbearable levels, forcing people to leave, matching those remaining with the limited supply of housing.
Build more housing, creating more vacancies, and rents come down. Some recent evidence that higher vacancies => lower rents, even in expensive cities: morehousing.ca/streamlining-rental
Of course rents coming down also makes housing less attractive as an investment. But even if investors are stubborn or irrational and want to keep buying, more housing => lower rents is a good thing for renters, which is a lot of people.
Thanks for another thoughtful comment - it's great to have this discussion with you.
Just to be clear, we think that supply is a key issue, but we also think that it is not the only issue.
Some responses to your points below...
I agree that we need to build more homes, so that there is enough for everyone.
I also agree that it is useful to divide up investors into two groups. When we mention investors we are talking about your group 2, individually owned rentals, like condos. Very happy to hear that you agree with our push to encourage people invest elsewhere.
"But in terms of the diagnosis of what's causing the housing shortage, it seems strange to say that it's investor demand". - We don't think that investor demand is causing the shortage, we think it is driving up prices.
"When we're trying to add to the housing stock by building more housing, having investors who want to buy housing and rent it out is a good thing. Investors who buy presale condos are helping to finance the construction, for example". - If those investors weren't there to buy them, it's not like they wouldn't ever get built. Prices would fall to what the market could bare, which would be more in line with the earnings of everyday people.
"I'm not sure why "investors will buy it" is an argument against building more housing in places like Toronto and Vancouver". - I don't think this is a good argument, nor one that we have made.
I agree that if we build more housing, creating more vacancies, both rents and prices would come down. My point is just that prices would come down faster if there were fewer people looking to buy the new supply that we build. Simply put, if we have an investor and a FTHB both bidding on a condo, it will sell for more than if that investor was putting there money elsewhere, right?
"I agree that if we build more housing, creating more vacancies, both rents and prices would come down. My point is just that prices would come down faster if there were fewer people looking to buy the new supply that we build. Simply put, if we have an investor and a FTHB both bidding on a condo, it will sell for more than if that investor was putting there money elsewhere, right?"
Yes, redistributing homes from investors to first-time homebuyers would benefit homebuyers, but at the expense of renters (who tend to be lower-income). There's evidence from Rotterdam, where "buy-to-let" investment was banned from certain areas. Comparing those areas to those without the ban, the result is that first-time homebuyers did indeed replace investors, but the ban also reduced the supply of rentals, pushing up rents. https://www.dutchnews.nl/2023/06/buy-to-let-ban-is-good-for-first-time-buyers-but-bad-for-tenants/
I think that in general, the housing market tends to suffer from over-regulation and micromanagement, making it inflexible. There's a significant difference between an educational campaign encouraging individuals to invest in low-cost index funds instead of real estate (because they may be underestimating the risks), and banning such investments entirely (as in Rotterdam).
Thanks for sending this Rotterdam example! I hadn't heard of it, and am excited to give the full study a read.
Not having done that yet, I'm wondering, does a "buy-to-let" ban really harm renters? Sure there are less rental units available, but there are also less renters (since those FTHB are no longer renting), right? It seems to me the this sort of scheme shouldn't affect the balance of rental units to renters? Additionally, lower sale prices (driven by reduced demand for purchases once investors are out of the market), should push rents down too. It seems to me that, in theory, this sort of scheme should benefit renters as well as FTHBs.
"Sure there are less rental units available, but there are also less renters (since those FTHB are no longer renting), right?"
For each property that's converted from rental to first-time homebuyer purchase, there's one rental unit that opens up (previously occupied by the homebuyer). If there was a single renter household in the property, then there'd be one more renter household looking for a place, and the overall supply and demand hasn't changed.
But at least in Vancouver, there's often multiple renter households in a single property. For these cases, there will be multiple households looking for a place, and only one vacancy freed up.
So the overall effect of converting a rental property to owner-occupied is that (1) it doesn't help renters, in the case where there was a single renter household, and (2) it increases rental scarcity, in the case where there were multiple renter households.
"Additionally, lower sale prices (driven by reduced demand for purchases once investors are out of the market), should push rents down too."
I don't understand this part of the argument. Asking rents will reflect scarcity. At any given time, there's people looking for a place and a limited number of vacancies. Asking rents will rise to force people to give up and move away, so that those remaining match the limited supply. With a buy-to-let ban, the supply of rentals is lower. If the number of people looking for a place is reduced by exactly the same quantity (case 1), then in aggregate, this doesn't hurt renters, but it doesn't help them either. If the number of people looking for a place isn't reduced by the same number (case 2), then asking rents would rise to force more people to leave.
I don't really see how lower selling prices would have an effect on rents.
In jurisdictions which have rent stabilization or rent control, like BC, there's another impact on renters. For long-time renters, their controlled rents are often significantly below current asking rents. When their rental is converted to owner-occupied and they need to find a new place, they lose that benefit.
It's good to be a builder. I've seen a lot of government solutions that are directly beneficial to builders; that 'incentivize' construction. This is good. But I want to see more. I want the next announcement on housing to be directly aimed at, and only at, residents. What would that look like?
I mean have your numbers accounted for the "up to 1 million" immigrants who have been undercounted as per Benjamin Tal from CIBC? (It may not change the numbers in your charts too much, but it would be useful to call it out to avoid the debate).
Additionally, how do you explain the "ability" of landlords to jack up rent so much if there were sufficient properties to allow free movement? Is the argument that if a sufficient percentage of landlords raise rents, others will naturally follow? Wouldn't that stand against typical market movements where buyers could negotiate alternative places to stay if a subset of sellers overcharge?
Thirdly, we brought in 1 million people last year (at least). Have we had 350K home completions to house them? If not then doesn't the numbers go against your narrative of sufficient supply GIVEN excess growth in demand? It would be worth explictlycalling out marginal changes in demand and supply if I'm wrong to support your argument.
In the end, I personally think the bigger issue here is that it's impossible to outbuild immigration numbers we've had recently without 1-2 decades of building up infrasturcture, training a new construction workforce, etc.
Without cutting down immigration we will have a lost generation IMHO... and I say this as a brown man.
1. No, our figures only account for the official numbers. I wouldn't expect our conclusions to change if we accounted for Tal's concerns. For example, assuming this undercounting is equally spread across the country, Alberta still has less housing but is cheaper than BC.
2. Many prospective first time home buyers are unable to buy due to high prices. If they, rather than investors, were buying new builds, there would be less demand in the rental market. All of these people that have been forced into renting has resulted in loads of competition in the rental market, driving prices up and giving landlords the upper hand in negotiations.
3. Not sure about last year (I'll look into it), but the trend of new builds keeping up with population growth , yet prices rising, was clear from 2016-2021. By the way, even if we didn't hit the 350K you mentioned last year, prices fell, which suggests that there is more going on here than just building vs immigration.
Looking forward to hearing what you think about all of this!
Yes, Urich! And there are very clear reasons why. We have government of corporate interests and a society crippled by corporate ideology. For a fuller description I recommend you getting a copy of John Ralston Saul's The Unconscious Civilization.
Thank you Glen. I looked up John Ralston Saul last night and found an excellent series of lectures on the CBC site. Here is the link:
https://www.cbc.ca/radio/ideas/the-1995-cbc-massey-lectures-the-unconscious-civilization-1.2946856
I haven’t listened to all five yet but Saul makes some very good points.
I agree with Kareem that the financialization of housing is a big factor driving demand. When I was younger I wouldn’t have dreamed of owning another house - a 3 season cottage maybe but another single family home never crossed my mind. But I work with many younger people (30-45yrs age group) and I’m shocked by the number of them who own ‘investment’ properties. These folks are not real estate agents or contractors who flip homes, they’re nurses, technicians and receptionists etc. They have leveraged their own house to purchase another house (sometimes more) and rent it out or Airbnb it.
This is a cultural shift - the idea that building wealth could be in the real estate sector rather than diligent saving and investing in stocks and bonds. I believe that when prices began to take off 7 or 8 years ago and interest rates were low it sparked an entrepreneurial real estate boom.
As long as house price values were far outpacing income growth and investment returns the entrepreneurial incentive to invest in housing remained powerful.
Maybe we could incentivize people to invest their home equity equity in a matching public pension plan instead of real estate. People are trying to get ahead and real estate seemed to be the way. Maybe finding alternative ways for savers and investors to get ahead would be better?
But if housing has been financialized, it seems to me it has to be de-financialized. Whatever incentives exist for average Canadians to own multiple properties will need to be tempered. Meaningful rent controls could help (for eg if an apartment is vacated the rent isn’t ‘reset to market levels’, it is rented for what a similar apartment rents for in the same building or neighbourhood). More controls on Airbnb, taxes specifically on real estate investors and tax breaks for those with a single primary residence. More tax breaks for multigenerational homes.
I would also like to see real estate agent fees tempered as well. Fees should not be set to a percentage of sale price. It benefits agents too much when house prices escalate. They have a vested interest in higher home prices which skews the buy/sell market as well. They should be paid a set fee based on skill and experience not based on current home prices.
Lots of issues here. But house supply is only one small part of this complex problem. The house price escalation has run amok and unchecked for quite awhile so it’s going to be difficult to get things back on track.
But I like the discussion - at least we’re seriously talking about this issue!
This is such an insightful comment, Mary, are you okay if we quote from it in an article we are working on?
Absolutely Kareem. Go ahead and quote me. Happy to help out.
Thank you!
It's very interesting to hear your expeirence Mary! It's amazing that in such a short time, you saw the idea of owning an investment property go from being a dream to a reality for many everyday people.
You make such great point that there has been a great cultural/mentality shift when it comes to building wealth. I've been thinking recently that our housing affordability issues are as much a psychological problem than anything else!
Agree with you on the need for the de-financialize of housing, and I like your ideas on how we might go about doing this. Also you make some great points about the real estate incentive structure.
Thanks so much for being part of this discussion!
I love your comments! Very thoughtful Mary. I agree. We need to "sour the milk" a bit. We don't want to throw away the whole bottle but we need to ween people off of this "houses as an investment" addiction. People should be investing in companies, green energy. Stock markets, bonds -- so many options. Housing has become to attractive because it is a basic need so the market is already baked in. "You need it so we can raise prices as high as we want." What do you call that?
It's the job of the government-we the people-to make policies that ensure affordable homes are available. Just building more houses-just leaving public housing policies to developers to decide what gets built and the market to make profit maximizing decisions regarding rents and home values is having the government abdicate it primary purpose- to set limits- make rules- take measures that ensure society works for the common good. Otherwise, we have no society other than what the market can bare. Obviously, the market can bare a whole lot of homeless people.
Right on Glen! What developper would ever build enough to force down the price of what they are selling anyways?
Is it my imagination or are governments intensely afraid to get involved in housing? I mean, it seems like even the nightmare that is climate change is an easier beast to slay than homelessness. Please comment.
Thanks Urich. I completely concur with what you said - “People should be investing in companies, green energy. Stock markets, bonds—“ You’re so right about this. We’ve been hearing so much about Canada’s dropping productivity, that our GDP:worker ratio is dropping and dropping. Many commentators have noted that Canadians under invest in companies within Canada. Canadian companies underspend on research and underinvest to grow and expand. We have trillions of dollars tied up in real estate where it sits there doing nothing for the economy and our country. I believe we need to incentivize Canadians to invest in Canadian businesses, in research and development, in green energy. We could de-incentivize investment in real estate and incentivize investment in Canadian stocks and bonds. How? Public sector workers have pension plans where contributions are matched by the employer (the employer being government = taxpayer). Create a pension plan system that provides matching funds when you contribute or at least a significant financial incentive to participate. It would need to be more attractive than leveraging your home to by another home. Humans are naturally greedy, they want to improve their lot in the world and provide security for their kin. Greed is normal, so we need to figure out how to leverage that tendency to create industry and wealth for all. But it would require government action on multiple fronts - on the incentivizing and disincentivizing sides of the equation.
Whoa, whoa, whoa, hold on. It's not just population growth that matters. You also need to consider growth in per-capita demand: how much space does each person want? morehousing.ca/demand-growth
There's been a huge surge in per-capita demand. When Covid hit, suddenly you had more people working or studying from home and needing more space. Researchers in the US, the UK, and Australia have all studied this impact.
- US: "In an interesting new paper, John Mondragon and Johannes Wieland argue that 'the shift to remote work explains over one half of the 23.8 percent national house price increase over this period.'"
- UK: "Research published by the Bank of England suggests that shifts in people's wants — such as the desire for a home office, or a house rather than a flat — explained half of the growth in British house prices during the pandemic."
- Australia: "In many countries, including Australia, the average household size has shrunk, suggesting that people are less willing to house-share."
First quote is Matthew Yglesias, second and third quotes are from the Economist.
Besides Covid, you also get per-capita demand growth based on income growth (as people's incomes rise they want more space) and demographics (Millennials are a large generation and they're looking to move out on their own).
I'd describe the housing shortage as high demand colliding with inelastic supply (specifically, a slow, discretionary, revenue-maximizing municipal approval process). The municipal approval process is one of the key bottlenecks we need to fix. Both the BC government and the federal government are focused on it. morehousing.ca/diagnosis
Hi Russil - thanks for your thoughtful comment, and interesting research excerpts.
I think we are on the same page about the general causes of our unaffordable housing: demand outpacing supply. We're not denying that we need more supply (we did note that "building more supply is absolutely important" in the article) and I'm sure that fixing the municipal approval process would help to make this additional supply happen.
I also agree with you that the amount of space each person wants certainly played a role in driving up prices during covid. But prices were rising long before covid, right? I think there is something more going on here...
Growth in demand per-capita is rising not just in terms of space per person, but also in terms of the number of dwellings each person wants to own.
"Investors were responsible for 30 per cent of home purchases in the first three months of the year, according to data released by the Bank of Canada. That is up from 28 per cent in the first quarter of last year, and 22 per cent in the same period in 2020." - https://www.theglobeandmail.com/business/article-investors-account-for-30-per-cent-of-home-buying-in-canada-data-show/
Reducing this investor demand would go a long way toward bringing supply and demand back into balance.
What do you think?
Hi, Kareem. The original post cites a number of sources saying that supply isn't the key issue, because housing growth is outpacing population growth. I think this is a significant conceptual mistake.
Fundamentally, if we don't have enough housing for people to live in (as illustrated by vacancy rates near zero in places like Vancouver and Halifax), then trying to redistribute housing between investors/renters and homeowners isn't going to solve the problem. The problem can only be solved by building more housing. morehousing.ca/cmhc-report-2022
I think it's also useful to break down investor demand into two parts:
(1) Institutional ownership of purpose-built rental housing. This is a low-risk, low-return investment. Vacancy rates are low, so there isn't much downside, but there also isn't much upside - it's not like investing in Microsoft or Nvidia. Typically held by pension funds and REITs.
(2) Individually owned rentals, like condos. This is a very different business. Typically the investor would put down a 20% down payment and borrow the rest. In places like Toronto and Vancouver, it's difficult to get "positive cash flow": because investors expect prices to go up over time, they're willing to bid up prices so much that the rent doesn't cover their expenses. Their strategy is what Wall Street Bets would call "hodl": to hang on as long as possible, putting money in every month and watching prices go up, and then make money when they sell.
This is much more speculative and risky (especially compared to something like the Canadian Couch Potato). You're making a leveraged bet that prices will go up. I think Generation Squeeze's push to encourage people to look for other ways to save and invest for retirement is a good idea, because people are likely taking on more risk than they realize.
But in terms of the diagnosis of what's causing the housing shortage, it seems strange to say that it's investor demand. In fact it seems exactly backwards. When we're trying to add to the housing stock by building more housing, having investors who want to buy housing and rent it out is a good thing. Investors who buy presale condos are helping to finance the construction, for example.
I'm not sure why "investors will buy it" is an argument against building more housing in places like Toronto and Vancouver. After all, there's lots of people who rent. Rents and prices reflect scarcity: it's very difficult to get permission to build more housing in Toronto and Vancouver, so we end up with a mismatch between housing and jobs. So rents have to rise to unbearable levels, forcing people to leave, matching those remaining with the limited supply of housing.
Build more housing, creating more vacancies, and rents come down. Some recent evidence that higher vacancies => lower rents, even in expensive cities: morehousing.ca/streamlining-rental
Of course rents coming down also makes housing less attractive as an investment. But even if investors are stubborn or irrational and want to keep buying, more housing => lower rents is a good thing for renters, which is a lot of people.
Hi Russil,
Thanks for another thoughtful comment - it's great to have this discussion with you.
Just to be clear, we think that supply is a key issue, but we also think that it is not the only issue.
Some responses to your points below...
I agree that we need to build more homes, so that there is enough for everyone.
I also agree that it is useful to divide up investors into two groups. When we mention investors we are talking about your group 2, individually owned rentals, like condos. Very happy to hear that you agree with our push to encourage people invest elsewhere.
"But in terms of the diagnosis of what's causing the housing shortage, it seems strange to say that it's investor demand". - We don't think that investor demand is causing the shortage, we think it is driving up prices.
"When we're trying to add to the housing stock by building more housing, having investors who want to buy housing and rent it out is a good thing. Investors who buy presale condos are helping to finance the construction, for example". - If those investors weren't there to buy them, it's not like they wouldn't ever get built. Prices would fall to what the market could bare, which would be more in line with the earnings of everyday people.
"I'm not sure why "investors will buy it" is an argument against building more housing in places like Toronto and Vancouver". - I don't think this is a good argument, nor one that we have made.
I agree that if we build more housing, creating more vacancies, both rents and prices would come down. My point is just that prices would come down faster if there were fewer people looking to buy the new supply that we build. Simply put, if we have an investor and a FTHB both bidding on a condo, it will sell for more than if that investor was putting there money elsewhere, right?
"I agree that if we build more housing, creating more vacancies, both rents and prices would come down. My point is just that prices would come down faster if there were fewer people looking to buy the new supply that we build. Simply put, if we have an investor and a FTHB both bidding on a condo, it will sell for more than if that investor was putting there money elsewhere, right?"
Yes, redistributing homes from investors to first-time homebuyers would benefit homebuyers, but at the expense of renters (who tend to be lower-income). There's evidence from Rotterdam, where "buy-to-let" investment was banned from certain areas. Comparing those areas to those without the ban, the result is that first-time homebuyers did indeed replace investors, but the ban also reduced the supply of rentals, pushing up rents. https://www.dutchnews.nl/2023/06/buy-to-let-ban-is-good-for-first-time-buyers-but-bad-for-tenants/
I think that in general, the housing market tends to suffer from over-regulation and micromanagement, making it inflexible. There's a significant difference between an educational campaign encouraging individuals to invest in low-cost index funds instead of real estate (because they may be underestimating the risks), and banning such investments entirely (as in Rotterdam).
Thanks for sending this Rotterdam example! I hadn't heard of it, and am excited to give the full study a read.
Not having done that yet, I'm wondering, does a "buy-to-let" ban really harm renters? Sure there are less rental units available, but there are also less renters (since those FTHB are no longer renting), right? It seems to me the this sort of scheme shouldn't affect the balance of rental units to renters? Additionally, lower sale prices (driven by reduced demand for purchases once investors are out of the market), should push rents down too. It seems to me that, in theory, this sort of scheme should benefit renters as well as FTHBs.
"Sure there are less rental units available, but there are also less renters (since those FTHB are no longer renting), right?"
For each property that's converted from rental to first-time homebuyer purchase, there's one rental unit that opens up (previously occupied by the homebuyer). If there was a single renter household in the property, then there'd be one more renter household looking for a place, and the overall supply and demand hasn't changed.
But at least in Vancouver, there's often multiple renter households in a single property. For these cases, there will be multiple households looking for a place, and only one vacancy freed up.
So the overall effect of converting a rental property to owner-occupied is that (1) it doesn't help renters, in the case where there was a single renter household, and (2) it increases rental scarcity, in the case where there were multiple renter households.
"Additionally, lower sale prices (driven by reduced demand for purchases once investors are out of the market), should push rents down too."
I don't understand this part of the argument. Asking rents will reflect scarcity. At any given time, there's people looking for a place and a limited number of vacancies. Asking rents will rise to force people to give up and move away, so that those remaining match the limited supply. With a buy-to-let ban, the supply of rentals is lower. If the number of people looking for a place is reduced by exactly the same quantity (case 1), then in aggregate, this doesn't hurt renters, but it doesn't help them either. If the number of people looking for a place isn't reduced by the same number (case 2), then asking rents would rise to force more people to leave.
I don't really see how lower selling prices would have an effect on rents.
In jurisdictions which have rent stabilization or rent control, like BC, there's another impact on renters. For long-time renters, their controlled rents are often significantly below current asking rents. When their rental is converted to owner-occupied and they need to find a new place, they lose that benefit.
It's good to be a builder. I've seen a lot of government solutions that are directly beneficial to builders; that 'incentivize' construction. This is good. But I want to see more. I want the next announcement on housing to be directly aimed at, and only at, residents. What would that look like?
I mean have your numbers accounted for the "up to 1 million" immigrants who have been undercounted as per Benjamin Tal from CIBC? (It may not change the numbers in your charts too much, but it would be useful to call it out to avoid the debate).
Additionally, how do you explain the "ability" of landlords to jack up rent so much if there were sufficient properties to allow free movement? Is the argument that if a sufficient percentage of landlords raise rents, others will naturally follow? Wouldn't that stand against typical market movements where buyers could negotiate alternative places to stay if a subset of sellers overcharge?
Thirdly, we brought in 1 million people last year (at least). Have we had 350K home completions to house them? If not then doesn't the numbers go against your narrative of sufficient supply GIVEN excess growth in demand? It would be worth explictlycalling out marginal changes in demand and supply if I'm wrong to support your argument.
In the end, I personally think the bigger issue here is that it's impossible to outbuild immigration numbers we've had recently without 1-2 decades of building up infrasturcture, training a new construction workforce, etc.
Without cutting down immigration we will have a lost generation IMHO... and I say this as a brown man.
Hi Abe, thanks for reading!
I'll respond to your 3 points below:
1. No, our figures only account for the official numbers. I wouldn't expect our conclusions to change if we accounted for Tal's concerns. For example, assuming this undercounting is equally spread across the country, Alberta still has less housing but is cheaper than BC.
2. Many prospective first time home buyers are unable to buy due to high prices. If they, rather than investors, were buying new builds, there would be less demand in the rental market. All of these people that have been forced into renting has resulted in loads of competition in the rental market, driving prices up and giving landlords the upper hand in negotiations.
3. Not sure about last year (I'll look into it), but the trend of new builds keeping up with population growth , yet prices rising, was clear from 2016-2021. By the way, even if we didn't hit the 350K you mentioned last year, prices fell, which suggests that there is more going on here than just building vs immigration.
Looking forward to hearing what you think about all of this!