An apartment construction site in downtown Toronto on May 25, 2023.Chris Young/The Canadian Press
Real estate investing is a way of life in Vancouver, with investors – people who don’t live in the homes they own – accounting for nearly half of the condo market.
In recent years, Toronto has come a long way, with a 28 percent increase in all investor-owned apartments from 2019 to 2022. Vancouver has held steady, with a 10 percent increase over the same time period, according to new data from the Canadian Housing Statistics Program. In 2019, the CHSP began publishing data on “non-owner-occupied” properties. According to the new release, 43 percent of condos in Toronto are owned by investors. In Vancouver, it’s 46 percent.
In raw numbers, investor-owned properties in Toronto outnumber those in Vancouver. In 2022, investor apartments in Toronto numbered 140,435. In the city of Vancouver, the number was 47,585.
“The Toronto pattern seems to be converging on the Vancouver pattern [investor] apartment market,” says Andy Yan, director of Simon Fraser University’s City Program, an urban planner and data analyst. “There are shoppers who go for seconds and thirds while others don’t even have a plate.”
Investors are not only active in the apartment market. Professor Yan found that the University of BC region had an unusually high percentage of single-family home ownership by investors, at 54 per cent. UBC is located within the affluent Point Gray neighbourhood, known as Metro Vancouver A. This compares to investor ownership of 19 per cent of single-family homes for Vancouver as a whole.
There are problems with an investor-fueled housing market. Such houses can be left vacant for long periods or used for lucrative short-term rental. Both issues have added to the housing affordability crisis.
In recent years, policies have been introduced by provincial and local governments to address both issues, but there is still room for improvement. Last week, Statistics Canada also released new data on short-term rentals. Comparing this data with Canada Mortgage and Housing Corporation and inventory rental inventory data, Professor Yan found that 1.4 per cent in 3.1 per cent of housing in Vancouver in 2021 were short-term rentals that could have been used as long-term rental housing. This represents 2,392 homes.
The Statscan study looked at entire units rented for most of the year on platforms like Airbnb and VRBO. If returned to the rental pool, those rentals would have added 1.2 per cent to 5.55 per cent additional rental stock in Toronto, says Professor Yan. That is, 6,628 units that have potential as long-term residences.
“This still needs further research, but it shows how short-term rentals have the potential to erode rental stock in some Canadian cities,” said Professor Yan.
There’s also the problem of investors driving up prices and creating volatility in the entire housing market, a dark side of the investment market currently playing out in Toronto, industry experts say. New apartment sales are at low levels not seen since the 1990s, according to a new report by Benjamin Tal, deputy chief economist for capital markets at CIBC, and Shaun Hildebrand, president of Urbanation. This is a problem because investors drive presales and presales determine construction financing.
“The trend of increased investor home ownership answers two questions: Is the financialization of housing stock continuing in many parts of Canada? And does housing as an asset class continue to compare favorably with other forms of investment in the national and global economy? The answer to both is yes,” said University of Toronto professor David Hulchanski, who studies issues related to housing and inequality.
Condominium development by St. Thomas Developments Inc., at 88 Queen St. East on January 2, 2020.Fred Lum/The Globe and Mail
“The key to understanding the current version of the ‘housing crisis’ is the fact that housing assets are now at the core of the national economy. This increases house prices and rents, makes home ownership difficult to access and increases the risk of financial instability. Canada’s housing system needs serious reform as it is primarily a system to increase the wealth of a few while increasing the housing distress of many,” he said.
The CHSP report looks only at homes that are not occupied by owners, but does not reveal the extent of pre-sales or pre-construction sales that have driven Toronto’s condo market in recent years.
John Pasalis, president of Realosophy Realty of Toronto, a brokerage firm that does data analysis, says there has been a big acceleration of pre-construction condo investors in Toronto, with buyers willing to pay 30 to 40 per cent more for a pre-construction unit than a resale. That’s because, he says, a pre-construction unit requires less down payment and staggered payments, and then buyers can either flip the unit or rent it and sit on it for a few years. But once those buyers stopped buying in recent months, the system began to break down, he says. Investors are now trying to offload units that have brought them into negative cash flow, at costs higher than the rents they can charge.
“When you have an investor-driven market, prices end up going above where they should be, right? And that’s what we’ve seen around the world during the financial crisis, when it’s driven by investors. It’s exuberance that drives prices higher than they otherwise should be and than they logically should be,” he says. “There is an expectation that prices will continue to rise forever.
“And now that prices have been relatively stable for the last three or four years in Toronto, nobody wants to buy pre-fabs anymore, and a lot of people with existing units are really trying to sell them. So we have a record number of apartments on the market right now, and that’s largely what’s driving it.
“There’s this assumption that prices go up 8 to 10 percent a year, and the second you take that assumption away, people stop buying. People stop building. So, in a way, it’s a Ponzi scheme that collapses when prices don’t rise quickly. And we’re starting to see the downside of that.
“I mean, obviously we need more supply,” adds Mr. Pasalis. “But again, one of the conditions of the offer is to increase the prices, at least for the pre-construction apartments.”