As home prices and rents skyrocket in Canada, more and more people are being squeezed out of the housing market.
The most recent Liberal budget got the federal government back into the housing business in a big way, decades after an earlier Liberal regime — that of Jean Chrétien and Paul Martin — had abandoned housing altogether.
Advocates for the homeless and for those who have inadequate housing give the current government credit for those new measures, on which we reported in this space.
Among the initiatives Finance Minister Chrystia Freeland announced in her April budget is over $15 billion in joint funding with provinces and territories directed towards community housing, households in need through the Canada Housing Benefit, and support for provincial and territorial housing priorities related to repair and construction.
Housing activists and advocates want to give credit where credit is due. On housing the current Liberals are a big improvement over their predecessors during the 1990s and early 2000s.
But much of the new spending is spread out over many years, and, for all the government’s good intentions, very little this government is doing addresses the looming housing crisis for millions of poor, young and otherwise marginalized Canadians.
Human rights lawyer Leilani Farha is the former United Nations special rapporteur on housing, and is now global director of The Shift, an international housing group. Earlier this month, she shared some grim and frightening facts with the House of Commons finance committee.
Real estate investment trusts pose a threat
Nearly a million and three-quarters “households are in core housing need,” Farha told the parliamentarians. When you consider how many people could live in a household the number of people affected would be somewhere around five million.
In addition, she said, “235,000 people are living in homelessness. New homeless encampments are springing up in every city, big and small. And more than 250,000 rental households are in arrears and are now at risk of eviction from their homes.”
And here is perhaps the scariest figure of all.
An OECD report shows that over the last two decades Canadian housing prices have soared by 168 per cent, more than any of the 36 other OECD countries. Second-place Britain is 70 percentage points behind Canada.
Farha recognizes that the recent budget “commits to a number of measures to address affordability: more money for the rapid housing initiative, rent supplements for women and children leaving violent relationships, and resources for community-based housing.”
But here’s the rub.
What Farha calls the government’s overarching “monetary and fiscal policies” push in the opposite direction. They “incentivize housing unaffordability.”
A growing problem, according to Farha, is the rise of “institutional investors” in rental housing. These could be corporations that own multiple properties, whose interests are to maximize profits for their shareholders. Or, more and more often, they could be real estate investment trusts (REITs), which operate tax free. By definition, these businesses need ever-increasing rental income.
One key term Farha uses is the “financialization” of the housing market. Money is cheap right now — that is, interest rates are at historic lows — which, Farha explains, “allows institutional investors easy access to the loans they need to purchase existing properties, and institutional landlords have a vested interest in raising rents.”
Farha reports that “in the last five years, and particularly in recent months, real estate investment trusts have been buying up affordable rental housing stock.” She names such REITs as Ontario-based InterRent, Crestpoint, Starlight and Timbercreek as active players in the market. They, and other trusts, have recently made significant purchases of rental housing units in Toronto, Vancouver and Halifax.
A key part of the basic business model for these real estate firms, says Farha, is “increasing the turnover of tenants and raising rents.”
These government-favoured corporate landlords need ever-increasing rents in order to pay back their loans on highly leveraged investments. More important, they must be able to guarantee an attractive rate of return for investors.
Investors are the key actors, here, not people who need decent housing.
The same Commons committee also heard from an official of the Canadian Mortgage and Housing Corporation (CMHC), Michel Tremblay, who told the MPs “it’s no secret house prices have been increasing at record levels in many of Canada’s largest cities. Bidding wars are common, and many buyers are paying tens of thousands of dollars over the asking price to acquire a home.”
In order to buy themselves a place to live, many Canadians are going deep into debt which, combined with “the economic uncertainty caused by the COVID pandemic represents a real threat to the financial well-being of young Canadian families and to Canada’s overall economic stability.”
CMHC defends REITs
NDP MP Jenny Kwan drew Tremblay’s attention to the spike, starting about six years ago, in REITs acquiring properties with moderate rent. “What safeguards are there in place,” she asked, “to prevent REITs from jacking up the prices in the properties that they have acquired?”
In reply, the CMHC official first provided some context.
He pointed out that while close to a third of Canadians live in rental housing, “purpose-built rentals have not been a very active market over a number of years, which means that the stock is very old.”
Tremblay then added: “The private sector is the largest provider of rental housing, including housing that is affordable, in this country.”
As for the REITs, he admitted “this segment has increased, and certainly they have bought significant properties over the last several years in the large metropolitan areas.” However, he pointed out, “they are still less than five per cent of the market. In Toronto they are less than 15 per cent, and in Montreal they are less than 10 per cent.”
The federal government’s view is that while REIT-owned properties might not necessarily contribute much to the stock of affordable rental housing, they do add to the too-low total stock. So, we need them, and should not discourage them.
When Kwan gave Leilani Farha a chance to respond, she reiterated that “the business model of REITs requires an escalation of rents.”
Farha explained her concern in more detail:
“Real estate investment trusts rely on investors. They’re often institutional investors like pension funds, insurance companies and that kind of thing. If you’re an investor, you want to know that you’re going to get a good return on your investment. The way the REIT guarantees a good return on your investment is they show how they’re going to generate income through rent.”
REIT managers need to show investors how they are going to make those rents go up and up.
Since many provinces set guidelines for rent increases on existing tenants, one strategy for REITs is to push tenants out and bring in new ones.
Another is to make some modest renovations to the units.
As Farha explains it, “they’re more what we call ‘Ikea renovations’ — modest and not always necessary …They use that to apply for above-guideline rent increases.”
Farha’s conclusion underscores how difficult it is to achieve needed social ends in an economic system that overwhelmingly favours profit.
Referring to the real estate companies, she told the MPs:
“It’s not that they’re just being mean; it’s their business. The business is to create profits for their investors.”
Karl Nerenberg has been a journalist and filmmaker for more than 25 years. He is rabble’s politics reporter.
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